Byline: Stacy Kaper and Steven Sloan
WASHINGTON - President Obama's State of the Union address Wednesday night is expected to be the most pivotal for the banking industry in recent memory.
The fate of several financial services priorities, including proposed restrictions on large banks and the creation of a consumer protection agency, could receive a boost or lose steam depending on how much attention the president gives them.
Though Obama is expected to focus on the economy, jobs and health care, most observers expect financial reform to take up a significant chunk of the president's speech. The substance - as well as the tone - of what he says will set a significant marker for the financial services agenda this year.
"Financial reform is one of the top priorities of the administration for this year," said Donald Ogilvie, the chairman of the Deloitte Center for Banking Solutions. "This gives the president a chance to make his case to the nation about why his proposal should get passed."
One key variable: Does Obama build on the populist bashing of the past two weeks when he proposed a tax on large institutions, a ban on proprietary trading and limits on growth? Or does he moderate his tone?
Some say he may need to dial back the venting if for no other reason than that the antibank backlash appears to have heightened opposition to the renomination of Federal Reserve Board Chairman Ben Bernanke.
"You have a conflict here between the insider Washington game which Bernanke represents and the populist angst about the economy," said Chris Whalen, managing director at Lord, Whalen LLC's Institutional Risk Analytics.
Obama might even need to use the speech to give the embattled Fed chairman another vote of confidence, he said. "If he really wants this guy reappointed, he's going to have to hit it hard," Whalen said. "He's got to demand that the Senate reappoint Bernanke. He's going to have to put his political capital on the line."
The White House has repeatedly defended Bernanke's renomination, and is expressing confidence he will win Senate confirmation this week despite what is expected to be adifficult roll-call vote.
"There is still a great amount of anxiety in our economy, but Chairman Bernanke helped the president and the economic team steer through some very turbulent times," White House spokesman Robert Gibbs said Monday. "It sends a signal to greater overall stability to have his nomination approved without political games."
Obama's hard stance against banks also raised the bar for enacting regulatory reform legislation. Senate Banking Committee Chairman Chris Dodd already faced an uphill battle in crafting a bill that would win at least some Republican support. But the GOP appears skeptical of the so-called Volcker Rule to ban proprietary trading.
Still, most observers said they expect Obama to give the plan, as well as the proposed tax on big banks, a major plug during his speech in an effort to drum up support. "I would be absolutely flabbergasted if they were not mentioned," said Brian Gardner, an analyst with KBW Inc.'s Keefe, Bruyette & Woods Inc. "It would seem very odd if they would be just rolled out with some level of fanfare in the last couple of days and then not brought up in the State of the Union."
It remains unclear how much …