NEWSMAKER-Wall St's critic Barney Frank now its source of hope

Sun Jun 6, 2010 12:51pm EDT

* Pragmatic liberal Frank leads financial reg talks

* Frank has keen understanding of financial markets

* Industry confident will get fair hearing

By David Morgan and Rachelle Younglai

WASHINGTON, June 6 (Reuters) - Barney Frank is among Wall Street's fiercest critics in Congress. But he could be its best hope against an angry tide of election-year populism as regulatory reform heads into a legislative finale this week.

For all his tough talk against the financial industry since its 2008 meltdown, Wall Street expects the brainy Massachusetts liberal will give its interests proper review.

Frank is chairman of the bipartisan committee charged with merging separate House and Senate reform bills into a single piece of legislation for President Barack Obama's signature.

"There's certainly a sense of confidence that everybody will get a fair hearing from him as chairman. And really, in statecraft, that's all you should hope for," said Kenneth Bentsen, chief lobbyist for the Securities Industry and Financial Markets Association.

Frank's mission is to captain the launch of a new regulatory era for the U.S. financial industry in response to its role in the credit crisis that sent the U.S economy into recession, taking much of the world with it.

The push comes at a time when the political debate has become increasingly clouded by the approach of November's congressional elections and widespread anti-Wall Street sentiment among American voters.

The famously quirky and cantankerous Democrat, described in a 2009 biography as "America's only left-handed, gay, Jewish congressman," is a worry for some financial lobbyists. They fear he may bow to anti-business pressures from leaders on the political left, including House Speaker Nancy Pelosi.

"He's a pragmatic liberal. But he's still a liberal. A lot depends on his behind-the-scenes relationship with Pelosi and whether he does what she wants or can say 'no'," said one lobbyist who spoke on condition of anonymity.

Born the son of a truck-stop owner in industrial Bayonne, New Jersey, the now 70-year-old Harvard-trained lawyer was first elected to Congress in 1980 and has spent decades working on financial legislation. Like other senior U.S. lawmakers, he has received campaign funding from the financial sector.

REFORM IN THE BALANCE

Those who have witnessed his work chairing the House Financial Services Committee, and as a lead negotiator in the crises that engulfed U.S. banks and auto companies, seem confident Frank's razor-sharp intellect and knowledge of financial markets reduce the risk of over-regulation.

Bankers say that too many new rules could throttle credit just as the economy is struggling to recover from recession.

Frank has already signaled that Wall Street may be spared a radical reform of the derivative industry which emerged from the Senate -- Democratic Senator Blanche Lincoln's proposal that could force banks to spin off their swap desks.

Banking interests also hope he will either torpedo or water down another Democratic measure to limit debit card fees for merchants, introduced by Senator Dick Durbin

Other controversial reform proposals still unresolved include the way the Federal Reserve banks are governed and how to protect consumers from the kind of risky mortgages and other lending practices that helped trigger the credit crisis.

"He will understand the impact (reform) has on markets," former Treasury Secretary Henry Paulson told Reuters.

"He knows how to get over the goal line," added Paulson, who is also a former chairman of Goldman Sachs(GS.N). "At the end of the day, I think the country will fare well."

Frank's understanding of markets has not protected him from charges that he is partly responsible for the housing bubble that ignited the Wall Street meltdown.

An advocate of affordable housing, Frank fought efforts by the George W. Bush administration to restrict government-chartered mortgage finance giants Fannie Mae and Freddie Mac, which later were at the center of the housing bust.

Frank has said Congress will tackle the "helter-skelter scheme of housing finance" after financial regulation passes.

Frank shepherded a broad financial reform bill through his House committee to a 223-202 vote in December. The Senate approved its version last month by a 59-39 margin.

A "conference" panel of more than 20 Democrats and Republicans will be named this week and Frank hopes it will complete its work by June 24. That would give the House of Representatives and the Senate time to render final approval and send the legislation to Obama before July 4.

The real negotiations will occur privately between the Obama administration, Frank and his counterpart in the Senate, Connecticut Democrat Christopher Dodd.

"There's been a lot of coordination," Frank told Reuters in a telephone interview. "I've rarely seen two major pieces of legislation go through both houses in such similar forms."

He declined to talk about the dozens of measures that must be hashed out before the definitive bill emerges.

"I can't confer with anyone who doesn't have a vote," he said.

With his legislative experience and knowledge of Congress, Frank will likely demand that the conference proceedings adhere strictly to the rules of the federal legislature.

In the past several years it has become routine for lawmakers to negotiate major bills behind closed doors. Frank told Reuters he pushed for a formal open-door conference to strengthen the House's hand in negotiations with the Senate. (Additional reporting by Jonathan Stempel; Editing by Donna Smith and Gunna Dickson)