Reform of the gaping problems with the financial system that led to the worst recession and job losses in modern times is a top priority for the voting public and supposedly for President Obama.
But the legislation continues to take a back seat to health care, and its future looks increasingly shaky as efforts to achieve a bipartisan bill in the Senate so far have failed, despite a strong bipartisan tradition on banking issues in Congress.
Senate Banking, Housing and Urban Affairs Committee Chairman Christopher J. Dodd introduced a far-reaching bill Monday that incorporated some compromises with committee Republicans on dealing with “too big to fail” institutions and other areas, but adopted the tougher proposals sought by Democrats on the thorniest issue: How to regulate banks and a variety of other financial firms to protect consumers against dangerous loans in the future.
The Connecticut Democrat’s goal is to get legislation passed this year before he retires from Congress. A bill passed by the House last year includes even more stringent curbs on big banks and Wall Street firms, as well as an independent consumer-watchdog agency, which has White House backing.
But with disagreement still widespread over even such critical issues as the future role of the Federal Reserve in regulating Wall Street, analysts say time is starting to work against the bill. A long slog lies ahead to reconcile the House bill with Mr. Dodd’s 1,336-page version of reform, even if the Senate is able to overcome remaining partisan differences, a possible Republican filibuster and strong opposition from banking interests.
“Americans are frustrated and angry. They’ve lost faith in our markets, and they wonder if anyone is looking out for them,” said Mr. Dodd, stressing the need to start hashing out the Senate legislation using his bill as a “road map.”
“We don’t have many days left to get this job done. So there is a sense of urgency. … We do need to act,” he said.
Yet many Republicans on the committee accused him of trying to “rush through” a bill, with only a handful saying they still plan to try to work with Democrats to produce a bipartisan bill. Some analysts expect Mr. Dodd to try to ram the bill through the committee on a party-line vote by the end of the month.
The delays and difficulties with passing a reform bill that cracks down on abuses behind the global financial crisis are fraught with irony. While Congress in the past year has placed a higher priority on passing health care legislation and even global-warming legislation that cracks down on corporate wrongdoers and polluters in those areas, the public has shown considerable ambivalence about the need for such measures. But with respect to Wall Street, Congress and the administration have overwhelming public support to clean up corporate abuses and rewrite the rules of finance.
The public’s hostile attitude toward Wall Street emerged in the fall of 2008 when the financial crisis broke out and has not let up since then. A Harris Poll last month found that 82 percent of Americans believe that “recent events have shown that Wall Street should be subject to tougher regulation,” with only 18 percent disagreeing.
Yet fierce lobbying by the powerful banking industry, and deep divisions between the parties over what caused the crisis and how to remedy it, have stymied action in the Senate for more than a year.
“There is still a chance that Congress will pass a bill this year,” but the odds have fallen to less than 50-50, said Brian Gardner, Washington analyst with Keefe, Bruyette & Woods, a Wall Street research firm.
“Time is becoming an enemy of the banking bill,” with the Senate banking committee not likely to be able to finish work on the bill before Easter, and months of additional action needed in the full Senate and in conference committee to hash out a bill after that, he said.
“Health care has continued to dominate the congressional calendar, sucking much of the oxygen out of the air” for other matters and distracting Mr. Dodd from the reform bill often during the past year, he said.
Industry groups ranging from hedge funds to auto dealers and payday lenders pledged to keep fighting parts of the Dodd bill that target them for regulation. Consumer groups and labor proponents of the legislation also were unhappy with some compromises Mr. Dodd made with Republicans and blamed industry lobbying for delaying and weakening the legislation.
John J. Castellani, president of Business Roundtable, said his group sought a “collaborative, thoughtful” reform bill and was “disappointed that efforts to reach a bipartisanship agreement were cut short last week” when Mr. Dodd decided to go ahead with his bill.
He charged that Mr. Dodd’s revisions “fail to focus on the root causes of the financial crisis” and said too much was at stake to rush through a bill backed mainly or only by Democrats.
Democratic aides said Senate Democrats will try to portray Republicans as working on behalf of unpopular Wall Street interests if they continue to resist the legislation, a tactic they expect to melt away serious opposition as the election nears.
Yet despite considerable resistance from some powerful industry groups, Mr. Gardner said that “many parts of the broad financial-services industry” actually want a bill to pass this year, if only because many banking executives dread the prospect of extending the battle into next year and would prefer the certainty of knowing how they will be regulated in the future.
Many members of Congress also don’t want to have to start from scratch on a bill next year, so that may help some to grease the skids for the legislation, Mr. Gardner said.
But to enact a bill in the time left before Congress adjourns to go campaigning in August, the bill would either have to be stripped down to include primarily less-controversial provisions, or the House would have to cave in and largely accept the Senate bill, as is occurring in the health care area, he said.
A lame-duck session on the bill also is possible, analysts said.