House panel to begin push on financial overhaul

WASHINGTON — Small neighborhood banks and the U.S. Chamber of Commerce are overshadowing the nation’s biggest banks in influencing lawmakers as Congress begins the initial phase of its long-awaited overhaul of how the government regulates financial companies.

The House Financial Services Committee on Wednesday is taking up key elements of President Barack Obama’s proposal for correcting the practices of banks, investment houses and other financial institutions that caused last year’s economic collapse.

Up first is a measure that for the first time would regulate privately sold derivatives like credit default swaps, the complex contracts that brought down Wall Street banking house Lehman Brothers Holdings Inc. and nearly toppled insurance giant American International Group Inc.

The committee also wants to establish a Consumer Financial Protection Agency to police mortgages, credit cards and other consumer products offered by banks and other financial institutions.

Bankers and Republicans generally oppose the new agency, but community banks and the Chamber of Commerce have wielded the most influence in getting the House panel’s Democrats to modify and clarify the regulatory powers that Obama would give it.

Neighborhood banks “have some legitimate concerns we’re dealing with,” Rep. Barney Frank, the committee’s chairman, said in a recent interview with The Associated Press.

“The big banks have no clout,” added Frank, D-Mass. “Bank of America, JPMorgan Chase. Nobody cares what they think, literally.”

However, one sticking point is whether to give states additional powers to regulate the consumer practices of federally chartered banks. Obama and Frank favor doing it; Rep. Melissa Bean, a moderate Democrat from Illinois, is leading the opposition against it.

Obama and Treasury Secretary Timothy Geithner have made the regulatory overhaul a top priority, meeting privately with lawmakers in recent weeks and agreeing to scale back the administration’s consumer protection plan in the face of widespread business opposition to it.

Frank dropped several of Obama’s proposals, including making banks offer standardized “plain vanilla” mortgages. His draft bill also omits Obama’s proposal to make lenders take added measures to ensure that their communications with customers are not deceptive.

“There are some improvements to what we proposed, but the core reforms look intact,” Geithner told reporters Tuesday.

The Chamber of Commerce has conducted a $2 million advertising and organizing campaign against the consumer agency, provoking even Obama to criticize their tactics. But after the group’s ads warned that small retailers might fall under the new agency’s jurisdiction, Frank made clear that businesses that don’t offer financial products won’t be covered.

Scott Talbott, senior lobbyist at the Financial Services Roundtable, which represents the biggest banks and financial firms, said the industry supports increased consumer protections but remains overwhelmingly opposed to a new federal regulator enforcing them.

“It’s easy to demagogue the industry. But our role in the economy remains as vital as ever,” he said.

While big banks may not have Frank’s ear, the industry as a whole is a substantial contributor to congressional campaigns. Its influence will undoubtedly grow later this year as lawmakers tackle the risks that the nation’s biggest, most intertwined financial institutions pose to the entire economy.

Combined, employees and political action committees from the finance, insurance and real estate industries have contributed more than $53 million this year to members of Congress and the political parties, according to the Center for Responsive Politics, a watchdog of money and politics.

That broad sector also has spent nearly $223 million on lobbying this year.

More than $6 million went to members of Frank’s committee as of the end of July, the latest figures available. Twenty-seven of the committee’s 71 members have received more than one-quarter of their total political contributions from that business sector, according to a study by the nonpartisan Sunlight Foundation.

Frank has received nearly $240,000 from the finance-real estate-insurance sector this year; the committee’s top Republican, Spencer Bachus of Alabama, has received $161,000. Bean has received nearly $270,000.

Associated Press writer Andrew Miga contributed to this report.