2013 Was a Bad Year for Wall St. Lobbyists

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2013 Was a Bad Year for Wall St. Lobbyists

Everyone assumed the banks would beat financial reform. They didn't

BY MIKE KONCZAL

2013 was a not-awful year for financial reform. If you aren’t terrified of jinxing even the smallest good news, you might even say it was pretty good. The multi-year implementation of 2010’s Dodd-Frank bill made several final advancements this year, and compared to where people thought we’d be a year ago, we are in a pretty solid place...nobody thought that banks would face tougher holding requirements for capital, that regulations of the financial derivatives markets would advance, or that the final Volcker would be a pretty good start instead of an incoherent mess. Yet that is what appears to have happened in 2013. So what caused it? And how it might apply to future political goals?

The successes of 2013 were partially driven by the failures of Wall Street in 2012. The multi-billion dollar trading losses from JPMorgan Chase known as the “London Whale” changed the dynamics for financial reform in a way that took a year to realize. JPMorgan had been leading the charge against reform, arguing that the effort was over-harsh and destructive, and that Wall Street had already cleaned up its act on its own. Indeed, the big concern in 2012 was that Wall Street would convince enough moderate Democrats that Dodd-Frank had gone too far in certain respects, and that Congress would stop regulatory action before it was even completed. This fell apart right alongside the multi-billion dollar losses in JPMorgan’s position...JPMorgan’s London Whale trades also drew clear lines on whether reform would work. In 2012, one of the major battles had been over how aggressively to make foreign affiliates of U.S. banks follow U.S. rules. The London Whale helped the chairman of the Commodity Futures Trading Commission, Gary Gensler, push for aggressive implementation over European criticism; he argued that the London Whale was a continuation of the supposedly bygone practices that led to the financial crisis. JPMorgan’s failure also gave new energy to, and a clear target for, the stalled Volcker Rule, which was designed to split hedge funds from banks.

Financial reform benefitted as well from engaged activism that proposed tougher reforms, which pressured regulators to hit the mark and kept the financial industry on the defensive. This is clearest in the case of capital requirements, which require banks to hold a set percentage of their assets and which the finance industry fights consistently. To many people’s surprise, the U.S. ended up with tougher capital requirements than people anticipated, with more to come next year. Ideally we’d see double-digit capital requirements with extra requirements for larger firms that fund themselves with panic-prone funding. Regulators didn’t get there on the first try, but still came in stronger than originally proposed. And they are making stronger steps on the second part.

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Senators Elizabeth Warren and John McCain also pushed a new version Glass-Steagall earlier this year. It also didn’t gain much support, but still put some steel in the spines of the Volcker Rule’s authors, as Glass-Steagall was being proposed by many as an alternative reform if the Volcker Rule failed.

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http://www.newrepublic.com/article/116064/2013-financial-reform-went-way-better-anyone-expected

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