WASHINGTON — The fight for the presidency is over, but the battle over the future of financial services has just begun.
The next president will have a long and varied to-do list, including longer-term priorities such as reforming the regulatory system, rewriting the charters of the government-sponsored enterprises, and extricating the government from the banking business.
There will also be more immediate tasks, such as directing the government's rescue efforts, creating a foreclosure mitigation system, and deciding whether to press for accounting changes.
How and in what order the president-elect will tackle these issues is unclear, but observers agree he will have to move quickly.
"It will be very similar to the 1933 New Deal, where you have to come in and do some fairly tough action," said William Longbrake, a director of First Financial Northwest Inc. in Renton, Wash., and a former vice chairman of Washington Mutual Inc.
The largest challenge — and one likely to take some time — will be rewriting the financial regulatory system.
Treasury Secretary Henry Paulson teed up the issue this year, unveiling a blueprint that would essentially boil down the regulatory system down to three entities: the Federal Reserve Board, which would oversee systemic risk; a banking safety-and soundness regulator; and an agency to oversee business conduct.
Lawmakers have promised to start early next year on their own version of reform, and observers said the next president will have little choice but to offer his own plan quickly.
"The new president will be faced with the task of architecture, rewriting the regulatory system, the rules for the regulatory system," said Randal Quarles, managing director of Carlyle Group and a former Treasury undersecretary in the current administration. "I think political consensus will exist for doing that in a comprehensive way, which is something you know has been needed to be done for a long time, but it was always something that took political consensus to do it."
Scott Talbott, senior vice president of government affairs of the Financial Services Roundtable, said the new president's "challenge will be to find a way to modernize the regulatory structure to prevent this from happening again."
"One of the roles of the next president is how to untangle this mess," he said.
That task may have been complicated by efforts to unclog the credit markets. In recent weeks the government has given $125 billion of capital to the largest banking companies, and some large institutions have become even larger as a result of acquisitions. How to deal with "too big to fail" firms will be a top priority in the next administration.
"Regulatory restructuring is coming," said Jaret Seiberg, an analyst with Stanford Group Co. "The market has forced the hand of government. The old way just doesn't make sense anymore."
Another long-term challenge will be getting the government out of the role of private-sector banking. The Treasury Department has taken equity stakes in 36 banks, injecting $170 billion of capital so far. The government is expected to divest itself of those shares within three to five years, but some said that may prove difficult.
"The next administration is going to have to figure out how to make the transition out of bank ownership in a way the government gets paid off," said John Taylor, the president of the National Community Reinvestment Coalition.
Brian Gardner, a political analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., said he was pessimistic that the government could untangle itself easily.
"That's a naive idea," he said. "The idea that we are going to be getting the government out of the banking system — that is not going to happen, regardless of who wins the election. It is tough to see how the government is getting out of the business of banking."
The new administration will also have decide the fate of Fannie Mae and Freddie Mac. When they were put into conservatorship Sept. 7, Mr. Paulson said the existing model — public ownership with a government mission — did not work. He recommended that the next administration rewrite their charters.
Doing so will be tricky. A new administration could recommend chopping up the GSEs and fully privatizing them, going the other direction by strengthening their government ties, or embracing the status quo.
"They are going to decide what their role is in stabilizing the mortgage market," Mr. Gardner said.
The new president also will confront more immediate problems. Many observes question whether the Treasury will have spent much or all of the $700 billion Congress allocated it as part of the rescue bill by the time the new president takes office. Even if some funds were left over, the president would have to decide how to spend them — on more capital infusions, or on purchasing troubled assets, its original mandate.
Some observers expect the next administration to ask for more money but take steps to ensure more requirements are made of beneficiaries of a future plan.
"If there is a second equity offering or a new program in Tarp, I definitely believe there will be greater strings attached than what was in the first capital program," Mr. Gardner said.
The new president is also expected to have to focus more on foreclosure mitigation.
"There's no question that one of the things the new president will want to do, particularly if the new president is a Democrat, is focus more on the mortgage foreclosure problem," said Paul Lee, a partner at Debevoise & Plimpton LLP and a former Treasury official. "In a Democratic administration, there will be more focus on the Main Street problems. Part of what has happened over the last month has been damage containment, and some would say it is not addressed at the root of the damage."
That could entail revamping the Hope for Homeowners program, which so far has sparked little interest, and implementing a plan expected soon that would let lenders share mortgage losses with the government if they agree to undertake systemic modifications.
"The first and only priority is going to be to stabilize housing," Mr. Seiberg said. "Nothing else can get done until housing is stabilized."
Mike Calhoun, the president of the Center for Responsible Lending, said a better program is necessary. "The new program will look significantly different from what's on the table," he said. "I think everyone agrees what's on the table now is not preventing foreclosures, and I do think it's a matter of what it will be, not if there is a new initiative."
Other issues that are likely to come up include accounting problems. Complaints have steadily grown that fair-value accounting is a main factor in the financial crisis, because firms cannot determine a market price for certain assets.
Some industry representatives say they are hopeful the next administration will take on the issue. Accounting reform is "an issue I think people will try to put off, but I don't think they can," said Wayne Abernathy, executive director of financial institutions policy for the American Bankers Association. "It's a sleeper, but I think it's a big one."
