Party, age, political experience, and personal style separate Republican Senator Scott Brown and Democratic Representative Barney Frank. Home state loyalty has brought them together. Consider their success in opening loopholes in the financial regulatory reform legislation for Massachusetts brand names such as Fidelity Investments, MassMutual, and State Street (STT).
Brown, 50, rocketed to prominence just this year as the Tea Party favorite who won a special election and took the seat of the late liberal lion Edward Kennedy. Before a modest career in the Massachusetts state legislature, he appeared as a centerfold in Cosmopolitan magazine in 1982. Brown became a key player in Washington merely by showing up as "No. 41," the senator who broke up the Democrats' 60-member filibuster-proof supermajority. He made it possible for Republicans to block any legislation, and he has taken advantage of that dealmaker role.
Frank, 70, belongs to the liberal Washington establishment Brown ran against. Elected in 1980, he chairs the powerful House Financial Services Committee and was a primary architect of the Wall Street overhaul bill now awaiting final passage in the Senate. Typically rumpled, with shirt untucked and hair uncombed, Frank isn't obvious centerfold material.
As an influential committee chairman at the center of the reform debate, Frank was a central target for financial-services executives and lobbyists. In recent months he has met with Fidelity President Abigail P. Johnson and executives from State Street and insurance companies to discuss the legislation, he says. Exemptions for financial-services companies in his state don't water down the bill, Frank argues.
"Massachusetts has a number of large financial institutions that are big and solvent," says Frank. "We want to make sure that the regulations aimed at excessive leverage and volatility don't unduly restrict them."
Brown's yes vote on the overall bill—pledged, revoked, and then ultimately delivered—allowed the regulatory measure to pass the Senate in May. Now, after arduous interhouse negotiations to reach a compromise, the legislation has passed the House again and requires a final Senate vote. That gives Brown another opportunity to make a mark. He is withholding his support for the moment, saying he will study the adjusted bill. Whether or not his vote turns out to be decisive, the legislation is expected to contain Massachusetts carve-outs that he and Frank favor.
Working with Frank, Brown sought assurances that businesses holding an unusual type of bank charter, known as a limited purpose trust, wouldn't automatically fall under the jurisdiction of the Federal Reserve's expanded regulation of "systemically important" financial companies. Boston-based Fidelity, which manages $1.5 trillion as the world's largest mutual fund company, holds such a charter. The insurance company MassMutual has a banking operation chartered as a limited purpose trust.
Brown also asked Frank to ensure that Boston's State Street Bank, which manages money mainly for institutions, wouldn't be harmed by the overhaul bill's restriction on proprietary trading, a provision known as the Volcker rule, after former Fed Chairman Paul Volcker. The bank feared that the new rules would make it harder to manage its money market funds.
The final legislation allows State Street and other banks to invest 3 percent of their own capital in hedge funds or private equity funds. It exempts all insurance companies and mutual funds from the Volcker rule. Frank also excluded mutual funds and insurers from a $19 billion assessment on the financial industry, before that provision was stripped altogether from the bill because of Republican opposition.
Brown declined to comment for this article. In the past he has said he is trying to shield Massachusetts firms that played no role in the financial crisis. Members of his staff point out that the changes the rookie senator and the veteran House committee chairman made in the overhaul legislation aren't purely parochial. The alterations will ease rules for large financial institutions nationwide, the Brown aides note, not just in Massachusetts.
The bottom line: A Senate neophyte and a House leader collaborate to shield Massachusetts companies from financial regulation.