"Big Banks Push Against Tighter Rules," says the headline in this piece from the Wall Street Journal. 'Twas ever thus, but now, "big banks" are doing so more overtly, and with more gusto, and with all kinds of interesting people helping them out. Per the WSJ:
The banks have hired longtime, influential Washington hands to deflect regulatory and political pressure to strengthen their finances and to sell assets. Regulators and some lawmakers have raised concern that large banks remain "too big to fail" and could require another government bailout in the event of a new financial meltdown.
The effort by banks marks a lobbying turning point for the industry, which adopted a mostly low-profile stance to new regulations in the wake of the financial crisis.
Of course, most of us are nominally invested in the idea that the Obama administration is working to keep the excesses of these banks in check. I mean, just today, Bloomberg reminded everyone that President Barack Obama greeted the passage of the Dodd-Frank Act thusly: “Because of this reform, the American people will never again be asked to foot the bill for Wall Street’s mistakes...There will be no more taxpayer-funded bailouts -- period.”
So, it would be quite reasonable to extract the notion, from that statement, that the Obama White House is fully on board with keeping tight rules on banks in place. Interestingly enough, however, someone who worked very hard to ensure Obama would be reelected to a second term does not appear to agree. Let's go back to that Wall Street Journal piece:
Regulators and lawmakers increasingly are signaling that more work is needed to lessen the risk posed by large, complex banks, including bigger capital cushions and minimum amounts of expensive long-term debt.
The moves by banks include pushing back against bipartisan legislation sponsored by Sens. David Vitter, a Louisiana Republican, and Sherrod Brown, an Ohio Democrat, that would sharply increase capital cushions at large banks to the point where most analysts expect firms would be forced to shrink.
Stephanie Cutter, a former adviser to President Barack Obama, and Ed Gillespie, a former Bush administration official, are providing strategic advice to Bank of America on several issues, including efforts to break up the banks. Morgan Stanley recently hired Michele Davis, a top aide to former Bush administration Treasury Secretary Henry Paulson, to help bolster the firm's credibility in Washington.
So, Stephanie Cutter (who I guess may also soon be repping Bank Of America's point of view on a rebooted "Crossfire" for CNN?) is working to undermine "tight rules" on banks? That seems like an odd thing for someone who supported Obama's reelection to do. Or does it? Is the implication here that Obama would not sign Brown-Vitter? Or that he contends that "bigger capital cushions" are not required?
It could mean that the White House isn't all that sincere about reining in the banks, maybe. It could also mean that the Obama White House will be battling its own adviser in the parking lot with tridents. I've not heard back from Cutter since I emailed her to ask, "HUH WHAT NOW?" But the day is young.
By the way, here is a fun fact that pertains to why tighter rules on banks, specifically those designed to prevent "Too Big To Fail" failures, might be of pertinent interest to normal human Americans. Per Bloomberg, today:
The firms that rate the creditworthiness of banks say the likelihood of a government rescue hasn’t gone away. Because of the implicit promise of bailouts, Moody’s Investors Service, the second-largest U.S. ratings company, has boosted the scores for the six banks. Each increase in credit grade makes borrowing less expensive.
In a March 27 report, Moody’s displays a bar chart of its credit ratings for the banks in blue. In green bars, it shows Goldman Sachs and Wells Fargo would be rated two grades lower if the taxpayer backstop didn’t exist. Moody’s boosted Morgan Stanley’s score by two grades for the same reason, even though it had downgraded that bank in June 2012.
The scores for Bank of America, Citigroup and JPMorgan (JPM) are three grades lower in the green bars.
Debt sold by the holding companies of Bank of America and Citigroup (C), the second- and third-biggest U.S. banks by assets, would fall to junk status without the implicit government guarantee, Moody’s Senior Vice President David Fanger says.
“They have a high probability of government support,” Fanger says.
"Government guarantee" means "taxpayer guarantee," in the above construction. Taxpayer wealth is, to the banks' perspective, an implied asset on their balance sheet. So it's no wonder they don't worry about being overleveraged, and want to resist further regulations.
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