The Obama administration is grappling with inter-agency turf wars and an intensive rearguard lobbying effort by Wall Street as it tries to finalise its sweeping reform of financial regulation in the US.
Officers at the Treasury are hoping to announce a new framework of inter-locking agencies, including increased powers for the Federal Reserve to intervene to prevent firms growing so big that they risk the stability of the financial system. But the signs point to a messy compromise that could dilute some of the initial hopes for a comprehensive, get-tough regime.
A launch date has been pencilled in for 17 June, a day before Tim Geithner, the Treasury Secretary, testifies on Capitol Hill, where Congress will decide the structure and the strength of regulation of the financial markets.
Wall Street firms – acting alone, through trade associations and newly formed industry lobbying groups – have been pressing sympathetic Congressmen to consider the impact of tough new restrictions on the efficiency of markets and the ability of firms to create innovative new products.
In particular, they are trying salvage as much of the over-the-counter (OTC) derivatives market as possible, in the teeth of the Obama administration's determination to force most derivatives products to be standardised and traded on exchanges. Trading bespoke derivatives contracts, such as credit default swaps, between banks, without an exchange, is more lucrative.
The Commodities and Futures Exchange, which currently regulates derivatives traders and markets, promised last week to enforce strict oversight rules, and it is believed to be considering curbs on the size of positions speculators can take.
In a note to clients, Barclays said: "Given the last few weeks have heralded the return of increasing levels of risk appetite – a positive turnaround following the grave concerns about economic discontinuity – any misguided regulatory policy may act against improving financial market conditions."
A lobby group of 16 industry trade associations, calling itself the Fair Value Coalition, was launched in February and successfully lobbied for an easing of the mark-to-market rules which forced banks to write down the value of toxic loans. The coalition has since turned its efforts to other causes, including an attempt to delay a rule that would force banks to bring billions of dollars of assets in off-balance sheet vehicles back on to their books.
The Commodities Futures Trading Commission and the Securities and Exchange Commission seem to have fought off the Treasury's plan to merge them, keeping the regulation of securities separate from derivatives. Regulation of the commercial banks, too, is likely to remain partly fragmented after turf wars between the Federal Deposit Insurance Corp, which protects depositors, and two other organisations which examine banks.