All of that activity was presumably helpful in ensuring that first the Senate and later the House voted in favor of (an amended version of) the Paulson plan. But with the immediate crisis averted, business—and the financial services sector in particular—had better brace itself for a significantly tighter regulatory regime once the dust has settled.
As a result of government interventions and fire sales, three banks—JP Morgan Chase, Bank of America and Citigroup—are likely to control a third of all deposits once the dust settles. They will be too big to fail, and they will be so big that they will have enormous control over the cost of borrowing. All of that means they will need tighter regulation than has been imposed on banks in the past—and particularly in recent years.
“We will have to come back and redesign how we regulate our financial industry,” acknowledges John Castellani, head of the Business Roundtable. “We hope to do that in a calm and considered way with a new Congress and a new administration. But we’ve got to get to next year, and that is why we are willing to accept more regulations…. None of this, in a stand-alone bill, in calmer times would be, in our view, necessary. It is necessary now, and it’s necessary to get our problem fixed.”
But since the business community had spent years arguing against government oversight, it is unlikely to start any discussion about increased regulation in a position of strength.