The answer to David's question, Will The Swaps Pushout Rule Die In The Cromnibus?, was...no!
Here's the bill itself. A short-and-sweet 5 pages, it exempts from Dodd-Frank's Section 716 all "non-structured finance swap activities," and any structured finance swap that are for "hedging or risk management purposes" or later exempted by the relevant agencies in rulemaking. So there's still some room for industry lobbying at the agency rulemaking level, although it is a one-way ratchet that will only exempt more swaps from regulation.
Here is some commentary, via banking colleague and friend Mehrsa Baradaran:
- WSJ Law Blog summary
- Simon Johnson against
- American Banker on potential political fallout
- Salon with a Democratic post-mortem
- Rolling Stone (perhaps not the bastion of reporting we thought it was) on Dem's feebleness
I've been thinking a lot about the political economy, of which more later. In The Political Economy of Dodd-Frank, John Coffee basically responds to Steve Bainbridge, Roberta Romano, and the late, great, Larry Ribstein's fretting over bubble laws and quack federal intervention into corporate governance and securities laws by saying: "don't worry, folks. Even if post-crisis regulation goes overboard, the regulators will inevitably step in and modulate."
I am no banking expert, but my sense of Dodd-Frank is that Coffee's so-called Sine Curve of agency-level deregulation has in fact occurred (e.g., the Volcker rule). Business as usual.
So why the banking industry's power play of asking for regulatory relief at the congressional level? American Banker above suggests it was a mistake to deviate from the standard playbook of fighting at the less-public agency level:
Observers said the fight was a public relations nightmare for Citigroup and the big banks. "They've taken a lot of reputational hits now, a lot of people saying, 'You're trying to blackmail us and not fund our government until you get your way,'" said Sheila Bair, the former chairman of the Federal Deposit Insurance Corp., in an interview on CNBC before the House vote.
My takeaway is that there's a tradeoff to the political economy. Legislation is attractive because it's virtually immune from judicial review--as opposed to time-consuming, D.C.-Circuit-vulnerable agency rulemaking. But lobbying at the agency level flies largely under the radar, and that's a very good thing post-crisis. My hunch is the banks calculated they could fly the Section 716 provision under the radar--just 5 pages in a big, big bill!
If so, clearly they were wrong--the question is whether the gain to their bottom line is worth the reputational hit. And Elizabeth Warren's reputational gain.
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