The banking industry spent a record $473 million on lobbying last year. | AP Photo Wall Street strikes at regulations

Wall Street’s epic battle over financial reforms didn’t end when the Dodd-Frank law was enacted a year ago. It simply shifted from Capitol Hill to the regulatory agencies, with banks claiming the new rules will cripple a hurting economy.

In the first quarter of this year, a record number of companies were lobbying the Commodity Futures Trading Commission, the Federal Reserve, the Federal Deposit Insurance Corp.and the Office of the Comptroller of the Currency, according to the Center for Responsive Politics.


The financial sector shows no sign of retreat, even after suffering a blow last month when Congress refused to delay new limits on “swipe fees” that banks charge to merchants for debit card transactions. That defeat may be less about Wall Street’s weakened political muscle than about the strength of its foes on the issue — such as Wal-Mart and the National Retail Federation.

“If you want to go after Godzilla, you need to have King Kong,” said Nick Nyhart, president of Public Campaign, a nonprofit that tracks special interest money.

But the banking industry isn’t taking chances. It’s bulking up to take on regulators tasked with enforcing the Dodd-Frank Wall Street Reform and Consumer Protection Act. The 848-page law approved in response to the financial meltdown mandates a sweeping set of changes — from stronger consumer protections to new rules on trading derivatives.

After spending a record $473 million on lobbying last year, the industry is on pace to spend slightly less in 2011. But this time around, much of the outreach has shifted to federal agencies responsible for translating Dodd-Frank into 250 new regulations.

“Everyone is sending in these general counsels and lawyers to talk to regulators, to help these regulators understand what we do,” an industry lobbyist told POLITICO. “A year earlier, everyone was lobbying policymakers and not spending time with regulators.”

The Commodity Futures Trading Commission was lobbied by 110 companies in the first quarter of this year, compared with 46 in the same period in 2010. In 2009, only five companies lobbied CFTC in the quarter. The FDIC saw 48 companies lobbying in the first quarter of 2011, compared with four in that period for 2009.

So far this year, the Securities Industry and Financial Markets Association submitted 68 comment letters to agencies about Dodd-Frank. The American Bankers Association sent 52.

The efforts aren’t going unnoticed by the Obama administration.

“I think if you listen carefully, the large banks are complaining much louder,” Treasury Secretary Timothy Geithner recently told the House Small Business Committee. “They’re spending a huge amount of money trying to undo, shift the burden and delay the reforms that are targeted at them and their risk taking. They’re spending a huge amount of money trying to block, delay, erode, weaken and walk back.”

That doesn’t mean Wall Street has abandoned Capitol Hill. One industry lobbyist said the plan has been to simultaneously encourage sympathetic lawmakers such as Alabama Republican Spencer Bachus, chairman of the House Financial Services Committee, to “jawbone” agencies about the problems caused by excessive regulation.

Rep. Barney Frank (D-Mass.), former chairman of the Financial Services Committee and one of the law’s architects, noted that most banks seem to be working well with regulators, after the crisis strained relations with Washington. And while some on Wall Street seek to eliminate parts of the law, Frank said, “They haven’t made a direct assault on it.”

The financial services industry has already achieved some results by petitioning regulators. On June 29, the Federal Reserve ruled that merchants would pay banks 21 cents for every debit card transaction, up from a 12-cent cap created through Dodd-Frank. Fees now average 44 cents a swipe, meaning the cap will cut into a $16 billion revenue stream for banks.

“It’s a better rule than their original proposal,” a bank representative said. “Unfortunately, it’s still price-fixing, and we don’t know how it will play out in practice.”

The industry initially turned to Congress to try to delay the new limits on swipe fees as part of a broader push to curb some Dodd-Frank regulations. However, a measure sponsored by Sen. Jon Tester (D-Mont.) fell six votes shy of Senate passage last month.

Mallory Duncan, general counsel of the National Retail Federation, said swipe fees were one of the issues in Dodd-Frank that united much of the financial services industry, but he questioned whether that unity would survive.

“Had they succeeded, I suspect that coalition would have stayed together and gone on to dismantle other portions of Dodd-Frank,” Duncan said.

For all the dollars and lobbyists at its disposal, the financial services industry is a diverse mix of competing and fractured interests. And because of how Dodd-Frank was written, the fissures have become more prominent, which may ultimately blunt some of the industry’s political influence in D.C.

“This is a town where there are permanent interests, not necessarily permanent allies,” said Floyd Stoner, executive vice president for congressional relations and public policy at the American Bankers Association.

One dispute is over which firms get classified as “systemically important” enough to require additional government oversight. Banks with more than $50 billion in assets automatically receive this designation.

Many banks, an industry lobbyist noted, want the government to also classify some hedge funds, insurers and private-equity firms as systemically important. Those companies have in turn bombarded regulators with charts and studies to try to demonstrate their insignificance.

“It’s one of those hidden dynamics that Dodd-Frank has put into play,” the industry lobbyist said. “You get these fault lines.”

And because the law emphasizes potential dangers to the economy, it wipes away much of the one-size-fits-all regulation that treated banks with thousands of branches and local community banks the same way. That might cause additional splintering in the financial services lobby.

“Community banks can make the argument that they don’t put our nation’s economy at stake,” said Cam Fine, president and CEO of the Independent Community Bankers of America. “Before the crisis, a bank was a bank was a bank. Regulations were applied evenly across the board, no matter what your size or risk was.”

However, consumer activists warn that a plodding recovery has empowered banks to challenge the regulations, an approach made possible in part by the 2010 election pushing many incumbent lawmakers into retirement.

“Bankers have all but shed any demeanor of contrition that they caused the crash of the global economy,” said Bart Naylor, a financial policy advocate for Public Citizen. “It seems to be fading in part because there are 90 new members of the House. They didn’t have to make this agonizing decision to bail out the banks.”

There are dangers to culling regulations in hopes of spurring growth. Economists at the International Monetary Fund recently crunched the numbers and determined that lobbying by financial interests encouraged the watering down of regulations that fueled the crisis.

“The more intense the lobbying, the more likely legislators were to vote for deregulation,” Deniz Igan and Prachi Mishra wrote in a report.

The stagnant economy gives Wall Street ammunition to challenge Dodd-Frank. Banks are telling lawmakers and regulators they can’t increase lending because new regulations require them to hold more cash in reserve.

Loan portfolios have shrunk by about $650 billion from pre-crisis levels, the FDIC said.

The deregulation angle plays to the GOP agenda, but even administration officials such as Geithner have called for striking a balance so that more credit flows through the economy, allowing businesses to expand and consumers to spend.

“I wish a number of examiners in the field would listen,” a banking lobbyist said. “What we’re seeing are stringent applications of rules at the same time regulators at the top of the shop and legislators are saying, ‘Be flexible and work with borrowers.’”