Financial Services Regulation Still in the Shadows of Health Care Reform

With the health care bill passed out of the House this weekend, and the cap and trade bill approved by Representatives earlier this year, Speaker Pelosi has more breathing room to bring financial services reform to the House floor for debate. Well, debate might not be exactly what will happen. While Blue Dog democrats in the House of Representatives still have concerns, there is a bit more unfortunate consensus on how new Wall Street rules should be shaped than there was with health care. And with the White House breathing down Barney Frank’s neck to get the last parts of the reform package out of committee, it’s looking more likely that there will be a vote on the various pieces of financial services regulation restructuring (perhaps as a whole package if there are too many misgivings about consumer protection) before Christmas. Maybe even before Thanksgiving.

But in the Senate, financial services reform remains in the shadows. Senators Dodd has his hands full to be sure with the weight of health care shifted to the Senate, especially since he’s committed to getting a vote on consumer protection by the end of December. The way to get that done, though, is to keep the regulation overhaul in the shadows. As long as it’s just the lobbyists, analysts, and finance journalists (like me) that are paying attention, it should be easier to move forward. It helps Dodd and Co. that many limited government pundits have struggled to get their minds around the complexities of derivative reform and feel more comfortable blasting single-payer systems.

The reality is that a consumer financial protection agency (and similarly minded reforms) poses just as much of a problem to small businesses and banks as the health care bill coming out of the House poses to businesses and insurance companies. We are failing to take advantage of the moment; a moment when the regulatory structure can be untangled, clarified, and strengthened to prevent systemic risk, while protecting consumers and banks themselves.