Sizzling away

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: Barney Frank, head of the financial-services committee in America’s House of Representatives, likes to point out that shaping legislation, like making sausages, can be a stomach-churning spectacle. So it is with the Obama administration’s financial reforms. The latest banger to be squeezed out is a bill to create a Consumer Financial Protection Agency (CFPA), a version of which the committee was due to vote through this week. The CFPA would police and write rules for financial firms’ retail products, such as mortgages, bank accounts and credit cards, and there is much about the agency that bank lobbyists find hard to swallow.

Financial firms have spent some $220 m on Capitol Hill this year, according to the New York Times, much of it agitating against the CFPA. They have something to show for it. To ensure support from moderate Democrats, Frank’s committee dropped the bill’s “plain vanilla” provision, which would have forced firms to offer, say, simple fixed-rate mortgages alongside more exotic products. Banks with less than $10 billion in assets will be spared regular examinations by the new agency.

Even so, the very creation of the CFPA would be a defeat for groups like the American Bankers Association, which has opposed it more fiercely than any other bit of the reforms. Its powers would be sweeping, with authority to make the rules for all retail products and even to break the small banks’ exemption on supervision if it receives serious customer complaints.

In a blow to bigger banks, the bill would roll back the concept of “pre-emption”, which has allowed nationally active lenders to answer solely to federal regulators. They would have to comply with state laws, even if these are more stringent than rules set in Washington. “In some ways, this is an even bigger watershed than the agency itself,” argues Richard Neiman, New York state’s bank regulator. As The Economist went to press, the committee was close to endorsing a compromise, under which national banks would have to follow state laws except in a few narrowly defined circumstances.