Financial reform keeps getting tougher on big banks, so they need to take friends wherever they can find them. Right now, that means Massachusetts Democrat Barney Frank. The chairman of the House Financial Services Committee is no reflexive Wall Street booster, but his recognition of what is and isn't workable makes him a bulwark against punitive populist measures in Congress.
Not that Wall Street can afford to be choosy right now. Much to the industry's dismay, sweeping regulatory legislation became more draconian as it moved from the House to the Senate. America's continuing economic woes kept the spotlight on Wall Street's role in the financial crisis, as did the Securities and Exchange Commission's lawsuit against Goldman Sachs.
Senate Republicans, potential allies, were of no help. By not offering legislative amendments at a key stage of the Senate debate, they created a playing field for moderate Democrats to battle liberal Democrats. Even worse, the Obama administration, a moderating force behind the scenes despite some populist presidential rhetoric, has also been on the sidelines of late. Just as negotiators from the two chambers began hashing out a deal, the Gulf oil spill began monopolizing White House attention.
There was a moment when there was a real chance, for instance, that banks would have to dump their highly profitable derivatives desks. But Frank quickly jumped out and said the notorious Senate provision went "too far." It now seems likely that banks will be able to keep those units as long as they are separately capitalized. In addition, Frank has been more sympathetic towards the financial sector's positions over changes to deposit insurance, rules regulating credit raters and how the president of the New York Federal Reserve bank gets appointed.
That's typical Frank. He has a reputation for balking at misguided legislation that would severely impair the financial system. He also realizes that an overly strict bill risks alienating the few Republican senators who might actually vote for it.
Not that Frank is doing the banks' bidding. He supports a stricter version of the Volcker Rule than passed the Senate, one that could ban most proprietary trading and investment in private equity and hedge funds. America's most unpopular industry should consider it a trade-off — for banks keeping their swaps desks — from one of the few friends it has left.