With negotiations on financial regulatory reform continuing at the Senate Banking Committee, all eyes are on Chair Chris Dodd -- does his decision not to run for re-election make him more or less likely to pass a good bill? Yesterday, an article in the Financial Times seemed to confirm many in the reform community's worst fears, suggesting that Dodd would drop key reform provisions in search of Republican votes:
A Dodd staffer said the senator is likely to quietly drop or modify many of the recommendations in the Volcker rule to ensure Republican support for regulatory reform. “Chris is retiring so he wants to end his career with an important regulatory reform bill and he wants to make the bill bipartisan,” the staffer said. “He is not going to risk bipartisan support to make the White House happy.”
Committee staff, who have done their best to keep their negotiating position under wraps, were surprised by a statement offering Republicans a veto over financial regulation legislation and questioned the provenance of the quote.
"I don’t know who Deal Reporter spoke to, but I speak for Chairman Dodd, and Dodd is going to fight for the strongest bill he can get," Dodd's spokesperson, Kirstin Brost, says. "He is giving the Volcker proposal careful consideration on its merits. We are having two major hearings this week with Chairman Volker and the Treasury Department to do just that."
The quote does seem fishy. Since when has bipartisan support not made the White House happy? And the White House is not exactly known as the most forward-leaning pusher of reform -- Dodd's original bill was more aggressive than the administration's proposals. Unfortunately, though, the opacity of Dodd's negotiating strategy has repeatedly raised questions about his commitment to reform, as it did a few weeks ago with concerns about the Consumer Financial Protection Agency. Then, however, a Democratic senate aide told me that they had a partisan plan B to get the bill over the line.
Whatever Dodd's real views, it's important he understand that his choice is not between White House reform and bipartisan reform. Instead, it is rapidly becoming a choice between actual reform and a cosmetic bipartisan bill. This memo from Republican strategist Frank Luntz on how to kill the bill should be proof of that. Indeed, the only way I see Republicans signing on this bill is if Dodd fights hard for real reform and is unafraid to paint those opposing it as siding with the banks rather than engaging in protracted negotiations with Ranking Member Richard Shelby -- have we learned nothing from the Gang of Six? Dodd needs to read his Fallows.
Update: Brost e-mailed me early this afternoon to say that Dodd supports the Volcker rule. Not sure what happened between the above quote, which was given to me last night, and today's support for the rule, but it could be taken as a sign that reformers have some clout after all.
-- Tim Fernholz