UPDATED APRIL 27, 2010

Following a Senate procedural vote that stopped financial regulatory reform from moving forward, the U.S. Chamber is calling for the revival of a bipartisan reform effort and warning that failure to fix the bill could harm America’s economy and job creation.

“The American economic recovery depends on getting these reforms right so that businesses of all sizes can get the cash they need to create new jobs and invest in their future,” says David Hirschmann, president and CEO of the Chamber’s Center for Capital Markets Competitiveness (CCMC). “There is still time to fix the flaws in the legislation that Congress is considering if our leaders can set politics aside and focus on effective reforms to our broken and outdated financial system.”

During a April 20 call with reporters, Hirschmann highlighted five areas of concern in the 1,400-page bill—consumer protection, “too big to fail” policies (systemic risk and resolution authority), corporate governance, derivatives, and the Volcker rule.

Consumer protection. The Chamber is calling on Congress to abandon efforts to create a new federal agency, the Bureau of Financial Protection (“Bureau”). This new agency would have authority to regulate a significant swath of the business community, including nonfinancial businesses that have nothing to do with the economic crisis and little to do with consumer finance. Even orthodontists and others that allow their customers to pay over time could find themselves subject to new and costly regulations. As an alternative to the Bureau, the Chamber proposes the creation of a Consumer Protection Council to ensure coordination among existing regulators. The council would eliminate regulatory gaps, prescribe consistent disclosure and examination standards, and identify areas where new regulations are necessary.

“Too big to fail.” The Senate bill would create a new government process for “orderly liquidation” of large, troubled firms. A $50 billion “permanent bailout fund” funded by large firms would be established to help pay for such wind-downs. However, such a plan would inadvertently encourage reckless risk taking by providing certain firms with government guarantees, according to Hirschmann, and force financial institutions to prop up their failing competitors, perpetuating moral hazard.

Corporate governance. Provisions in the current bill would trump state corporate governance laws—which have worked well for 150 years—in favor of one-size-fits-all federal laws. That would give labor unions and other special interest shareholders the power to leverage their agendas at the expense of other shareholders. These issues don’t belong in this bill.

Derivatives. The Chamber agrees that there should be greater transparency and disclosure in the trading of derivatives. However, there must be provisions for corporate end-users who manage risk in order to provide consumers with products at low prices. These businesses do not threaten the stability of the financial system and should not be forced to post cash collateral that would otherwise be used to grow the business, invest, and create jobs.

Volcker rule. While the Chamber agrees with the intent of the Volcker Rule to stabilize the financial system, its implementation would put American companies at a global disadvantage. Better tools—such as higher capital and liquidity requirements—can be used to achieve the same goal.

Recent polls commissioned by the Chamber in six states—Arkansas, Nebraska, Ohio, Montana, Tennessee, and Massachusetts—show that voters disagree with Congress’ and the administration’s approach to financial regulatory reform. Nearly three-fourths of all respondents want the CFPA to be led by a bipartisan commission instead of a single director appointed by the president, as proposed in Chairman Dodd’s version of the financial reform legislation. In addition, a majority of respondents said they are concerned that Congress will rush through a bill without getting bipartisan agreement on important changes.

“Americans want checks and balances factored into consumer protection, and they believe that a bipartisan commission is the best path forward,” Hirschmann says. “They also know that financial reform is too important to ram-through without broad consensus and without studying its impact on consumers and small businesses. Voters in blue, purple and red states all agree: we must pass financial regulatory reform, but we must get it right.”

Videos:
Hirschmann makes the case on the need for financial regulatory reform.

Hirschmann outlines how to improve the Senate bill.