Vita secundum Barney

   Life after Barney. The financial services industry now faces the uncertainty of dealing with the all-important House Financial Services Committee without Massachusetts' Barney Frank as chairman or ranking member.
   To figure out where we're going without Rep. Frank we need to look at how we got here with him. This is not meant to be a Barney bashing. Truth be told, even most conservatives would give him credit (probably grudgingly so) for being one of the more intelligent, articulate and passionate Members ever to sit on, or chair, the Committee. The Dodd Frank financial overhaul bill, loathed by conservatives, owes its existence to Rep. Frank's legislative and parliamentary skills, which allowed him to skipper the bill through a discordant House of Representatives.
   Barney Frank's quick wit powers a sharp tongue. He is a larger-than-life human sound-bite machine, making him a darling of the media. But his sharpness, unfortunately, also has made him a polarizing figure. And while it's difficult to envision him losing a reelection campaign in 2012, even with redistricting, let's face it: After 32 years in Congress he would have had a lot to answer for.
   And at the head of that list would have been his virtual protectorate over Fannie Mae and Freddie Mac. "I do not want the same kind of focus on safety and soundness," he said flatly in 2003, referring to the regulation of Fan and Fred, "that we have in the office of the Comptroller of the Currency and the Office of Thrift Supervision." Rep. Frank went on to say that he wanted to "roll the dice a little more" in loosening up lending requirements for government-backed loans.
   It was this perception of a willingness to sacrifice the financial well being of Fan and Fred in order to put more people, qualified or not, into houses, that made him a target of conservatives. More than that, say conservatives, it was his unwillingness to admit that this roll of the dice had contributed to a complex web of liar loans, credit default swaps and mortgage backed securities that helped collapse the housing market and with it the greater economy.
     So where do the Committee and Congress go after Barney? One place might be a second look at the Consumer Financial Protection Bureau. Rep. Frank successfully fought attempts by moderate Democrats to make the planned agency less independent. With him gone those Democrats may be more likely to join with Republicans seeking to recast the agency.

      Without Rep. Frank the Democrats will tap one of theirs to be the new ranking member (or Committee chair in the unlikely event they are able to re-take the House in 2012). 

   The heir apparent, based on seniority is Rep. Maxine Waters of California. However, she faces two hurdles within her caucus that could preclude her.

   First, she is currently embroiled in a fierce ethics investigation. Rep. Waters continues to be hounded by allegations that she used her juice as a member of the Committee to direct federal bailout funds to a bank in which her husband owned stock. Ms. Waters maintains her innocence in the matter. The case is currently with the House Ethics Committee, which is waiting on a review by outside counsel. Even if she's exonerated the thought of Maxine Waters with a gavel in her hand may make moderate Democrats duck for cover. 

   Second, standing in the way of Ms. Waters' ascendancy may be her fiery Bonnie-and-Clyde anti-bank rhetoric. Being pro-consumer isn't necessarily to be anti-bank. In fact, bankers may not have liked Barney Frank's bluster, his politics, or his sarcasm; however, those who understood the workings of Congress respected his understanding of their complex line of work.

   Ms. Waters, on the other hand, has equated bankers with gangsters. Her solution to the mortgage crisis? Congress should "tax (banks) out of business" if they won't re-negotiate consumer mortgages. Ms. Waters has already started to campaign for the top Democrat seat on the panel. However, I doubt many Democrats, most of whom would hate to see any more banks fail in their districts, are willing to sign onto her slash-and-burn Chavista banking policy.

  In the end the ranking member of the Committee may not matter much, since there are few things in this world as irrelevant as the minority party in the U.S. House of Representatives.  However, nothing would deepen this irrelevance as much as having an ethics-tainted firebrand as the Democrats' ranking member. The party might do better to look at a Committee member like Carolyn Maloney of New York if it wants to have any chance of being an active partner in financial policy in 2013 and beyond.

   That's my take. What's yours?   

  

Is Dodd Frank a Killer for Small Banks?

Yielding to the Law of Threes, Republican presidential candidates have settled on three convenient products of the current administration to highlight the differences in governing philosophy with the Democrats: the stimulus package of '09, the Affordable Care Act, and the Dodd Frank Wall Street Reform and Consumer Protection Act.  In their debate road show over the last year Dodd Frank has been a convenient target for pointing out how the unintended consequences of legislation can harm consumers. 


One of the charges leveled against Dodd Frank is that small banks are harmed by the bill to the advantage of larger ones. Here's GOP candidate Mitt Romney at the October 11 debate in New Hampshire: 


"Because what [bill sponsors Barney Frank and Chris Dodd] did with this new bill is usher in what will be thousands of pages of new regulations. The big banks, the big money center banks in Wall Street, they can deal with that...For community banks that provide loans to business like yours, they can't possibly deal with a regulatory burden like that...It's a killer for the small banks. And those small banks loaning to small businesses and entrepreneurs are what have typically gotten our economy out of recession."


In last week's Michigan debate  front-runners Herman Cain and Newt Gingrich picket up the ball and ran with it. But is that the case? The Independent Community Bankers of America, a trade group that represents mostly smaller institutions actually had some nice things to say about Dodd Frank, as well as some criticism. 


It's probably to early to pick the Dodd Frank winners and losers. What does seem clear, however, is that this sweeping piece of legislation has the potential to change the competitive environment for financial institutions, large and small. And whether it's banking or horseshoes, changing the rules rarely works out well for the little guys.