Bank Lawyer's Blog

Barney Bites Bernie (And Neel)

Now that hell has frozen over, I find that all kinds of amazing things are occurring, one of which has created the danger of ripping a huge hole in the space-time continuum: I find myself in agreement with Barney Frank.

While watching the PBS News Hour this past Thursday night, who should pop up but the former House Banking Committee Chair and favorite Bank Lawyers Blog Bullseye, Barney, who was interviewed by Jeffrey Brown about Frank's reaction to statements by Neel Kashkari, currently president of the Federal Reserve Bank of Minneapolis and former Bush Bailout TARP Toolmaker, and the ever-cranky Bernie Sanders, Gen Y's favorite "Democratic Socialist," about "To Big To Fail Banks." Sanders also alleged that the way to break up big banks is to reimpose the Glass-Steagall on commercial banks. Frank, now that he's out of the political arena and no longer feels compelled to be what every politician feels he or she must be, i.e., a caster of shade upon of the truth, was remarkably critical of two gents who are spouting the Democrat Party line about the evils of Wall Street's "TBTF" banks.

Barney may have gained some objectivity, but he's lost none of the pungent-tongued arrows from his verbal quiver.

In the first place, both Senator Sanders and Mr. Kashkari continue to evade the biggest question. That is, how big is too big? The crisis which touched off when Lehman Brothers couldn’t make its payment, Lehman Brothers was about $650 billion in assets. We have banks four and five times that size

And the question is, does everybody have to be smaller than Lehman Brothers is today? But that would have consequences. Getting there would be a problem. By the way, it should be very clear, Glass-Steagall doesn’t do it. There is a disconnect between Senator Sanders insisting that the banks be broken down to the point where they won’t by their own size threaten, if they have too much debt, to undermine it.

And Glass-Steagall — Glass-Steagall would reduce — it wouldn’t do anything to Goldman Sachs and to Morgan Stanley, which are almost Glass-Steagall-ized themselves. But looked at Citicorp, or J.P. Morgan Chase, or Bank of America, Wells Fargo, even if they were subject to Glass-Steagall, they would still be well beyond the size that Lehman Brothers was.

There is just a disconnect between saying we’re going to do Glass-Steagall and getting the banks down to a size where, if there was a complete failure, you would get damaged by it.

The entire response above by Frank is remarkable for the fact that he's right. It's obvious that he's not been spending his time since retirement sampling the wares of Mar Jane-related "legal" businesses in Colorado.

Frank also jumped all over Kashkari's comparison of the 2008 meltdown to the S&L crisis of the 1980s, and Kashkari's statement that the reason the S&L crisis didn't bring the economy down was because none of the S&Ls was "too big to fail." Again, Frank asks why Kashkari won't tell us how big is too big? He also correctly notes that the bailout of the S&Ls cost a lot more than the bail out of big banks in 2008, although he does not also observe that this was because the 2008 TARP allowed the big banks to survive, while the S&L "bailout" allowed them to fail (or most of them, at any rate (outside the Southwest Plan thrifts), and established the Resolution Trust Corporation, staffed by the FDIC, to liquidate their assets. If the politicians, including Frank, had stayed out of it in the 1980s and let the initial bailout template concocted by the former Federal Savings and Loan Corporation play out, there's a chance that the money from that bailout might also have been largely repaid.

Frank says the primary risk is not size but "indebtedness," and on this point he's got a point. However, I disagree with his assertion that his bloated namesake, Dodd-Frank, has dealt successfully with the risk of bank's engaging in excessive borrowing and hinky derivatives that made "The Big Fail" such a hit (his misapprehension of the effect of the Volcker Rule has been lambasted previously), and his assertion that now, no bank is too big to fail. 

If a large institution can’t pay its debts, it fails. It is not too big to fail. It is put out of business, by law. No federal official can advance any money to pay its debts under the law until it is dissolved.

TARP also required legislation to create, and the wide-open authority it provided the federal government to bail out banks was induced by panic among folks at the highest levels of the federal government (including Frank) of immanent widespread economic collapse. We'll see how effective Franken-Dodd is when the next crisis hits, as it inevitably will. There's no prohibition on a future panicked Congress changing the rules on the spur of the moment to do what Frank claims can never again be done.

To prove that I haven't completely turned to the dark side, I think his statements about overturning Citizens United are bunk. Nevertheless, all-in-all, startlingly, he makes a lot of sense.

The More Things Change

Six years ago, right before the Big Bang that sunk this country's economy, we discussed problems of declining net interest margin on bank profitability, the ineffectiveness of the rate-cutting efforts of the Federal Reserve to boost that margin, and that banks were desperately seeking income from all sorts of other fees (including overdraft fees) and new lines of business to combat the problem. Over half of a decade later, the situation sounds distressingly similar.

Central Massachusetts banks are feeling the squeeze — the interest rate squeeze.

Financial performance among banks based in Worcester County during 2013 reflected the fine line institutions are facing as they grapple with slim margins while investing in technology and working to comply with new federal regulatory requirements.

"We really, over the last five to six years, have seen the net interest margin shrinking year after year," said Thomas J. O'Connor, vice president in charge of the financial institutions practice at G.T. Reilly & Co. of Milton, an accounting and consulting firm that works with community banks. "It's really the market conditions. These aren't institutions that have done anything wrong. If anything, they've done everything right."

[...]

All the banks face a common problem: Costs to manage customers' deposits while complying with federal regulations, especially reforms enacted under Dodd-Frank legislation in 2010, are steady to rising. Yet interest rates paid by borrowers taking out new loans are low.

The result is low net interest margins, or the net income that banks make charging and paying interest relative to the bank's assets. In Central Massachusetts, eight banks had net interest margins smaller than overhead costs relative to assets during 2013.

"Bank earnings are going to be suppressed until interest rates start to rise at some time in the future," said Commerce Bank President and Chief Executive Brian W. Thompson. "I don't think there's any expectation that's going to happen until sometime in 2015."

You can substitute "Central Massachusetts" with pretty much any other geographic area, and you'll have the same problem as far as the interest rate yield curve is considered.

The yield curve problems go back even further than 2008, when the world came crashing down around us. The following is from a blog post I wrote in August 2005:

The underlying economic problem for the banks is the flat yield curve. It's frankly without precedent (outside of a recession), or at least that's what my bank and hedge fund clients tell me. I defer to them on such matters, because I'm merely their mouthpiece with no mind of my own. However, assuming that this is true, banks can't make nearly enough money making conventional loans for the simple reason that the spread between what they pay to borrow the money (for example, by issuing a certificate of deposit to a consumer) and what interest rate they can charge on a loan they make with the funds borrowed, isn't enough to cover operating expenses, much less make a profit. That's the problem when the spread between two- and ten-year bonds is 20 basis points (0.02%), and the spread between two- and thirty year bonds is 40 basis points (0.04%). Thus, there has  been increasing pressure on banks to increase fee income, from whatever sources are legal.  The fees charged are legal. The banks are trying to make money. It's what they do.

Later that year, the curve became inverted.

If Mr. Thompson is correct, the interest rate squeeze will have lasted over a decade. Thus, while much has changed in the world of banking in the last nine years, banks find themselves in a distressingly similar place today: trying to make a buck from sources other than interest rate spread. They are trying to do so while coping with a post-Dodd-Frank world in which the elephant in the room, the CFPB, sets the tone for vigorous opposition to "taking advantage" of "fog-brained consumers" who don't have a clue what's in their own interests. "Taking advantage" means "making any money from banking services provided to." Thus, overdraft fees have been savaged, debit card interchange fees have been squeezed, proprietary trading hammered, and "subprime," "payday," "tax refund anticipation," and "deposit advance" all have been rendered to be four-letter words by the federal banking regulators.

The future sure looks rosy, doesn't it?

Charlie Munger: A Favorite Curmudgeon

Warren Buffet's long-time running buddy, Charlie Munger, agrees with Cam Fine about one thing: it's time to break up (or at least "simplify") the big banks.

In an interview with CNN at Berkshire Hathaway's annual meeting, Munger, who is Warren Buffett's chief lieutenant, said he thinks the big banks are still too complicated and dangerous for the economy. But he doesn't think a recently proposed bill by Senators Sherrod Brown and David Vitter, which has gotten praise from others who want to rein in big banks, is the answer.

"I think if you increase the capital requirements and let them do what they want, they will just get in trouble again," says Munger.

Munger's preferred prescription sounds like a stricter version of the Volcker Rule, which was meant to limit risky trading at the banks and was included in Dodd-Frank, but has yet to be implemented. He would force the banks to get out of their business of underwriting and trading derivatives, financial contracts that allow you to speculate, some say hedge, on commodities, interest rates, and other things. About a year ago, JPMorgan Chase (JPM) announced it had lost billions on a credit derivative hedge that had not worked out as expected.

As CNN reporter Stephen Gandel notes, Munger's words carry additional weight, because he's calling for action against banks like Wells Fargo and Bank of America, institutions in which Berkshire Hathaway has sizable investments.

Munger thinks that big banks should be more heavily regulated, and that more regulation will be just what the profit doctor ordered. "By getting out of risky businesses, banks may end up giving back much less of their bull market gains in the down years" He thinks that banks should stick to their knitting, lending. "The ideal bank is pretty boring." I agree.

Gandel thinks that if Munger actually believes that more regulation and smaller size lead to greater profits, then he has a fiduciary duty to Berkshire's shareholders to press banks like Bank of America to pare down their size and accept tighter regulation (instead of unleashing the lobbyists on Congress).Munger thinks that's the job of the regulators. I'd argue it's the role of Congress, but I'd also agree with Munger that Berkshire Hathaway isn't going to persuade Bank of America to accept being broken up or buried under an avalanche of more regulation.

Munger said he and Buffett make investment decisions based on the world they are in, not what they wished it to be, which is fair.

Like Buffet, Munger has always pretty much said what he thinks. As he ages, he's not becoming any less candid. It makes for an interesting interview.

Refraining From Punching The Punching Bag

A regular reader sent me a link to a video of a recent interview of Sheila Bair by Bill Moyers. Bair plus Moyers equals big bank bashing, and you know going in what you're going to hear. For those who expect me to do my usual double-tap to Bair's forehead, I'm sorry to disappoint you. I didn't think she was that far off base.

Moyers tried to serve her some softballs that she could stroke into the far left-hand corner of the outfield, but to me, Sheila seemed, for the most part, to resist the temptation to play to Moyer's typical crowd (take a look at the comments box for a sampling). She let it be known that while she's no fan of the management of the largest banks, and she believes that the federal bank regulators have suffered "cognitive capture" by those banks, she also thinks that trying to modify Dodd-Frank to add more specific provisions regarding breaking up the big banks is a fool's errand. Not only is it impossible to effect in the current political environment, but the regulators already have the tools to accomplish what they need to accomplish regarding mitigating the risk of the "Too-Big-To-Fail" institutions. That's the theory, at any rate, and I don't find it to be an unreasonable one.

Of course, the regulators had all the tools they needed to prevent the latest financial disaster and didn't use them effectively. Yet, we can always have hope, can't we?

I do find her purported amazement at the fact that banks use their own internal models to assign risk weights to certain held-for-trading assets to be, itself, amazing. As Dealbreaker's Matt King observed not too long ago, the banks base their models on public information and that information is, to put it mildly, "opaque." I doubt that the regulators would have much more success in assigning across-the-board risk weights to such assets in the same manner that they can assign risk weights to single-family mortgage loans. Moreover, the regulators have not been clamoring to usurp the banks' internal models with spiffy new and improved models of their own, have they? Maybe they have and I've simply missed the clamor.

I also found amusing her contention that Congress could have been more "prescriptive" in Dodd-Frank, contrary to the wishes of the regulators, who wanted to retain more discretion to set the rules. Leaving aside her own position on this issue in the formulation of Dodd-Frank, that act was drafted so hastily and rammed down the throats of the opposition so quickly that the very idea that the folks who wrote it could have nailed down "prescriptions" in any coherent fashion is implausible. On the other hand, as we've found in many of the lawsuits that the FDIC has filed against former officers and directors of failed community banks, hindsight is amazingly clear-eyed and Sheila has the benefit of 20/20 hindsight.

All-in-all, however, Sheila is sounding almost reasonable these days. Or, perhaps, I'm merely mellowing.

Hedges and Hedgehogs

I'm traveling for the next couple of days and will be off the air. Some interested readers have written to me and asked what I think about the OCC's memorandum in support of its motion for summary judgment, filed last Friday, in the ongoing lawsuit by United Western Bank to overturn the FDIC receivership into which it was placed over a year ago. A couple of people sent me copies of the memorandum, and I thank them for it. However, I was traveling over the weekend and will be again tomorrow, and given my schedule and typical commitments in the week before a holiday, I won't review all 87 pages of it until this weekend. I know it comes as a shock to those readers who expect me to shoot from the lip, but I'd like to take some time to parse this one and see how it responds to the plaintiff's motion and supporting memorandum. That shocking desire to be prudent in my analysis won't likely be repeated frequently.

However, I will respond in typical fashion to several requests for comment on the recent hedging loss by JPMorgan Chase. Jamie Dimon is still taking heat for it and rightly so. It was a public relations disaster and a black eye for banks of all sizes due to the fact that so much of the bank-hating public wants to occupy everything other than a library, and lumps community and regional banks in with the largest of the large on Wall Street. That said, the financial effect on the bank was not earth-shattering. It temporarily hurts profits, but does not imperil the bank. It's puzzling to me that a purported "hedging" position could suffer a $2 billion to $5 billion loss. That sounds like a speculative trade, to me, although it appears that Chase's public spin is that it was a horrendously executed epic fail of a botched hedge.

Whatever the intended transaction might have been, hedges aren't designed to "eliminate" risk, they're designed to "reduce" risk. If properly considered and executed, they should cap losses at predetermined limits assuming certain worst-case scenarios occur. If those scenarios do not occur, then in many cases the bank has paid for protection it didn't ultimately "need," just like insurance. On the other hand, some perfectly proper hedges can result in some gain for the hedger if circumstances turn out to be go the other way. It shouldn't be a huge profit (if the transaction is a true hedge of downside risk), but there can be gains realized. The only hedge that completely "eliminates risk" is "don't make any investments." You have to take some risk to make some return.

Someone should tell that to Barney Frank. He was interviewed by MarketWatch last Friday and displayed a woeful lack of knowledge.

Q: Another area some lawmakers are concerned about is the way the Federal Reserve and other regulators interpret the Volcker rule, which is designed to prohibit speculative trading by big banks. Some senators say the regulators’ proposal allowing for portfolio hedging is a large loophole for continued speculative trading.

A: A portfolio hedge is not a hedge; it is a speculative bet. A hedge is aimed at being neutral on a particular asset, aimed at neither losing or gaining. They are trying to make money. The hedge is to take the risk out. I agree that is a problem.

It is so much more complicated than that, Barney. However, a simple answer to your simple answer is to tell you that you wouldn't know a hedge from a hedgehog. In that respect, however, we'll have to give Barney the fact that he's no different than most members of Congress. That lack of knowledge never stops them from opining, though, does it?

Brian Bruises Barney's Ego

Barney Frank got into what Housing Wire's Jessica Huseman describes as a "cat fight" today with CNBC's Brian Sullivan. Frank took umbrage at Sullivan interrupting Frank in the midst of an answer to a question, and Sullivan's repeated warning that he needed to interrupt because he was waiting for the president rang hollow, not only to Frank but to any disinterested listener, since, as Ms. Huseman points out, "this president has been at least a half hour late to just about every speech he’s ever given since the start of his presidency." On the other hand, Frank complaining about someone else treating him rudely is like Lindsay Lohan calling out anyone for abusing blow. "Pot, meet kettle!"

You can view the entire "cat fight" here. From my standpoint, it's impossible to pick a cat to root for. They both deserve to be bagged in burlap and flung from the middle of the Royal Gorge Bridge.

Jessica cuts to the chase, though.

Barney Frank, who was on-air originally to talk about the GOP’s efforts to water down Dodd-Frank regulations on derivatives, essentially said his self-titled legislation still doesn't go far enough. He said there should be complete transparency in the prices of derivatives — something that would change the entire nature of the derivatives market.

Derivatives rely on their ability to be kept under wraps. Transparency on the level Frank is advocating would shake the market and distort the ability of the buyer and seller to reach a price on their own. Pricing deals in secrecy is a cornerstone of the market, one that Dodd-Frank seeks to disassemble.

But did Sullivan touch on any of that? No. Why? Well, he was waiting on the president.

He'd have been better off waiting for Godot.

If Jessica keeps up this level of delicious snark, I might have to beg her to guest post.

Dimon In The Rough

With fringe elements of Occupy Wall Street and The Tea Party currently spazing out so far into the ether of the opposite ends of the political spectrum that they are likely to join hands on the far side of the moon, I think it's safe to say that for vast segments of the American public, when Jamie Dimon talks, nobody listens, especially when what he's talking about is how the Volcker Rule "might" make the largest American banks less competitive with their foreign counterparts. He could be right, he could be wrong (he could have sworn he saw a light coming on*), but I guarantee you that most people reading that interview at this moment in time don't care. They may in a year or two, but today they simply can't work up an ounce of concern that JPMoragan Chase's trading profits were down $900 million for the quarter and that the Volcker Rule might exacerbate that problem.

Also lost in the overriding barrage of white noise emanating form the fringes of inner space is Dimon's very sound admonition about unintended consequences (a topic near and dear to our black and withered hearts).

“Maybe excessive risk was taken by some people,” Dimon said, but added that regulators and the government shouldn’t do things without understanding the full implications.

Sorry, Jamie, that train left the station a long time ago and has been in run-away mode for a while.

Strangely (or not-so-strangely, for those who consider Dimon a thoughtful man), he feels the pain of the people who think he and his ilk deserved to be shot down without being given a running head start.

When asked about the Occupy Wall Street protests that have grown from a few citizens to a global movement, Dimon said he could understand why everyday Americans are upset.

“You have to be looking at Washington and the big banks and asking what is going on,” he said, adding that job creation is key to getting the economy back on track.

It's not merely that "everyday Americans" are looking at Washington and the big banks and asking "what's going on?" It's that they're looking and asking "Where'd I put that cattle prod and my box of spare of RPGs?"

*obscure reference to Radiohead's "I Might Be Wrong"

Dodd-Frank: The Lobbyist's Mescaline

The ether was wearing off. The acid was long gone. But the mescaline was running strong. Good mescaline comes on slow. The first hour is all waiting. Then about halfway through the second hour, you start cursing the creep who burned you because nothing's happening. And then - ZANG!
---Hunter S. Thompson, "Fear and Loathing in Las Vegas"

If you thought that the lobbying that occurred during the run-up to the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act was hot and heavy, the Washington Post's Amanda Becker says that you ain't seen nothin' yet.

The Dodd-Frank Wall Street Reform Act has generated more work for lawyers and lobbyists since being signed into law than during even the frenzied days leading up to its passage in the House and Senate last summer.

That's because a host of federal regulatory agencies are now in the process of trying to write the rules that will turn the law into reality.

Work has begun on drafting 243 rules and on 67 separate studies by the likes of the Treasury Department, the Securities and Exchange Commission, the Commerce Department, the Commodities Futures Trading Commission and other regulatory agencies, according to one estimate by the law firm Davis Polk & Wardwell.

"In a way, during the run-up to the legislation, while it was very active, there was a limit to how much people could really influence the statute," said Covington & Burling's Mark E. Plotkin. "The implementation phase is really industry's opportunity to influence what the final product looks like."

The gravy train appears to be engineered by those law firms with big D.C. offices and ex-government lawyers who know somebody who knows somebody who knows somebody who will "take a meeting."

Some of the attorneys making the most frequent appearances come from the District offices of Alston & Bird; Gibson, Dunn & Crutcher; Patton Boggs; and Skadden, Arps, Slate, Meagher & Flom. Winston & Strawn's Peter Y. Malyshev, who has attended dozens of commission meetings, said the "unprecedented" scope of the rules that must be drafted over the next year has prompted the CFTC to "reach out very actively to both the business community and the legal community to explain the rules' likely impact and what the unintended consequences might be."

Delta Strategy Group's Scott Parsons was one lobbyist who met frequently with CFTC staff. Parsons says Delta's specialty in commodities and derivatives gives the firm a leg up in helping clients through the implementation of Dodd-Frank.

"We were doing derivatives before derivatives were cool," Parsons added.

Imagine a land where "derivatives are cool." Then, imagine that land layered with lobbyists and lawyers. Now, imagine an ICBM carrying a B83 thermonuclear warhead plowing straight into that land.

Yeah, I know. As the Chevy Hemi guy would cry: "Sweet!"

Well, dream on, dear banker, because reality bites, and in the real world of D.C., the fun has only just begun.

Both lobbyists and lawyers say Dodd-Frank work is unlikely to dry up anytime soon. Plotkin reports he recently requested three additional associates to keep up with client demand. Most attorneys estimate the rules will be hammered out over a period that will span not months but years.

Years of billable hours and fat retainers. So it was in the beginning. So it shall always be.

ZANG!

Sheila Talks Turkey About Derivatives

I assume that no Blue State readers ever watch Fox Business News, and, therefore, as a public service to them, I'm posting an embedded video of a recent interview of Sheila Bair on that cable channel in which she makes some sense about why tearing derivatives trading desks out of banks would be a bad idea. Among other cogent points, she makes the following:

• Derivatives aren't all evil.
• Banks need them to hedge interest rate risk, for themselves and other financial institutions.
• Legislators who say stupid things like "AIG shouldn't be able to use insured deposits" should sit down, shut up, and let the adults talk.

She finishes up by confusing the poor interviewer on the issue of "dressing up the balance sheet" at the end of each calendar quarter. That didn't appear to be an extremely difficult task for her to accomplish, since I assume he was probably day-dreaming about either Angelina Jolie or an ice-cold Bud Light (or both) rather than the calculation of risk-based capital ratios based on average assets.

Enjoy!

National Bank Preemption About To Take A Body Blow?

Back at the start of last year, when discussing the Cuomo v. Clearing House Corporation case (I expected the OCC to win, which was a bad call that surprised more than merely me), I had a feeling that those of us who had spent our careers thinking that inexorable march of national bank preemption would never be halted until the entire world was under the thumb of the OCC would soon see a countervailing move by Congress, a move that had a good chance of eventually succeeding. As I said at the time:

Even should the OCC prevail as expected, there exists the risk that a ruling to uphold the Second Circuit might be the high tide of SCOTUS preemption rulings for national banks. With a new sheriff in the White House, with the Democrats in control of the House and Senate (although control in the Senate is not  filibuster-proof), and with preemption-hating Democratic leadership in Congress influencing the public debate, I can clearly see a scenario where Barney and the Boyz lead a charge for federal legislation that shortens the reach of national preemption as it applies to certain types of state laws such as those that are the subject of this action. I see much conflation in the public mind of predatory lending, subprime lending, discriminatory lending, unregulated and regulated lenders, banks and non-banks, into one big mess of "kill them all and let God sort the guilty from the innocent." When Joe and Jane Sixpack (and their elected representatives) are looking for scapegoats, national banks will do just fine.

As I said in October 2005, I think the states will continue to lose on these issues "unless Congress changes the law." At this point, it's merely a gut feeling and nothing more, but if there ever is a time that might be ripe for such a change, this year (or next, perhaps) might be that time. Regulatory reform legislation is coming to the banking industry, and the clipping of the wings of federal preemption might be part of that package.

When I last visited the House bill provisions on preemption in December, supporters of the OCC had made headway in the House bill, and it appeared that the OCC would score a nice win. My, how times have changed.

Last week, in the American Banker (paid subscription required), reporter Cheyenne Hopkins alleged that the largest banks (all national) were leaving the OCC all by its lonesome to fight the preemption battle in the Dodd bill in the Senate. The largest banks have bigger fish to fry, like trying to save their right to engage in blatant conflicts of interest proprietary trading and to combat any meaningful unduly restrictive regulation of derivatives (games in which community banks have no skin). That makes supporters of expansive OCC preemption powers concerned that something wicked is coming their way.

The Senate bill would reestablish the so-called "Barnett" Supreme Court standard that allowed the OCC to preempt state laws on a case-by-case basis but also forced the agency to show that a federal law exists to regulate the activity addressed by the state law.

"When people say that we are simply adopting the Barnett standard, that is simply not correct," said Robert Cook, a partner in the Hudson Cook law firm. "They are adopting the Barnett standard and a couple hurdles you need to leap. … I would be thrilled if we ended up with simply the Barnett standard. I'm afraid we are going to get much worse."

While some supporters in the Senate are crafting amendments to the Dodd bill to address the concerns of the OCC, no one thinks this is going to be an easy fight.

Cook said getting any change in the bill would be an uphill battle and that banks must choose their fights carefully. "The banks don't have a lot of time left now to make changes in the financial institution regulatory bill, and they have to pick their battles, and it's not clear to me they can fight all three or four issues," he said. "Unfortunately, large banks don't have a lot of capital to fight with right now. I am not optimistic that banks large or small are going to have much impact on this bill."

Looking for an optimistic angle in this sea of sorrow, American Bankers Association CEO Ed Yingling correctly called the ultimate winners on this issue, regardless of how much of a beating preemption takes in the Senate (and in the reconciliation process with the House bill already passed): trial lawyers.

Any new language in the reform bill would effectively nullify decades of preemption decisions by the courts, sparking more court cases. "It will take years and years of litigation to figure out what the new law means, creating uncertainty," Yingling said.

State regulatory officials agreed. "This isn't going to be resolved in the Senate," said Ryan. "Whatever comes out of the Senate is going to create ambiguity and a role for courts."

In a country with more than one lawyer for every 300 citizens, and with new litters of barristers and solicitors being birthed by the nation's law schools every six months or so, the mantra regarding this legislation is: "THIS is the change we've been waiting for! Sue, Baby, Sue!"