Well before Congress reached agreement on the details of its financial overhaul legislation, industry lobbyists and consumer advocates started preparing for the next battle: influencing the creation of several hundred new rules and regulations.
The bill, completed early Friday and expected to come up for a final vote this week, is basically a 2,000-page missive to federal agencies, instructing regulators to address subjects ranging from derivatives trading to document retention. But it is notably short on specifics, giving regulators significant power to determine its impact — and giving partisans on both sides a second chance to influence the outcome.
The much-debated prohibition on banks investing their own money, for example, leaves it up to regulators to set the exact boundaries. Lobbyists for Goldman Sachs, Citigroup and other large banks already are pressing to exclude some kinds of lucrative trading from that definition.
Regulators are charged with deciding how much money banks have to set aside against unexpected losses, so the Financial Services Roundtable, which represents large financial companies, and other banking groups have been making a case to the regulators that squeezing too hard would hurt the economy.
Consumer groups, meanwhile, are mobilizing to make sure that regulators deliver on promised protections for borrowers and investors. They worry that the shift from Capitol Hill to the offices of regulators could put the groups at a disadvantage.
“It’s out of the public eye, so a natural advantage that we benefit from — public outrage — we lose that a little,” said Cristina Martin Firvida, a lobbyist for AARP, which advocates for older Americans. “We know there’s still a lot here left to do.”
The legislation is intended to expand federal oversight of the financial industry to police risks to the broader economy and to protect consumers of financial products. It would also impose federal regulations for the first time on the trading of derivatives, the complex financial instruments that can be used to make large bets. But Brett P. Barragate, a partner in the financial institutions practice at the law firm Jones Day, estimated that Congress had fixed in place no more than 25 percent of the details of that vast expansion.
“Congress is doing this in broad strokes,” said Scott Talbott, a lobbyist for the Financial Services Roundtable. “Where the rubber meets the road is the regulatory process.”
President Obama hopes to sign the bill into law by the Fourth of July. In his weekly address on Saturday, Mr. Obama said, “I urge Congress to take us over the finish line, and send me a reform bill I can sign into law, so we can empower our people with consumer protections, and help prevent a financial crisis like this from ever happening again.”
His signature will start the clock on dozens of deadlines embedded in the legislation for regulators from a host of agencies, including the Federal Reserve, the Securities and Exchange Commission and the Federal Deposit Insurance Corporation, to make those decisions.
Interest groups have been preparing for months. When the Consumer Bankers Association convened its annual meeting in early June, there was still plenty of time to lobby Congress. But the group’s president, Richard Hunt, told his board that the group should shift its focus to the rule-making process. The board voted to increase the group’s budget and staff.
“Now we hope to have a good give and take with the regulators on the best interests of the consumer and the industry,” said Mr. Hunt.
Regulators crave data
Shaping regulations is a different game than shaping legislation. Political considerations carry less weight. Instead, regulators crave data that can be used to justify decisions.
Consider the new restrictions on the fees that merchants must pay to banks when customers swipe debit cards. The Nilson Report, a trade publication, estimated that last year, those fees averaged 1.63 percent of the transaction amount.
The legislation directs the Federal Reserve to cap those fees at a level that is “reasonable and proportional” to the cost of processing transactions. It gives the Fed nine months to gather data and decide.
Trade groups for retailers, which want a lower cap, and banks, which want a higher one, are standing by to weigh in.
“We have the data ready and we have the right people ready to go to the Fed, and we’ve had an ongoing dialogue with the Fed,” said John Emling, a lobbyist for the Retail Industry Leaders Association.
The debit card regulations are unusual, however, in pitting the interests of two industries against each other. Many more of the new regulations pit the interests of consumer groups against financial companies.
Historically, industry groups have dominated these information wars, plying regulators with exhaustive studies and detailed analyses of the options at hand. Trade groups have more money and more people, and they often produce and control the relevant information about their business and customers.
Seeking an equalizer, the AARP decided several months ago to begin preparing research that could be presented to regulators on several parts of the bill that it favored. The group was gambling that the provisions — like a requirement that investment brokers act in the interest of their clients — would end up in the final bill.
“We took a risk,” said Ms. Firvida, the group’s government affairs director for financial issues. “Success will depend on how much quality information is in front of the rule makers.”
Victories for consumer groups
The legislation would hand consumer groups a series of important victories, most notably the creation of a consumer protection bureau inside the Federal Reserve. But Ms. Firvida and others said there could be a sharp distinction between the authorities granted by the legislation and the results.
Affected companies are nervous as well and are banding together. In the immediate aftermath of the financial crisis, trade groups lost members as banks cut back on spending. That trend has now reversed. The Consumer Bankers Association has added seven members in recent months, bringing its total to 60.
Mr. Hunt, the group’s president, said its role was expanding in direct response to the plan to create the consumer protection bureau, which would focus on regulating his membership.
“The entire financial services industry understands that what happens in Washington affects them,” he said. “It’s something other industries found out many years ago, and we’re finding it out now.”
In a recent letter to the Treasury secretary, Timothy F. Geithner, the American Bankers Association estimated that banks had been hit with 50 new or expanded federal regulations in the last two years. A single example, the credit card bill that passed Congress last year, landed on the desks of bankers as 252 pages of new regulations.
And that count does not include the impact of the new legislation. “It’s a massive compliance burden,” said Edward L. Yingling, the group’s president. “And there is going to be massive uncertainty in the financial industry about how all of this will play out.”
Surge in hiring
One clear consequence is a surge in the demand for lawyers with expertise in financial regulation, particularly those who have worked for regulatory agencies. Most of the major trade groups are hiring lawyers. The major banks say they are employing more, too.
“I don’t know that there has been a bill that has touched as many different substantive areas as this one,” said A. Patrick Doyle, a partner at Arnold & Porter who has worked on financial issues for three decades. “Clearly there’s going to be a lot of work.”
The surge in hiring has sent a joke bouncing around Washington: Congress finally passed a jobs bill — full employment for lawyers.
This article, "," first appeared in The New York Times.