Released: October 19, 2009

Big financial firms lose clout on Capitol Hill

Source: Binyamin Appelbaum, Washington Post (Free Registration)

Large banks are on the verge of losing a key legislative battle over the shape of financial reform, an unusual setback that reflects the continued political backlash over their role in creating the financial crisis.

The House Financial Services Committee is expected to vote Tuesday to let state governments protect bank customers by imposing restrictions that go beyond existing federal laws, according to congressional and industry sources.

The move would roll back a doctrine called preemption that has allowed big banks to answer solely to federal regulators. The banks argue that operating under a single set of rules is more efficient and results in lower prices for customers. But the Obama administration, which is pushing for the change, regards preemption as a cause of the crisis because it prevented state regulators from quashing obvious abuses.

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