Financial Sector Directors Seek ‘Clarity’ After Election

By Jack Buehrer for Agenda

Executives and directors in the banking and financial services sector are waiting with bated breath to see whom President Barack Obama will name to key oversight posts in his second term. Those appointments, they say, will essentially predict how friendly to Wall Street the business environment will be over the next four years.

Obama’s reelection, as well as the surprising gains that increased the Democratic majority in the Senate, have all but eliminated financial firms’ hopes for a substantial weakening or outright repeal of the regulations laid out in Dodd-Frank. Though the financial sector largely backed Obama in 2008, it broke decisively for Romney this year, prompting questions about how the president will govern Wall Street between now and 2016. Some say he has fences to mend after his relationship with U.S. banks soured over the last four years, while others wonder if he’ll double down on enforcement.

“What we need now is clarity,” says William George, a director on the Goldman Sachs Group board who also teaches management at Harvard Business School. “These regulations aren’t going anywhere, but it’s now four years after the crash, and nobody knows what the rules are. That’s what makes compliance difficult.”

The first window into the president’s plans will likely be his selection of a new secretary of the Treasury after Timothy Geithner steps down in January. Geithner drew criticism throughout Obama’s first term for being soft on the biggest banks and too much of a Wall Street insider, even though he has spent his entire career as a civil servant. “The new Treasury secretary will tell us whether the president wants to work with us or not,” says George.

Jack Lew, the current White House chief of staff, and Erskine Bowles, former co-chair of Obama’s National Commission on Fiscal Responsibility and Reform, are considered leading candidates. Other names making the rounds include BlackRock CEO Larry Fink and formerFDIC chief Sheila Bair. Any of those four choices would probably sail through the confirmation process with relative ease. More important for business leaders, none are thought to take a radical attitude toward regulating the financial sector.

Other upcoming appointments for Obama will almost certainly include a new SEC chairman and possibly a new CFTC chief. SEC chair Mary Schapiro is widely rumored to be planning on stepping down at the end of the year, and many observers think CFTC head Gary Gensler could have a tough time getting confirmed by the Senate should Obama nominate him again.

“These appointments will definitely signal which way the president wants to go,” says Gary Costley, managing partner of C&G Capital and Management and a director at Principal Financial Group. “One thing people should look forward to, though, is a president’s second-term cabinet tends to be much better than the first term. A president in his first term owes so much to so many, but now [Obama] won’t have to run again.”

Of course, the prospect of an Obama who doesn’t need to worry about reelection is just what has many Wall Streeters on edge. But Michael Greenberger, a former CFTC regulator who now teaches law at the University of Maryland, says financial sector directors and executives will probably see a more evenhanded approach from the White House than they expect.

“I think Wall Street is very lucky that Obama is not a vindictive person,” he says. “I don’t think you’ll see a double-down on Dodd-Frank. I think the president will want to see that it gets fully implemented to the extent that he can, but I don’t think we’ll see any new legislative efforts that try to go further than Dodd-Frank already has.”