Friend of the U.S. Chamber of Commerce

As financial services reform legislation moves in the Senate, foes of a new consumer-protection agency and of tough regulations on trading in the $600 trillion derivatives market have accelerated their lobbying with help from the U.S. Chamber of Commerce.

The chamber has spearheaded two business coalitions since the middle of last year. One unnamed, ad hoc coalition of trade associations and corporations has run a multimillion-dollar advertising and grassroots campaign aimed at blocking the creation of a financial-protection agency championed by the Obama administration, congressional Democrats, and many liberal organizations.

The other chamber group, dubbed the Coalition for Derivatives End-Users, has been focused on fending off tough new regulations for numerous energy, agricultural, and other interests that use derivatives to hedge their daily business risks. Dozens of treasurers from corporate end users such as Boeing and FMC flew into town this week for a two-day lobbying mission to further that cause.

The Senate is considering competing proposals on derivatives, but they all aim to regulate certain risky trading practices by Wall Street firms that helped to create a huge, largely unregulated market in derivatives. This financial bazaar ranges from relatively simple contracts between two parties about an event that will happen at a later time (often used by agricultural or energy firms) to very complex transactions involving unpredictable financial events (favored by Wall Street). The latter played a key role in the 2008 economic collapse.

Similar lobbying efforts by the chamber, Wall Street banks, and many other financial institutions yielded mixed results in the House last year. The House-passed financial reform bill calls for a stand-alone consumer finance agency; it provides some generous exemptions, however, for derivatives end users including Boeing, Cargill, 3M, and other major corporations, freeing them from having to put up collateral when they engage in derivative transactions

The next few weeks could be crucial in determining the shape of the Senate legislation. The Banking, Housing, and Urban Affairs Committee bill, approved on party lines, contains a consumer finance agency that is housed within the Federal Reserve Board. The bill's restrictions on derivatives trading are tougher than those in the House legislation.

Meanwhile, the Senate Agriculture, Nutrition, and Forestry Committee this week approved an even stronger derivatives measure proposed by Chairwoman Blanche Lincoln, D-Ark., despite heavy lobbying by Goldman Sachs, JPMorgan Chase, and other Wall Street banks. Lincoln's measure would bar banks from trading derivatives directly. Banking lobbyists complain that such a move would cause large drops in revenues in the often esoteric but lucrative derivatives markets.

The sweep of the chamber's efforts -- especially its ferocious opposition to a consumer-protection agency -- has gotten the White House's attention. In a speech last month to the business lobby group, Deputy Treasury Secretary Neal Wolin blasted what he described as the "lavish, aggressive, and misleading campaign to defeat the proposed independent agency."

Consumer advocates who are fighting hard for both the consumer agency and tough derivatives regulation share that fury. "The chamber, in opposing consumer protections and reining in risky financial dealings, undermines small business and shows that they're really carrying out the interests of the biggest Wall Street banks," contended Heather Booth, who runs Americans for Financial Reform, a coalition of 200 consumer and liberal groups.

Financial services lobbyists, though, give the twin lobbying drives high marks. "The chamber has been a critical factor because of the amount of resources they have put into both issues," said Dave Franasiak, a lobbyist at Williams & Jensen whose clients include several big hedge funds and other financial giants.

The chamber started to spend big money early last fall on print and radio ads, both inside and outside the Beltway, to try to block the creation of an agency that would have power to regulate abuses by credit card companies and mortgage lenders. To date, the chamber-led coalition (which includes such powerful interests as the Business Roundtable and the Financial Services Roundtable) has poured close to $5 million into ads condemning the concept of a consumer-protection agency. This month, the group launched a new round of Washington-area print ads, WTOP Radio spots, and online ads.

Since Labor Day, the chamber has generated 215,000 letters to Capitol Hill including 40,000 just this month, said David Hirschmann, who runs the chamber's Center for Capital Markets. "The bill is overly broad, with unprecedented powers," he said, adding that his group's grassroots and "grass-tops" lobbying has been aimed at "mobilizing chamber members and friends who clearly understand the stakes here."

Hirschmann also pointed out that over the past six months, the chamber has hosted events in Terre Haute, Ind., and Sioux Falls, S.D., to spur senatorial opposition to the consumer agency. The group has also created a website, StoptheCFPA.com, which depicts the proposed agency as a "massive" new bureaucracy that would hurt small-business owners.

Other powerful financial service groups are mounting their own drives to kill the consumer-protection agency. The American Bankers Association in mid-March brought 1,000 members to town for two days of meetings with lawmakers on regulatory reform issues, and the consumer agency was high on its hit list. Floyd Stoner, a top ABA lobbyist, said that his group remains very concerned about a new agency, even if it is placed inside the Federal Reserve, because it would have very large powers and its director would be largely independent.

The chamber launched its end-user coalition last fall, when a few large Wall Street banks and one prominent insurer, AIG, were facing very stiff criticism on Capitol Hill because of their heavy losses in derivatives that helped to drive the Wall Street meltdown in fall 2008. The coalition includes the Business Roundtable, the Edison Electric Institute, and the National Association of Manufacturers. Together, the associations represented scores of corporations, ranging from Caterpillar to IBM to 3M, that use derivatives to hedge risks against fluctuations in currency and commodity prices.

This week's Senate lobbying blitz by corporate treasurers, including representatives from Boeing and FMC, stressed that new regulations should "preserve the ability of corporate users to manage their legitimate business risks," Hirschmann said.

He added that derivatives end users, which make up about 10 percent of the $600 trillion derivatives market, are especially worried that the Senate bill might require cash as collateral in derivatives trades that involve currency or other business interests. Blocking such a requirement, he continued, "is Main Street's interest in the derivatives battle." The corporate treasurers had scheduled meetings with several key senators, including Lincoln and Richard Shelby R-Ala., the ranking member on Senate Banking.

Franasiak of Williams & Jensen stressed that the lobbying by the chamber and other financial interests in recent weeks has been "frenetic" around the entire derivatives issue, adding that although the House bill provided end users with a "workable solution, the jury is still out in terms of what the Senate will do."