In July 2010, President Barack Obama signed into law a sweeping program of financial regulatory reform popularly known as the Dodd-Frank Act. This act was a response to the financial crisis and attempted to address weaknesses widely perceived in the existing regulatory regime. The act in substantial degree reversed a 40-year history of financial deregulation. There is little question that President Obama played a central role in the passage of the Dodd-Frank Act (Woolley and Ziegler, 2012).
The history of financial reform from 1970 to 2007 can be seen as one of repeated short-term presidential failure: successive presidents supported large reform efforts, but legislative results fell far short of their proposals. Major reforms were proposed; often nothing was passed. On the other hand, years of remarkably sustained and consistent presidential advocacy of deregulation ultimately culminated in the broad deregulation of the financial sector. Nonetheless, presidents did not achieve all their goals, most notably those concerning simplification of bureaucratic structure of regulatory agencies. That failure, together with the persistent presidential support of such reforms, calls out for further reflection.
Financial reform has usually not been an especially visible issue in public debate, and the limited political science literature on the topic has not agreed on the impact of presidents in financial regulatory reform. As a result, one might, with some justification, think that presidents have been on the sidelines in this issue area. In this article, I argue that such a view is incorrect. I argue below that presidents shared a common set of objectives concerning the deregulation of financial institutions that persisted despite differences in party, ideology, or extent of divided government. They pursued those objectives with considerable consistency and, over time, success. In this article, I develop this argument through an examination of the financial deregulatory movement that dominated policy from 1970 to 2007. I argue that these issues and events have distinctive features that can illuminate and inform our understanding of presidential leadership.
I begin with a review of some relevant political science literature in the areas of financial regulation and presidential agenda setting. Second, I discuss some distinctive features of the political environment of financial regulation that affect presidential strategy. Next is a brief review of some of the substantive problems that have concerned reformers. Finally, I seek to demonstrate that there was, in fact, substantial interest in, and advocacy for, financial deregulation that spanned presidencies and parties. I argue that this continuity arose from the distinctive political characteristics of the issue area and the nature of the job of the president, broadly conceived.
Two areas of prior political science literature are particularly relevant to this project. First is the relatively small number of works explicitly addressed to financial regulatory matters. The second is the far more extensive body of research on presidential leadership in agenda-setting and in law-making.
There has not been a large literature in political science on financial regulation and deregulation. The exceptions, many quite excellent models of research, have often been focused on regulatory choice. That focus, by nature, does not lend itself to an understanding of the life course of new policy initiatives. For example, in a fine article, Krause (1997) did not incorporate any measures of presidential behavior because the president did not play a "regular role" (emphasis in original) throughout the sample period in bank regulation (533n27). Krause cited Meier (1985) to the effect that in financial regulation, presidents "only play a significant role in exceptional situations" (76) and their involvement is "extremely sporadic" (Krause 1997, 533n27).
Another article (Krause 1996), a study of Securities and Exchange Commission (SEC) behavior, did include measures of presidential budgetary requests and partisanship. Presidential behavior turns out to be interdependent with congressional behavior and influenced by the SEC itself. While not shedding much light on presidential strategies, Krause (1996) does point to an important theme in the literature--the influence of the regulatory agencies themselves. Woolley (1993) examines a single issue--the so-called nonbank banks--in light of the congressional dominance theory. But like Krause (1997), his analysis also does not consider the president at all.
In directly relevant work, Derthick and Quirk (1985) noted that in regulation other than banking, presidents supported deregulation through their proregulatory appointments and through their advocacy of reform policy. They also pointed out that deregulation advanced because affected industries had limited ability to protect their interests or, as in banking, eventually came to actively support deregulation. Derthick and Quirk's emphasis on the centrality of interest groups is particularly relevant for the present article, as is the general emphasis on presidential advocacy of reform.
Hammond and Knott's (1988) analysis of financial deregulation emphasized the instability of regulatory regimes in the face of technological innovation, but Hammond and Knott barely mentioned presidential leadership. It is unquestionably correct that technological change was a powerful element in changing the status quo in ways that created pressures for deregulation (Carron 1984; Phillips 1977). However, to realize the full possibilities of new technology, legal changes in the regulatory regime had to occur at the congressional level. So the issue remains whether presidents have been influential actors in that process.
The Presidential Agenda
Another relevant literature is the one on presidential agenda setting. This literature is large and impressive. The primarily question for research has been the president's ability to achieve his agenda goals in a relatively short period of time--one or two years. The literature includes a number of important findings or assumptions: It is axiomatic that presidents can almost always succeed in putting their issues on the congressional agenda, but they do not prevent other actors from putting items on the agenda (see review in Eshbaugh-Soha 2005). Thus, we would certainly expect presidential proposals about financial reform to get congressional attention. However, the literature also shows that in many respects, presidents cannot exclude other items from the congressional agenda (Edwards and Barrett 2000; Peterson 1990; Rudalevige 2002). So a large congressional role in financial deregulation would be consistent with this prior research as well.
Most quantitative studies examine the fate of presidential agenda items in a given calendar year (e.g., Eshbaugh-Soha 2005) or congressional term (Edwards and Barrett 2000). Issues that carry over from one Congress to another are regarded as "failures" of presidential influence rather than as puzzles to be explained. In some research, presidential "success" has been determined by looking at congressional roll-call votes on which presidents take a position or which have been characterized by Congressional Quarterly (CQ) as key votes (Beckmann 2010). Other issues would be excluded as being not of interest.
Scholars commonly define the president's agenda by examining presidential State of the Union Addresses and Messages (SOTU) (Cohen 1982, 1995; Light 1999), or budgetary proposals (Canes-Wrone 2006). Eshbaugh-Soha (2005) paired analysis of the SOTU with evidence that policy issues were repeated or reinforced in other speeches ("going public"). By definition, issues not featured in these speeches are not significant in the president's agenda.
And finally, agenda-setting studies rely almost exclusively on particular sources (especially CQ and the New York Times) for evidence of presidential support or involvement with important proposals (Mayhew 2005; see also Beckmann 2010; Wood 2007). The possibility that those sources may be incomplete or even biased in some respects is not recognized as a problem.
As we shall see in more detail below, in the case of financial regulation and deregulation, several of these common approaches or assumptions are problematical. In the period 1970 to 2007, presidents have rarely addressed financial regulatory issues in major speeches, nor have they "gone public" on financial regulatory issues. In many cases, important reforms were not passed within a year or two of initial presidential advocacy. But in several interesting examples, when legislation passed, commentators linked the action to presidential initiatives from the past. There have been relatively few CQ "key votes" involving financial reform legislation and also very few recorded votes on which CQ reported a presidential position. Despite all this, I believe it would be a mistake to conclude that the issues were not among important presidential priorities or that presidential support was not important in their eventual passage.
A particularly useful perspective on presidential involvement with policy making is that of Jones (1994). Jones stressed that important legislation rarely originates and passes in a single year or session of Congress. Jones points out that issues are "iterated" through time, with eventual passage reflecting contributions from many sources including the bureaucracy, interest groups, and policy experts. It is surely correct to note that financial reform--like many major reforms has not been accomplished solely by presidential action. Throughout the history of financial regulatory reform, members of Congress, often working closely with interest groups, have frequently developed legislation independently of the president but not independently of the ideas the presidents have championed. Jones's idea of iteration is useful in this context.
The Political Environment and Presidential Strategy
Following the important work of Jones (1994) and Peterson (1990), this article focuses on persistent presidential advocacy of deregulation in interaction with Congress over extended periods of time. Compromise is the hallmark of this process, and any given enactment is likely to include elements the president favors and those he opposes.
Three important characteristics of financial regulatory policy affect presidential strategy. First, financial issues are relatively technical and do not easily engage the broader public. Second, and related, financial regulatory policy making has historically been dominated by very well-organized trade associations and industry segments that are typically closely engaged with their relevant regulatory agencies. Third, policy debate has only infrequently been sharply partisan.
Thus, in normal times, financial regulatory politics has been relatively low visibility but hardly consensual. Financial regulatory politics in normal times is, in some respects, a prototypical arena of interest group politics. Important distributive decisions have been centered in regulatory agencies closely aligned with particular industry segments. Absent a crisis or a major reform initiative, financial regulatory politics is often a turf battle between industry-regulator coalitions seeking to expand or defend their domains.
This suggests the relevance of analyzing how the density of interest group organizations across different policy arenas affects the strategy of different actors. However, recent exemplary analyses of presidential leadership strategies have not included indicators of the interest group and bureaucratic-institutional context, possibly because such indicators are hard to construct (e.g., Eshbaugh-Soha 2005; Beckmann 2010). Peterson (1990) showed that a more complex and dense interest group environment significantly reduced the president's ability to achieve his preferences for large policy changes within a short period of time. (1) Peterson's observation seems to apply strongly to financial and banking regulation, suggesting an issue that deserves more attention in the future.
A policy arena typified by low visibility, high intensity, nonpartisan disputes is interesting terrain for a president. On this terrain, presidents have particular strategies they are well equipped to implement. The highly competing interests, like "cross-cutting cleavages" might liberate presidents to focus more on policy than on interests. In these circumstances, knowing that any choice is going to offend powerful interests, one viable strategy for the president is to try to pick the best policy independent of interest group preferences. Thus, president would be unusually free to pursue their interest in "good policy" (Light 1999) or to pursue the implications of powerful policy ideas (Derthick and Quirk 1985). Such a context may suggest the relevance for the president's priorities of his distinctively broad and encompassing constituency (Neustadt 1990), which should nicely connect with any interest in "good policy." These factors, I argue, are sufficient to account for a striking congruence of presidential preferences across time and party. Also, the president's electoral responsibility for economic performance impels him to address this core policy area essential to economic stability. If presidents of both parties embrace the same relatively precise policy choices in a contested issue area, we begin to suspect that they do so because they are following similar logics.
In financial reform, presidents have authorized and encouraged initiatives, led by their appointees, to develop and promote the adoption of often-sweeping reforms. Over time, many of these initiatives have become politically viable. In this persistent effort, the administration serves as a locus for building an expert consensus and an arena for negotiation between the industry/regulator coalitions.
Some Background on Issues in Financial Regulation
The basic organizing principle of U.S. financial regulation from the early 1930s until the 1970s was a division of the industry into segments (e.g., banking, finance and securities, insurance, consumer lending). Much of the industry was geographically restricted to specific states. These segmental and geographic boundaries defined attractive points for competitive entry (Hoenig and Morris 2011). Other unstable elements of the policy regime were these:
1. An important element of regulation was the imposition of ceilings on interest rates that could be paid on bank time and checking deposits--these ceilings were commonly referred to by the name of the Federal Reserve regulation governing them, Regulation Q. In 1966, these ceilings were extended to cover thrift institutions (savings and loans and credit unions) (Gilbert 1986).
2. Thrift institutions were intended to lend long term primarily for mortgages and consumer durables purchases, but their main source of funds was relatively short-term consumer deposits. That is, their assets and liabilities did not have matching maturity structures. This kind of financial structure is problematical if the economic environment changes quickly.
3. As of 1956, holding companies that owned more than one bank were prohibited from engaging in most nonbanking activities (including dealing in securities). However, until 1970, holding companies owning only one bank could diversify into most forms of commerce (including securities, insurance, and real estate). This diversification could provide a variety of additional sources of income and capital, but diversification was often restricted by regulation. The regulation of holding companies, and the definition of their permissible activities, has been an ongoing area of regulatory concern.
This whole system came under substantial stress whenever market interest rates went up substantially--which always happened when inflation increased significantly. So, for example, if market interest rates rose substantially due to inflation, depositors (including corporations) would look for other places to put their money that would pay more interest. This was sometimes called "disintermediation;" depositors would lend directly to corporations in the commercial paper market. In effect, one side of the financial institutions' balance sheet (their deposits or liabilities) was subject to large short-run changes, while the other side (their loans that generated their income, their assets), could not be changed much in the short run.
To address the loss of deposits, thrift institutions in the 1970s developed the "negotiable order of withdrawal," or NOW account, to prevent the short-term loss of deposit funds. While not technically an interest-bearing checking account, it was the equivalent of one from the point of view of consumers. At the same time, innovators in the securities industry developed the money market mutual fund, which provided many of the features of checking accounts paying market interest rates (Nocera 1994). These innovations required regulatory, and often congressional, approval. While these developments were, at least in theory, stabilizing for the thrift industry, one effect was to draw funds from commercial bank customers. That result, not surprisingly, provoked a demand from banks for wider powers so that they could compete.
The thrift industry's other problem was that their loan portfolio consisted significantly of fixed rate mortgage loans. Even if they could retain their deposits by paying market interest rates, they had limited ability to alter the income from their loan portfolio in the short run when their cost of funds increased. This kind of mismatch of the term structure of assets and liabilities has been a recurrent feature of financial crises. In the time period around 1970, it appeared that for thrifts there was a simple solution--to alter the mix of loans (assets) thrifts were allowed to make. If thrifts could diversify and make more loans (including commercial loans) with shorter maturities, it was thought that this would allow them to survive in a more volatile interest rate environment. This, too, required regulatory (or congressional) approval and involved allowing the thrifts to compete in the markets of other financial industry firms. Not surprisingly, the other firms did not welcome new competitors. Similar problems arose across the financial system as greater diversification was sought by all kinds of firms (White 1993).
This set of problems was exacerbated by macroeconomic policy that resulted in inflation. One possible solution--to adopt macroeconomic policies to reduce and stabilize inflation--had many political costs and would require a long time to achieve. During that adjustment period, many financial firms would fail or be in distress, and the adjustment would require an economic slowdown if not a recession. These adjustment costs were not attractive to presidents. A politically more palatable solution was available for any president concerned about the economy and his own reelection: alter the financial regulatory rules to permit more flexible movements of interest rates and more diversified portfolios for institutions. However, this boundary-crossing ran counter to the assumptions anchoring the regulatory structure and destabilized many markets. Moreover, while firms adapted, the regulatory structure largely did not.
One logical outcome of a process like this was the financial world that in fact existed in the United States in 2007: very large, highly diversified financial institutions dominated the financial world. Despite their size and complexity, not all such firms were supervised by the same regulator, nor was any single regulator necessarily actively engaged in detailed oversight of the entire firm. The leading firms were substantially free to pursue the most profitable and risky financial deals that they found attractive. Some novel areas of behavior were almost completely free of regulatory oversight of any sort. (2)
Presidential Involvement in Financial and Banking Regulatory Legislation
The starting point for this analysis is 1970. In that year, President Richard Nixon appointed the Commission on Financial Structure and Regulation, also known as the Hunt Commission (U.S. President 1972). Nixon's action was a response to financial market tightening in 1969 due to disintermediation, as funds were shifted away from both banks and savings institutions (with regulated ceilings on interest rates) directly to corporations in the commercial paper market. The Hunt Commission issued a report at the end of 1971. The commission laid out an agenda for reform and deregulation that was reflected in a Nixon administration legislative proposal in 1973 accompanied by a special message to Congress. President Ford forwarded similar legislation, again with special messages, in 1975 and in 1976. President Carter submitted his own, very similar, version of the legislation in mid-1977. His administration provided another report on the problems of interest rate ceilings (Regulation Q) in 1979. The Hunt Commission agenda was substantially realized nearly a decade after the initial report in legislation adopted in 1980 under Jimmy Carter. (3) The 1980 Depository Institutions Deregulation and Monetary Control Act removed most distinctions between commercial banks and thrifts, allowed NOW accounts nationwide, and initiated a phased end to interest rate ceilings. At the time, CQ Almanac 1980 commented "[the bill] was the culmination of a decade-long campaign to revamp the nation's financial system which began with the recommendation of President Nixon's Commission on Financial Structure and Regulation in 1971" (CQ 275).
The Carter administration produced another report shortly before leaving office that comprehensively addressed the problems of interstate banking. Despite the 1980 reforms, there were many other issues left to be resolved about the boundaries of banking and other parts of the financial industry. The Reagan administration picked up precisely where Carter left off, initiating a program of further bank deregulation. A great deal of time and energy was devoted to stabilizing the savings and loan industry as it adapted to having new powers, and to further expanding the powers of both banks and thrifts. Eventually, in 1984, to try to regenerate deregulatory momentum, Reagan created another important task force, known as the "Task Group on Regulation of Financial Services," headed by Vice President George H. W. Bush. The group issued a report also in 1984.
Another lengthy process of legislative iteration concluded with passage of the Financial Institutions Reform and Recovery and Enforcement Act (FIRREA) in 1989. In his remarks upon signing the bill, then-President George H. W. Bush noted that the legislation originated significantly in work begun in 1984, five years earlier, in the working group he had chaired as Vice President (Bush 1989).
Most of the dividing lines separating the industry subgroups had fallen by the end of 2000. The federal obstacles to operating across state lines, anticipated in the 1981 Carter administration report on interstate banking, were eliminated in 1994 in the Reigle-Neal Interstate Banking and Branching Efficiency Act. (4) In 1994, Deputy Treasury Secretary Airman correctly traced the Riegle-Neal Act back to efforts launched 15 years earlier in the Carter administration (White House 1994). President Clinton himself also correctly tracked it back to the Reagan era and the Bush task force (Clinton 1994). The continuity in objectives across presidents and parties is remarkable.
The Gramm-Leach-Bliley Act of 1999 eliminated most of the obstacles to combining different financial activities in a single corporate structure. This largely ended the system of separation between investment and commercial banking and other financial services that had been the hallmark of the U.S. financial structure from 1933.
In a final deregulatory gesture, the Commodity Futures Modernization Act of 2000 defined a broad array of highly sophisticated financial transactions to be not subject to regulation. This event was one of the most rapid progressions from "study" to policy in this entire history. In that year, a Statement of Administration Policy (SAP) was transmitted to Congress recommending passage of the Commodities Futures Trading Act of 2000. This legislation fatefully exempted new sophisticated financial instruments like credit default swaps from regulatory oversight. In the SAP, the Clinton administration pointed to the "unanimous recommendations regarding the treatment of OTC derivatives made by the President's Working Group on Financial Markets" some months earlier (Clinton 2000). (5)
Nonetheless, despite this history of reform, and contrary to almost unanimous Presidential recommendations, the financial regulatory structure continued to be quite fragmented. (6) This last observation is evidence of the blocking power of industry segments working together with regulators (Carpenter 2010).
Further Legislative Overview
In nearly every Congress from the 91st through the 106th (1969-2000) there was serious consideration of administration-backed proposals for financial regulatory reform. During this period, there were numerous examples of legislative disputes that were not resolved in one session of Congress and were continued into the future, an iterative process like the one Jones (1994) described. This section will overview the deregulatory legislation adopted in this period.
Table 1 lists 27 laws that were passed between 1970 and 2007 that addressed financial regulation in some substantial way. (7) Laws included in the table were discussed in Congressional Quarterly Almanac summaries of legislation during this period, but each also meets one of the following additional tests for inclusion: they have been mentioned by one of seven specialist commentaries consulted (17 cases, 63%); they were the object of a White House statement either before or after passage (22 cases; 81%); or, despite having neither of the other two characteristics, they contributed to deregulation by expanding the scope for NOW accounts (2 cases). Of the 27 cases, 13 met only one of these additional criteria. In assessing the cases, the accounts in CQ have been supplemented by information drawn from other sources including the New York Times, the Wall Street Journal, the American Banker, and the National Journal.
A variety of characteristics can be noted about the enactments: In six instances, at least one vote on legislation was characterized as a "key vote" by CQ. (8) Of these enactments, Mayhew (2005) coded only five (19%) as "important laws." (9) According to CQ, of recorded votes on passage in either house and on conference committee reports, the president took a position on only four recorded votes in all of this legislation.
As it turns out, almost no recorded vote was close. (10) In the House, the majority was smaller than 60% only one time out of 30 recorded votes. In the Senate, three votes involved majorities smaller than 60% out of 18 recorded votes. Almost as common as recorded votes were decisions that did not require recorded votes. In short, typically by the time the financial legislation came to the floor for a vote, negotiation had resulted in a very large consensus, and passage was not seriously contested.
Eighteen of the 27 laws, or 67%, passed in periods of divided government. The acts passed in divided government were some of the most important for achieving deregulation. This seems not surprising for a policy arena not central to partisan divisions.
One set of entries in Table 1 report whether, for each law, presidents made explicit public references to the legislation either before or after passage. (11) This evidence suggests that presidents have often recommended or applauded the passage of legislation despite the fact that they have not been scored by CQ as taking a position on specific roll call votes. Of the 27 laws, at least 12 (44%) were the object of public comment or statement by the president before passage. (12) In 20 instances (74%), presidents issued a written statement or made public remarks at the time of signing the bill. Indeed, a useful indicator of legislative significance is whether or not the administration chooses to make a statement either before passage or at the point of signing the legislation--true for 78% of the laws in Table 1 and 82% of the legislation selected by expert commentary. (13)
Of the 20 signing statements, the president expressed some kind of misgivings about the legislation on nine occasions. Even then, presidents almost always pointed to elements of the legislation that they liked, and in some cases their complaint was that the legislation did not go far enough. For example, in signing S. 3838 in October 1974, President Gerald Ford pointed out that rather than deregulating, part of the bill extended new regulation in response to industry innovation. In December 1991, President Bush wrote of the Federal Deposit Insurance Corporation Improvement Act, that "[w]hile it includes some of the regulatory reforms we proposed last February, it does nothing to restore the competitiveness of the banking industry" (Bush 1991). In a few instances, presidents complained about possible infringement on the constitutional power of the presidency. Other instances of presidential objections were distinctly peripheral to the central financial regulatory aspects of the legislation.
In the remaining 11 signing statements, presidents expressed no misgivings about any part of the legislation, including elements tangential to the key financial regulatory elements in the bills. Presidents strongly praised many features of the legislation and indicated a readiness to sign the bill. The relative degree of presidential satisfaction reflected in the signing statements seems to indicate a higher level of presidential success in these bills than has been reported in some other more general studies that have tried to determine the degree to which presidential objectives have been met in legislation. (14) Based on my reading of the entire record, it is reasonably clear that the administration was involved in the legislative process in at least 24 of the 27 cases and that the resulting legislation moved substantially in the administration's direction in 21 of those 24 cases.
Legislation on bank regulation often required years of negotiation and consideration prior to passage. Thus, an examination focused on only a calendar year or a congressional term would show that presidents repeatedly failed--especially in the 1970s. But, contrary to this conclusion, presidential efforts in support of legislation seem to have been important. Legislative breakthroughs would have been less likely without the persistent support and pressure coming from the administration.
Limited "Going Public" in Financial Regulation
Strongly influenced by Kernell's (2006) arguments about "going public," scholars have emphasized presidential speeches as a key element in presidential agenda-setting--particularly for mobilizing specific attentive groups (Barrett 2004, 2005). Between 1970 and 2007, financial and bank regulation was mentioned in the State of the Union Addresses on only six occasions. (15) Since 1970, including the Obama administration through 2010, no president has made an "Address to the Nation" or to Congress in a speech focused principally on financial regulatory issues. Financial regulation was an important element in several of George W. Bush's radio addresses and in "remarks" at the White House as the crisis unfolded in 2008. Obama stands out as the only president since 2007 who made several substantial speeches to business and financial audiences about financial regulatory reform.
[FIGURE 1 OMITTED]
The general paucity of presidential speech concerning financial regulatory matters is apparent in Figure 1. This figure is based on an analysis of all sentences containing key words in events at which presidents spoke on the record in public from 1970 to 2008. (16) Figure 1 plots the total number of sentences per month containing any of a variety of key words for any months in which there were at least two relevant presidential speaking events and at least two sentences per event dealt with financial regulation and reform. Of the 456 total months from 1970 to 2008, only 83 (21%) met this criterion. Thus, Figure 1 identifies the most intense months of presidential speech dealing with financial regulatory issues.
As is clear from Figure 1, presidential speech on the topic of financial reform was quite sparse until around 1980. The most intense period of presidential speech started in mid-1997 and extended to early 2000. This was a period in which some important legislation passed, as is clear in Table 1. This was a period of repeated, mostly international, financial crises starting in Asia in 1997, continuing with Russian default in 1998 and, also in 1998 in the United States, the failure of a very large hedge fund known as Long Term Capital Management (Reinhart and Rogoff, 2009). In early 2000, the so-called dot-com crash began in the U.S. stock markets. While some of the intense periods of presidential speech can be tied to particular events, such as the stock market crash of 1987, such linkages are not always clear.
By way of providing further context for the results in Figure 1, as an empirical observation, significant presidential speeches of the sort intended to influence elite or public opinion on a particular issue have consistently been at least of moderate length (over 100 sentences) with a substantial share of the sentences devoted to the topic of interest. In these data, there are only four events that fit that description, and all are from 2008 at the peak of the latest financial crisis. Thus, we can conclude with some confidence, "going public" has not been an important element of presidential strategies for addressing financial regulatory issues.
Elements of Persistent Leadership
If it is true that presidents do lead on the issue of financial regulation, they must be doing it through other means. There are many additional actions presidents can take to support their legislative priorities. For example, as we have seen, presidents have launched high-level study groups--such as the Hunt Commission of 1970. Such studies yield reports that can be released to Congress and the public and serve to guide and structure public debate. Additionally, presidents submit messages and other formal communications to Congress to inform unambiguously about their priorities. More conventional lobbying activities may encompass congressional testimony by administration officials give testimony but certainly include contacts with particular members, including the leadership (Beckmann 2010).
Tables 2 lists chronologically instances in the period 1970 to 2007 of administration messages and reports concerning financial matters, and instances when presidents created task forces, working groups, or study groups dealing with financial regulation and reform. Some of these have been explicitly titled as "Messages to Congress," but all of them include Congress prominently among their targets. Together, this list helps to fill out the picture of the sustained presidential efforts concerning financial regulatory reform.
As a generalization, in contrast to presidential speech, there has sometimes been a relatively clear link between Administration studies and messages and subsequent legislation, as noted above. However, the temporal link can be long and quite variable. The intense interest group context is central to the effectiveness of a "study" and "working-group" approach. A focus on preparing studies creates an environment in which one of two important things can happen. One possibility is that key players in the industry and their allies in the bureaucracy can negotiate and reach a consensus on feasible moves. A second possibility is that a persuasive proposal is developed by acknowledged administration experts around which other participants can rally. Both facilitate successful legislation.
Ideally, we would have additional detailed insider accounts that convey precisely the degree of White House engagement and lobbying activity through time. For scholars studying policy processes at any historical distance, a reasonable substitute will, of necessity, be newspaper accounts from relatively specialized media outlets such as the Wall Street Journal and the American Banker. Of course, the fact that articles appear about congressional action but do not discuss the administration should not be taken as proof that the administration's efforts were not important in setting or moving the agenda. They also cannot tell us whether administration officials were closely monitoring congressional developments or quietly providing assistance to one side or the other.
Nonetheless, in fact, in the many articles I have read that discuss this process of reform over the years, it is rare, to say the least, to read the entire journalistic history of one of these legislative acts without getting some sense of administration participation and involvement. A hint of the more detailed record is illustrated in a set of headlines I have collected in Table 3. These are hardly random. They share in common the newsworthiness of the role of the administration in congressional action, and the administration's engagement in support of deregulation. (17)
Together with the list of administration actions in Table 2, and the data related to legislation noted in Table 1, these examples help illustrate the persistence of presidents with financial deregulation. We can see the movement, sometimes slow, from idea, through industry and congressional negotiation, to new law. The fact that innovation required a long time does not mean that presidential initiative and persistent advocacy were not important. Indeed, they were essential to passage of the legislation.
The recent era of U.S. financial deregulation can accurately be traced back to the Hunt Commission Report in 1970. That deregulatory program was essentially complete by the year 2000. Presidential leadership was important in this process just as it was important in the sweeping regulatory reforms of 2010. However, that leadership was not carried out primarily through a strategy relying on public speech.
There is little evidence that there has been any close connection between presidential talk about these issues and congressional action. In the most studied presidential speeches, the State of the Union, presidents have hardly mentioned financial regulation. From 1970 to 2007, despite the occurrence of several financial crises, no president ever made a speech or extended remarks that dealt primarily with financial regulatory issues. Presidents have addressed the issue, sometimes quite frequently, and relatively briefly, in a variety of contexts. They signal their ongoing concern and awareness of the topic. However, to the extent that presidents have shaped legislation on this issue, they have not done so by going public.
In an arena so thoroughly dominated by well-organized interests, it probably makes sense that study and work groups are important. They provide another venue, often a relative low-visibility venue where negotiations can occur. Such negotiations can, but do not always, provide solutions to contradictory policy preferences. It is also certain that significant crises and shocks have been essential for driving forward to several major legislative acts. The temporal linkages are irregular, of course, and so do not lend themselves readily to statistical analysis.
For presidency scholars there are several implications to note from this analysis.
1. The relatively technical nature of the issues, together with the intense interest group activity, makes "going public" largely irrelevant. More generally, our scholarship would benefit from more systematic attention to issue characteristics and to the nature of interest group mobilization.
2. White House legislative leadership has, in this area at least, often taken the form of intellectual leadership (in working groups and special reports) and also of written messages to Congress about outcomes the president seeks.
3. Since the 1970s, a good indicator of the significance of legislation is whether or not it was mentioned by the White House either before or after passage.
4. The ultimate realization of an idea in legislation may lag an initial proposal by years. For a president who aspires to transform policy, the ultimate success will be a source of satisfaction despite the apparent immediate failure. Scholarship would be stronger that recognizes and attempts to study this possibility.
More generally, this article argues for taking a longer view of specific policy arenas in order to get a more complete view of presidential leadership strategies and impacts. Many policy areas could be explored in a similar fashion, and it would be productive to explore systematically how presidential leadership differs according to the structure of interests and institutions in particular issue areas.
Given the importance of economic performance to presidential success, we would be surprised if presidents did not pay attention to financial regulatory issues because of their potential to affect economic stability. Given a regulatory structure that was inherently instable in the face of macroeconomic instability, given the costs of achieving the necessary macroeconomic stability in the short run, and given the lack of clear partisan divisions on financial regulatory matters, it is not surprising that presidents of both parties embraced a policy of financial deregulation. As our subsequent experience shows us, financial deregulation was not in the long run a risk-free policy solution. Whether these issues achieve more public visibility or a more partisan character should be an object of scholarly inquiry for the future.
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--. 2005. "Going Public as a Legislative Weapon: Measuring Presidential Appeals Regarding Specific Legislation." Presidential Studies Quarterly 35 (1): 1-10.
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--. 1991. "Statement on Signing the Federal Deposit Insurance Corporation Improvement Act of 1991," December 19. In Gerhard Peters and John T. Woolley, The American Presidency Project. http://www.presidency.ucsb.edu/ws/index.php?pid=20378&st (accessed December 22, 2011).
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JOHN T. WOOLLEY
University of California, Santa Barbara
(1.) Relevant research on interest group density across issue areas, focused on the state level, is Gray and Lowery (2000).
(2.) This is not an argument that the financial crisis was a simple consequence of regulatory structure--that is, that a simplified structure would have anticipated and prevented the problems that emerged. However, it is an argument that regulatory structure increased the likelihood that the existence of significant risks would not be recognized outside the firms.
(3.) The Hunt Commission proposed phasing out interest rate ceilings, allowing federally chartered thrifts to offer plans including NOW accounts and allowing them expanded lending powers. Similarly, national banks would be able to offer NOW accounts and make mortgage loans with fewer restrictions. (U.S. Council of Economic Advisers 1974).
(4.) The opening at the federal level began with the 1982 Garn-St. Germain Act, which allowed cross-state acquisitions of failing banks. The prohibition on interstate banking dates to the McFadden Act of 1927. Multibank holding companies could create cross-state entities, but that option was blocked with the Bank Holding Company Act of 1956. Prior to 1995, many states had created compacts that allowed interstate banking on a regional basis. See Horwitz and Selgin (1987).
(5.) This famous case involved the a broad coalition of opinion including the Clinton administration and the Federal Reserve chairman in reaction against a study done by Commodity Futures Trading Commission Chair Brooksley Born recommending wider regulation of the derivatives market.
(6.) A modest consolidation occurred in the 2010 Dodd-Frank bill when the Office of Thrift Supervision was folded into the Office of the Comptroller of the Currency. In the same legislation, two new regulatory bodies were created, both economy wide--the Financial Services Oversight Council and the Consumer Financial Protection Bureau. The recent history of proposals to consolidate banking regulation is reviewed in U.S. Treasury (2008), Appendix B which identifies administration studies advocating consolidation in 1971, 1984, 1988, 1991, 1997, and 2007. The sole exception I have found to general presidential endorsement of this idea is in 1976 when the Ford administration opposed the creation of a "Federal Banking Commission" under very contentious circumstances that threatened the Federal Reserve on several fronts. On the specific decision, see Wall Street Journal (1976).
(7.) Several laws that only extended the status quo are not included in Table 1. An example would be any bill that primarily extended the Regulation Q interest differential between thrifts and banks without introducing other reforms. The need to consider such legislation repeatedly does inform us about ongoing tensions about interest rate controls.
(8.) That is 27% of the laws but a far smaller proportion of the number of votes taken on the bills as they progressed through Congress. Virtually all bills involved at least four votes and often many more. CQ identified a key vote in both houses on a single bill only one time. So at least 90% of the votes on this set of bills were not key votes.
(9.) None of this legislation was included in Wood's (2007) list of successful economic initiatives.
(10.) This refers to votes on final passage in either house and votes following a conference committee, not votes on amendments.
(11.) The table includes the relevant document numbers ("pid") from the American Presidency Project to simplify the task of locating the documents.
(12.) Because the readily available record of SAP dates from 1997, the true number is probably higher.
(13.) There were 22 total laws (or 81%) with presidential statements either before or after passage. In an unusual exception to post-passage statements, Jimmy Carter made no statement of any sort upon signing the Financial Institutions Regulatory and Interest Rate Control Act of 1978, which included a number of items favored by his administration, because the bills also were directed to addressing abuses of Bert Lance, his budget director.
(14.) Edwards and Barrett (2000) report that presidential initiatives became law about 42% of the time; Peterson (1990) estimates that presidents are "dominant" in policy only about 19% of the time (157); Rudalevige (2002) reports that presidents win approval for slightly less than 30% of their proposals.
(15.) In the years 1974, 1976 1989, 1991, 1993, and 1999.
(16.) Presidential speech in 2009 to 2010 is discussed in detail in Woolley (2011). The population of speeches is drawn from the American Presidency Project collection. The search term list to identify documents was as follows: "savings and loan" OR "banking reform" OR "bank regular" OR "financial regular" OR "banking regular" OR "regulation of bank" OR "regulation of financ" OR "supervision of bank" OR "Federal Reserve System" OR "Comptroller of the Currency" OR "occ" OR "Federal Home Loan Bank" OR "Federal Deposit Insurance Corporation" OR "FDIC" OR "Federal Savings and Loan Insurance Corporation" OR "FSLIC" OR "Securities Exchange Commission" OR "Securities and Exchange Commission" OR "sec" OR "Bureau of Federal Credit Unions" OR "Commodities Exchange Commission" OR "National Credit Union Administration" OR "Commodities Futures Trading Commission" OR "Office of Thrift Supervision" OR "Federal Housing Finance Board" OR "Office of Federal Housing Enterprise Oversight" OR "OFHEO" OR "Public Company Accounting Oversight Board" OR "Federal Housing Finance Agency" OR "banking institution" OR "depository institution" OR "financial institution" OR "financial system" OR "banking system" OR "system of finance" OR "stock market" OR "bond market" OR "financial market" OR "financial instrument" OR "financial innovation" OR "financial crisis" OR "banking crisis" OR "financial innovation" OR "credit market" OR "securities" OR "financial instruments" OR "hedge funds" OR "financial firm" OR "federal reserve" OR "federal treasury" OR "financial meltdown" OR "capital markets" OR "financial reform" OR "wall street" OR "financial sector" OR "financial stability" OR "credit card companies" OR "derivatives" OR "financial marketplace" OR "CFTC" OR "NCUA" OR "thrift institution" OR "savings institution." The list does not include any words involving "deregulat," and that might seem to be an oversight in this era. However, sentences containing those terms are quite reliably found with other terms in the search; in a check, I found only two otherwise omitted documents that would have contributed four more sentences in addition to the 3,595 identified here.
(17.) Of course, the headline is not the only place to see relevant references, which can be found in many articles with headlines that do not reference the administration.
John T. Woolley is professor of political science at the University of California, Santa Barbara. He is the co-director of the American Presidency Project, and his recent work examines financial regulation, monetary politics, and presidential behavior in historical context.
AUTHOR'S NOTE: I gratefully acknowledge comments and suggestions from Garrett Glasgow, M. Stephen Weatherford, Jane Rudolph, and Paul Quirk.
TABLE 1 Legislative Enactments Involving Substantial Change in the Prior Status Quo Title 10/26/1970 Bank Secrecy Act and Fair Credit Reporting Act of 1970 12/18/1970 Bank Holding Company Act Amendments of 1970 12/30/1970 Securities Investor Protection Act of 1970. 8/16/1973 An Act to extend certain laws relating to the payment of interest on time and savings deposits ... 10/28/1974 An Act to increase deposit insurance from $20,000 to $40,000, to provide full insurance for public unit deposits ... 10/29/1974 An Act to authorize the regulation of interest rates payable on obligations issued by affiliates of certain depository institutions and for other purposes. 6/5/1975 Securities Acts Amendments of 1975. 12/31/1975 Home mortgage disclosure act of 1975 2/9/1976 A bill to extend the state taxation of depositories Act 4/19/1977 An Act to extend the authority for the flexible regulation of interest rates on deposits ... 10/12/1977 Community Reinvestment Act of 1977 (aka Housing and Community Development Act) 8/17/1978 International Banking Act of 1978 10/15/1978 Financial Institutions Regulatory and Interest Rate Control Act of 1978 12/28/1979 Financial Institutions Deregulation Bill 3/31/1980 Depository Institutions Deregulation and Monetary Control Act of 1980 10/15/1982 Garn-St. Germain Depository Institutions Act of 1982 8/5/1983 An act ... [many words) to provide for backup withholding of tax from interest and dividends, and for other purposes 8/10/1987 Competitive Equality Banking Act of 1987 8/9/1989 Financial Institutions Reform and Recovery and Enforcement Act (FIRREA) 10/16/1990 Market Reform Act of 1990 12/19/1991 Federal Deposit Insurance Corporation Improvement Act (FIDICIA) 12/17/1993 Government Securities Act Amendments of 1993 9/23/1994 Riegle Community Development and Regulatory Improvement Act of 1994 9/29/1994 Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 11/12/1999 Gramm-Leach-Bliley Act of 1999 12/21/2000 Commodity Futures Modernization Act of 2000 7/30/2002 Sarbanes-Oxley Act of 2002 Public CQ Key Mayhew Bill Law Vote? Significant? 10/26/1970 HR 15073 91-508 no no 12/18/1970 HR 6778 91-607 no no 12/30/1970 HR 19333 91-598 no no 8/16/1973 HR 6370 93-100 no no 10/28/1974 HR 11221 93-495 no no 10/29/1974 S 3838 93-501 no no 6/5/1975 S 249 94-29 no yes 12/31/1975 S 1281 94-200 no no 2/9/1976 S 2672 94-222 no no 4/19/1977 HR 3365 95-22 no no 10/12/1977 HR 6655 95-128 no no 8/17/1978 HR 10899 95-369 no no 10/15/1978 HR 14279 95-630 no no 12/28/1979 HR 4998 96-161 no no 3/31/1980 HR 4986 96-221 no yes 10/15/1982 HR 6267 97-320 no yes 8/5/1983 HR 2973 98-67 yes, in Senate no 8/10/1987 HR 27 100-86 House no 8/9/1989 HR 1278 101-73 Both houses yes 10/16/1990 HR 3657 101-432 no no 12/19/1991 S 543 102-242 House no 12/17/1993 S422 103-202 no no 9/23/1994 HR 3474 103-325 no no 9/29/1994 HR 3841 103-328 no no 11/12/1999 S900 106-102 House yes 12/21/2000 HR 5660 106-554 no no passed as HR 4577 7/30/2002 HR 3763 107-204 Senate only yes PresDoc PresDoc Prepassage Postpassage Noted by ([dagger]) ([double dagger]) which Sources 10/26/1970 -- -- 1,3,7 12/18/1970 1970 (3/24/69) -- 8 12/30/1970 2549 2870 (12/30/1970) 6 8/16/1973 -- -- -- 10/28/1974 -- 4522 -- 10/29/1974 -- 4519 -- 6/5/1975 4788 4970 -- 12/31/1975 -- 5799 (1-/1/76) 3 2/9/1976 -- -- -- 4/19/1977 -- 7371 -- 10/12/1977 -- 6782 2.7 8/17/1978 -- No ([double dagger]) 1,2,7 10/15/1978 -- No ([double dagger]) 2.7 12/28/1979 31412 31883 -- 31637 3/31/1980 32378 33206 2,3,4,5,7 31637 10/15/1982 -- 41872 2,3,4,5,7 8/5/1983 41200 -- -- 8/10/1987 -- 34677 (8/10/87) 2.7 8/9/1989 17153 17414 1,2,3,4,5,7 10/16/1990 -- 18936 -- 12/19/1991 -- 20378 1,2,3,5,7 12/17/1993 -- 46251 -- 9/23/1994 49074 49130, 51413 2.7 9/29/1994 59882 49178 1,2,3,4,5,7 11/12/1999 74736-SAP 56921, 56922 1,2,3,4,5,7 12/21/2000 74825-SAP 1073 4 7/30/2002 24626-SAP 73333 1,2,3,5,6,7 ([dagger]) Entries are the id numbers ("pid") of documents on the American Presidency Project database referring to this legislation either before or after passage. ([double dagger]) Indicates an instance when the White House Press Office noted that the president signed legislation, but no presidential statement was released. Sources: 1 Murphy (2008) 2 U.S. Federal Deposit Insurance Corporation (2007) 3 U.S. Government Accountability Office (2007) 4 Sherman (2009) 5 U.S. Department of the Treasury (2008) 6 SEC, Federal Securities Law. http://www.sec.gov/investor/pubs/securitieslaws.htm (accessed December 15, 2011) 7 Florida Office of Financial Regulation (2011) 8 Hayes (1971) TABLE 2 Administration Announcements of Workgroups and Studies; Dates of Reports, Messages, and Requests to Congress Date Title 6/16/1970 Statement Announcing Membership of the Commission on Financial Structure and Regulation ("The Hunt Commission") 12/1/1971 Report of the President's Commission on Financial Structure and Regulation (Hunt Commission) 8/3/1973 Special Message to the Congress Proposing Changes in the Nation's Financial System 3/19/1975 Special Message to the Congress Proposing Reform of Financial Institutions Regulations 5/13/1976 Special Message to the Congress Transmitting Proposed Agenda for Government Reform Legislation 7/22/1976 Special Message to the Congress Urging Action on Pending Legislation 5/22/1979 Financial Reform Legislation: Message to the Congress Proposing the Legislation 8/1979 Deposit Interest Rate Ceilings and Housing Credit: The Report of the President's Inter-Agency Task Force on Regulation Q. 1/1981 Report of the President: Geographic Restrictions on Commercial Banking in the United States 7/1/1984 Blueprint for Reform: Report of the Task Group on Regulation of Financial Services (Task Group created December 1982) 1/27/1987 Message to the Congress on "A Quest for Excellence" 2/19/1987 Message to the Congress Transmitting Proposed Trade, Employment, and Productivity Legislation 11/5/1987 EO 12614 Task Force on Market Mechanisms 1/8/1988 Statement on Receiving the Report of the Presidential Task Force on Market Mechanisms 1/25/1988 Legislative and Administrative Message: A Union of Individuals 3/18/1988 Executive Order 12631--Working Group on Financial Markets 6/14/1989 Letter to the Speaker and the Minority Leader of the House of Representatives on the Financial Institutions Reform, Recovery and Enforcement Act of 1989 2/12/1991 Modernizing the Financial System: Recommendations for Safer, More Competitive Banks 11/1/1997 American Finance for the 21st Century: Treasury Report Subsequent to Riegle-Neal Act of 1994 Statement on the 4/29/1999 Report of the Working Group on Financial Markets 5/4/1999 Remarks Announcing the Financial Privacy and Consumer Protection Initiative 12/16/2004 Remarks in a Panel Discussion on Financial Challenges for Today and Tomorrow at the White House Conference on the Economy 1/4/2008 Remarks Following a Meeting with the President's Working Group on Financial Markets 3/1/2008 Blueprint for a Modernized Financial Regulatory Structure 2/6/2009 Executive Order 13501--Establishing the President's Economic Recovery Advisory Board 11/17/2009 Executive Order 13519--Establishment of the Financial Fraud Enforcement Task Force TABLE 3 Illustrative Newspaper Headlines Reflecting Ongoing Administration Engagement on Financial Regulatory Matters Date Headline Source 1/28/1972 Treasury Asks Tax Break for Banking WSJ * Divestitures 1/23/1973 "Checking" at Thrift Banks is Endorsed by WSJ Treasury 8/6/1973 "Nixon's Proposed Banking Overhaul To Trigger WSJ Long Fight in Congress" 7/16/1974 "Curb on Citicorp--Type Notes Is Opposed for WSJ Now by Federal Officials at Hearing" 8/26/1974 "Wider Bank Role in Investment Services Is WSJ Endorsed by the Justice Department." 2/5/1975 "Simon Assails Bill that Would Force Fed to WSJ Allocate Credit for Specific Priorities." 3/20/1975 "Bill to Aid Banking Industry Competition Is WSJ Revised by Ford, but Outlook Is Cloudy." 3/12/1976 "Bill to Merge Bank Regulatory Agencies Is WSJ Strongly Opposed by the White House." 6/10/1977 "Congress Gets Carter Bill to Allow Banks, WSJ Others to Pay Interest on NOW Accounts" 11/13/1978 Bank Regulatory Bill Is Signed by President WSJ 10/16/1981 "Regan Outlines Deregulation Plan for Banks" WSJ 12/1/1981 "Don Regan: Point Man on Bank Deregulation" WSJ 7/11/1983 "Reagan Sends Congress Proposed Banking Bill" WSJ 9/12/1983 "Banking Regulation Examined [by Bush Task NYT Force]" 2/1/1984 "New Banking Agency Would Be Formed Under WSJ Proposal to Streamline Regulation" 6/14/1985 "Baker Urges Congress to Approve Law to WSJ Establish Full Interstate Banking" 4/11/1989 "House May Seek to Relax Capital Rules in WSJ Thrift Bill; Bush Veto is Threatened" 2/5/1991 "White House Alters Plan on Bank Laws" WSJ 2/8/1991 "Treasury's Plan to Overhaul Banking Could WSJ Diminish Fed's Regulatory Role" 7/17/1991 "Reigle Seeks Stricter Limits on Banks than WSJ Bush Administration Has Proposed." 12/28/1992 "Nobody Knows What's in Store for Bank Reform AB ** during the Wait for the Clinton Finance Agenda." 2/17/1993 "Clinton Considers Proposals to Reduce WSJ Regulatory Barriers to Bank Lending." 11/24/1993 "Administration Proposes Combining Four U.S. WSJ Agencies' Banking Functions" 9/20/1994 "House Banking Panel Shelves Derivatives Bill AB at Urging of Treasury, Committee Members" 12/2/1994 "Glass-Steagall needs to Be Reexamined, AB Treasury Official Asserts" 2/28/1995 "Clinton Plan to Repeal Glass-Steagall Act AB Splits the Industry" 9/11/1995 "Banking Law Ace Jerry Hawke is Back on the AB Case at Treasury" 11/18/1997 Capital Briefs: Treasury's Report on the Future AB Finally Arrives * Wall Street Journal; ** American Banker.…