Intense lobbying of regulators, many of them veterans of the industry themselves, helped ensure that practices the Dodd-Frank law was meant to stop would remain in place.
NEW YORK — In the aftermath of the 2008 financial crisis, Keith Higgins was certain: Banks weren’t to blame.
Higgins, a top attorney at prominent law firm Ropes & Gray LLP, was chairman of an American Bar Association committee on securities regulation. As such, he lobbied strenuously against a rule U.S. regulators were drafting that would require banks to disclose a lot more about asset-backed securities like those that had just torpedoed the economy.
In letters to the Securities and Exchange Commission, Higgins argued that divulging more details about the mortgages and other financial products that go into such securities would only confuse investors. And it was investors, with “insufficient understanding and … commitment” to their investments, who had been the real cause of the crisis, he argued in a July 2008 letter.
Then, in May 2013, as the SEC was still hashing out the rule, Higgins was tapped to lead the very 500-person SEC division that was writing it.
When the final version of Reg AB II came out last year, disclosure rules advocated by many within the agency had been stripped out. Of particular concern: Banks could continue to sell asset-backed securities to institutional investors on the private market with no new disclosure requirements.
Reg AB II was one of many rules Congress ordered up in the 2010 Dodd-Frank Wall Street Reform Act to fill regulatory holes in the market for asset-backed securities. An unprecedented expansion of this multitrillion-dollar market, in which banks repackage mortgages and other assets into complex securities and sell them to investors, lay at the heart of the financial crisis.
But as the evolution of Reg AB II suggests, banks and their advocates have managed to preserve many of the industry’s pre-crisis practices by focusing lobbying efforts on obscure corners of the regulatory world, far from the glare of congressional debate or public scrutiny. Many of these agencies are staffed by appointees from the industry they regulate and return to it when their stints are over.