November 19, 2009 / 4:39 PM / in 8 years

Finance gurus damn reform with faint praise

NEW YORK (Reuters) - Bank executives are cautious about slamming the lawmakers trying to rein in Wall Street excess, leaving the impassioned arguments to their armies of lobbyists in Washington.

Bankers, analysts and other financial experts at the Reuters Global Finance Summit in New York this week, chose their words carefully when talking about policymakers and members of Congress, acknowledging the need for some reform as long as it does not torpedo the industry.

“The industry rightfully deserves a good portion of the regulation that we’re about to see, and there will be some extremes and there will be some unintended consequences,” said Denis Salamone, chief operating officer of Hudson City Bancorp HCBK.O, the largest U.S. savings and loan.

Like many in the industry, Salamone argued that over-regulating banks will just hurt consumers.

He said a proposed consumer agency to police financial products will likely go too far and make banks “gun-shy” about offering financial services to consumers.

The consumer agency is just one component of a sweeping reform effort inching its way through Congress.

The Obama administration gave Congress hundreds of pages of suggested reforms, including streamlining bank regulators, reining in excessive pay, beefing up the policing of the biggest financial firms and even giving regulators the power to dismantle them if they fail.

Dan Henry, the chief financial officer of American Express Co (AXP.N), gave a lukewarm critique of lawmaker efforts to overhaul financial regulation as well as legislation aimed specifically at cracking down on the credit card industry.

“I think there was probably a need for some new regulation,” he said, while also arguing that the consumer agency could do more harm than good.

The most critical comments came from FBR Capital Markets analyst Paul Miller, who said Congress does not understand financial problems well and relies on only a few people who are smart but bring strong personal opinions to the task.

“I do think Barney Frank’s position... is not in line with most Americans,” Miller said.

Miller did not elaborate on his concerns about Frank, the Democratic chairman of the House Financial Services Committee and a chief architect of the reform movement.

    Frank has been championed as a leader in financial reform but also has been accused of helping grow the housing bubble through his support of mortgage giants Fannie Mae FNM.N and Freddie Mac FRE.N, which were later seized by the government.

    He has recently helped fuel the momentum for a new proposal to give regulators the power to break up big banks, even if healthy, if the government determines their business activities pose a risk to the overall financial system.

    A break-up proposal from Democratic Representative Paul Kanjorski on Wednesday got approval from Frank’s committee to become part of the broader reform bill.

    The big bank break-up proposal faces an uncertain future but is already alarming Wall Street.

    John Thain, who was ousted from Merrill Lynch after it was sold to Bank of America Corp (BAC.N) , said he was “not sure that that’s very practical.”

    Instead, he proposed creating a bailout fund, essentially allowing big financial firms to pay fees for being considered too big to fail.

    Reporting by Karey Wutkowski; Editing by Tim Dobbyn

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