Financial Regulators Face Big Job

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June 28, 2010 Monday FIRST EDITION

SECTION: MONEY; Pg. 6A

LENGTH: 469 words

HEADLINE: Financial regulators face big job; Overhaul requires new rules, studies, reports

BYLINE: Paul Wiseman and Fredreka Schouten

Having reached a grand deal on the biggest overhaul of financial regulation since the 1930s, Congress will soon turn the details over to government agencies, assigning them billion-dollar decisions outside the public’s glare.

“Congressional consideration of legislation is like a short brutal battle, compared to the trench warfare of implementing a new law,” says Travis Plunkett, legislative director of the Consumer Federation of America.

The financial overhaul bill requires regulatory agencies to pass 350 rules, conduct 47 studies and issue 74 reports, according to the U.S. Chamber of Commerce. The 2002 Sarbanes-Oxley accounting reforms required just 16 rules and six studies.

“Congress gives you the blueprint and the building permit,” says David Hirschmann, president of the chamber’s Center for Capital Markets Competitiveness. “Now (regulators have) got to build the house. We all live in houses, not blueprints.” Among the agencies deciding the devilish details:

*A new consumer watchdog agency must consult with an advisory panel to determine the economic impact its rules have on small firms.

*The Federal Deposit Insurance Corp. will decide the details of a new tax on financial companies with assets exceeding $50 billion and hedge funds with assets of more than $10 billion, according to analysis by investment firm Keefe Bruyette & Woods.

*The Federal Reserve will have discretion to ban some non-bank firms from trading for their own profit and to limit their investments in hedge and private-equity funds, Keefe says.

*The Securities and Exchange Commission and the Commodity Futures Trading Commission will decide which firms are exempt from tough new rules on risky derivative investments. And the SEC will decide whether stockbrokers are held to a higher standard of responsibility for what happens to their clients’ money.

“The SEC was having trouble doing its existing mandates,” Hirschmann says. “Now they get 25 new ones.”

Consumer advocates worry that lobbyists will weaken rules meant to protect consumers and prevent a repeat of the financial crisis. More than half of the financial industry’s 2,603 lobbyists are former government employees, the activist group Public Citizen found. “Wall Street hires these people for a single reason: They have more influence over the legislative and regulatory process than anyone else,” says David Arkush, director of Public Citizen’s Congress Watch program.

“The agencies are certainly to a greater or lesser degree sympathetic with the industry,” says Karen Shaw Petrou, managing partner of the research firm Federal Financial Analytics. “But they learned their lesson” after lax regulation helped cause Wall Street’s meltdown. “I don’t think the Fed, for example, will find it as easy as it used to to sweep emerging problems at big banks under the rug.”

LOAD-DATE: June 28, 2010