While regulatory reform remains stalled in partisan gridlock in Washington, senior executives on Wall Street with both Republican and Democratic political leanings are increasingly eager to see something significant pass to help restore the industry’s credibility with a deeply skeptical public.
In a series of interviews in recent days, top executives of some of the biggest banks told POLITICO that they view as unacceptable the idea of nothing getting done, with Democrats running this fall against Wall Street and its GOP allies in Congress.
“We screwed up,” one said, “and something has to be done about it.”
The executives spoke on condition that they not be identified by name or firm in order to speak freely on sensitive legislation that is critical to the Wall Street’s future and on which there is no unified industry position.
Some executives, notably Morgan Stanley chairman and former chief executive John Mack have spoken publicly about the need for reform. “We need financial reform,” Mack told FOXBusiness in a recent interview. “We do need a lead regulator. … We have said continuously we need a systemic risk manager. There is talk in the bill about that. So there are a number of pieces of this legislation I think we need and from my perspective, I am very supportive of it.”
But the private comments reflect much more urgency on the part of the industry in the face of what appears to be a large gap between the two parties following the party line committee vote on Senate Banking Committee Chairman Chris Dodd’s reform proposal.
The executives fear that if reform turns into a political weapon rather than a piece of legislation, bank share prices will continue to trade at depressed levels due to fear of another collapse, with conversations with clients still dominated by talk of Wall Street’s past failures and continued regulatory risk.
Goldman Sachs made perhaps the most public nod to these issues in a recent regulatory disclosure where it said for the first time that continued negative press reports and political attacks pose a significant risk to the bank’s financial performance:
“The financial crisis and the current political and public sentiment regarding financial institutions has resulted in a significant amount of adverse press coverage, as well as adverse statements or charges by regulators or elected officials. … Adverse publicity, governmental scrutiny and legal and enforcement proceedings can also have a negative impact on our reputation and on the morale and performance of our employees, which could adversely affect our businesses and results of operations,” Goldman wrote in its annual report.
Getting a bill done, the thinking goes, might lead to slightly lower earnings in certain areas but any decline in revenue would be offset by the removal of uncertainty over the new rules of the road and a reduction in industry- bashing among politicians and the public.
Nonetheless, the general support for getting some kind of bill passed does not eliminate continued industry opposition to certain aspects of proposed reforms. The executives remain opposed to paying both for a pre-funded resolution authority to wind down failing banks as well as a $90 billion tax on the largest financial institutions proposed by President Obama.
Stiff opposition also remains to the “Volcker rule”--named for one of its main proponents, former Federal Reserve chairman Paul Volcker--though most agree that no significant ban on proprietary trading will make its way into law.
Derivatives remain a focus on trading desks but a larger issue in Wall Street’s C-Suites is maintaining federal pre-emption of state securities laws and regulators. This issue generates a lot more heat than the final form of a proposed Consumer Financial Protection Bureau.
On a separate issue, the executives expressed little fear surrounding Treasury paymaster Ken Feinberg’s request for compensation information for highly-paid executives at every bank that took TARP money.
The request covers a limited time frame during the height of the crisis when many in the financial industry took big pay cuts. The executives told POLITICO that Feinberg’s query could uncover some highly-paid traders whose compensation was not included in public proxy reports but probably none with eye-popping numbers. The worst case scenario is viewed as a day or two of bad headlines.
Meanwhile, the other hot topic among the executives is who is going to play whom in the upcoming HBO version of Andrew Ross Sorkin's best-seller "Too Big to Fail."