U.S. lobbyists predict more Dodd-Frank changes, not overhaul, in 2015

[December 12, 2014]  By Emily Stephenson
 
 WASHINGTON (Reuters) - U.S. financial industry victories this week walking back post-crisis reforms will embolden Republicans in 2015 to push for more changes, but lobbyists say they are not holding out hope for a substantial rollback of the 2010 Dodd-Frank reform law.

Republicans in the U.S. House of Representatives included revisions to Dodd-Frank in a $1.1 trillion federal government spending package and legislation extending a popular terrorism insurance program.

Democrats passionately warned that these moves set a dangerous precedent, especially with Republicans poised to take control of the Senate in January.

But bank lobbyists say a substantial Dodd-Frank rollback remains unlikely because Republicans will have a slim lead next year in the U.S. Senate, and they face a Democratic president who sees the law as a key accomplishment.

"The battle lines, so to speak, will continue to be drawn," James Ballentine of the American Bankers Association, a lobby group for banks, said on Thursday.

Lobbyists said alterations with bipartisan support or a thumbs-up from regulators could move forward. That includes exempting more small banks from a proprietary trading ban called the Volcker rule, changing the way mortgage rules treat certain fees, or freeing some regional banks from stringent regulations.

Republicans hoped gains in November's midterm elections would help them ram through policies in 2015. They want to change the funding of the U.S. Consumer Financial Protection Bureau, keep U.S. regulators from seizing failed banks, and reshape or eliminate new agencies that study risks in the financial system.

Those more dramatic changes do not appear likely, but this week provided signs that Republicans will be able to score targeted victories.

The House on Thursday night passed the government spending bill with a controversial provision to ease a Dodd-Frank rule requiring Wall Street banks to split off derivatives trading into isolated units.

While it's unclear how many Senate Democrats will balk when that chamber takes up the bill on Friday, the White House lobbied its party to swallow the Dodd-Frank rollback in order to pass the broader funding legislation.

Republicans also managed to attach to a popular terrorism insurance bill to a Dodd-Frank provision saying "end-user" businesses such as energy companies would not need collateral for certain risky trades. The House passed the bill Wednesday night, and it is uncertain when the Senate will take it up.

Lawmakers also on Wednesday gave the Federal Reserve more flexibility in writing certain requirements for insurance companies such as Prudential Financial.

While all of the changes had some Democrat support, House Minority Leader Nancy Pelosi and Democratic Senator Elizabeth Warren warned the measures send a dangerous message.

"So here's the bottom line: a vote for this bill is a vote for future taxpayer bailouts of Wall Street," Warren said on Thursday about the spending bill.

Former Representative Barney Frank, a Democrat and co-author of the 2010 law, warned earlier this week, "This is a roadmap for the stealth unwinding of financial reform."

But Hill watchers said they found the changes less dramatic.

Former chairman Ben Bernanke has in the past said he did not think pushing out derivatives trading made banks such as JPMorgan Chase and Bank of America safer. Commodity Futures Trading Commission Chairman Tim Massad said this week that his agency's swap rules already protect "end user" businesses.

"The less impact a change in law actually has on the industry, the more likely it is to pass," said Brian Gardner of Keefe, Bruyette & Woods, an investment banking firm.

He said Republicans may look for bigger victories against Dodd-Frank, but successful bills will be narrow and bipartisan.

(Reporting by Emily Stephenson, with additional reporting by Sarah N. Lynch; Editing by Karey Van Hall and Ken Wills)

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