Defaulting banks - where will it stop?

[Jan Klimkowski]

Meanwhile, Wall Street cash is seeking to attack Obama's financial reform proposals:

Wall Street's $26m lobbyists gear up to fight Obama banks reform

Well-funded and influential lobby operation will argue that better regulation will be enough to solve problems

Banks are mobilising a smooth-running lobbying machine in Washington to *battle Barack Obama's plans to limit the size and scope of Wall Street institutions, as financial services firms gear up to stop a shake-up that could slice away large chunks of their operations.

Their influence on Capitol Hill is broad – the top eight US banks spent $26m (£16m) on lobbying efforts last year, an increase of 6% on 2008 despite their financial woes, according to Congressional records. And in the first 10 months of 2009, the financial industry donated $78.2m to federal candidates and party committees – more than any other business sector – according to political research institute the Centre for Responsive Politics.

"The power of the financial services sector in this city has not dissipated at all … they've just done things in a quieter way," said Ethan Siegel, an analyst at financial consultancy The Washington Exchange, who monitors Congress for big investors. "They haven't pulled back on their lobbying just because they've become piñata [punchbags] in the press."

Wall Street lobbyists argue that scaling back the size of banks misdiagnoses the cause of the financial crisis, jeopardises jobs, damages America's competitiveness and could inhibit growth.

The Financial Services Forum, which represents 18 top banks including Goldman Sachs, JP Morgan and Citigroup, says the problem of institutions becoming "too big to fail" ought to be tackled through more effective supervision, and by creating an authority able to wind down failing firms, rather than by forcing them to shrink. Spokeswoman Erica Hurtt said: "This was not a trading crisis and these proposals miss the mark. They won't get to the causes of the crisis."

Banks' persuasiveness has already had significant impact on the Obama administration. Plans for the creation of a consumer financial protection agency are meeting staunch Senate opposition and may be watered down to get the 60-40 support needed to override objections.

One widely used strategy by the financial industry has been to deploy representatives of smaller high-street banks to make the case to lawmakers. Organisations such as the Independent Community Bankers of America tend to get a sympathetic hearing because they can point to members in towns and cities in almost every Congressional district, rather than purely in lower Manhattan.

Douglas Elliott, a non-partisan expert in financial services at the Brookings Institution, said JP Morgan and a few other firms were likely to be particularly alarmed at the prospect of a tightening of the existing cap preventing a bank from holding more than 10% of America's insured deposits: "They may already be over any limit under consideration. If they are, they'll probably be allowed to stay unchanged but it will mean they have to eschew acquisitions."

He added that banks will not succeed in defeating restrictions entirely: "Everybody hates banks now and my intuition is that bank lobbyists overplayed their hand last year. It would have been better for them to work out some compromises rather than trying to destroy reform bills entirely."

http://www.guardian.co.uk/business/2010/...anks-obama