WASHINGTON (AP) – The Obama administration’s stepped up demand for tougher restrictions and new taxes on big banks is complicating Senate efforts to write a bipartisan financial regulation overhaul, even drawing a sharp rebuke from a top presidential ally in the Senate.
In an unusual reprimand, Senate Banking Committee Chairman Christopher Dodd, D-Conn., chided administration representatives at the end of a hearing Tuesday for injecting ideas late in his negotiations for a sweeping bill.
Dodd complained that the timing of Obama’s proposal “seemed to many to be transparently political.”
“It’s added to the problems of trying to get a bill done,” Dodd said. His reproach came at the end of a hearing with former Federal Reserve Chairman Paul Volcker and deputy Treasury Secretary Neal Wolin.
At issue is a proposal, advanced by Volcker, that would prohibit large institutions that conduct commercial banking from engaging in speculative trading. The idea had not been included in the administration’s original regulatory plan last June. Judging by the committee’s reaction, its chances of getting added to the bill did not improve Tuesday.
The push for the new proposal comes at the most sensitive point in Senate negotiations over sweeping new banking rules – an Obama priority that has been perceived as the best chance for an administration accomplishment this year.
The administration’s stepped-up demand for tougher restrictions coincides with its call for new taxes on big banks to cover any shortfall in the government’s highly unpopular $700 billion bank bailout fund.
The combined push has alarmed Wall Street CEOs and intensified lobbying against aspects of the legislation.
“It’s not a movable feast,” Dodd said of his committee’s work on the bill. “It’s not one that I can add ideas to on a weekly basis.”
Dodd’s complaint was remarkable for a senator who has been a strong proponent of the administration’s regulatory effort, and it seemed to catch Volcker and Wolin by surprise. At the start of the hearing, Dodd had said the idea merited consideration.
But Dodd was hardly alone. Others also complained about the administration’s timing.
“I think this is a pretty big detour,” Banking Committee Republican Judd Gregg of New Hampshire said in an interview. “It does take the committee off in a new direction.”
And Sen. Richard Shelby of Alabama, the top Republican on the committee, complained that the idea “was air-dropped into the debate.”
Volcker told senators that commercial banks, which have deposits insured by the Federal Deposit Insurance Corp. and which can get last-resort financing from the Federal Reserve, should not be allowed to engage in speculation that does not benefit their commercial customers.
Several lawmakers seemed more perplexed than convinced.
“Tell me the evil you’re trying to wrestle out of the system with this rule,” said Sen. Mike Johanns, R-Neb.
“What I want to get out of the system is taxpayer support for speculative activity,” Volcker replied. “I don’t want my taxpayer money going to support proprietary trading.”
Senators also complained that the administration offered few specific details with its proposal. At one point, Shelby asked Volcker to define what would constitute excessive growth by a financial institution.
“It’s like pornography – you know it when you see it,” Volcker replied.
Sen. Jack Reed, D-R.I., suggested an alternative to Volcker’s proposal: prohibiting institutions which have commercial banking that amounts to less than 75 percent of their entire financial activities from having access to government protections.
Wolin said any legislation would have to be wary of removing the government safety net from any institution that conducts commercial banking.
But Dodd said he liked the simplicity of Reed’s plan.
“There’s probably some 22 year-old sitting in the bowels of some institution who has already figured out six ways to get around anything we can write here,” he said.
The hearing Tuesday was the first time the committee met in public to discuss financial regulations since November when Republicans pointedly rejected an overhaul proposal advanced by Dodd.
Since then Dodd has decided not to seek re-election this year and has formed four bipartisan working groups within his committee to rewrite his proposal.
Dodd has told some senators he would like their working group proposals by the middle of this month.