Awash in bank money, Washington faces reform test

By Kevin Drawbaugh - Analysis

WASHINGTON (Reuters) - President-elect Barack Obama and congressional Democrats face a tough test proving they want to fix the U.S. financial system after taking millions of dollars in campaign donations from banks and Wall Street.

Big decisions loom on reining in the exotic securities markets, shoddy lending practices and regulatory failures behind the worst U.S. economic crisis in decades, with financial industry lobbyists already preparing for battle.

The coming fight raises questions about whether Washington is capable of overhauling an industry more deeply insinuated into the halls of political power than possibly any other.

Politics in the U.S. capital is heavily influenced by money donated to Democrats and Republicans alike by business interests that often play both sides of the partisan fence to win access and influence no matter who is in power.

"We've created this situation where ... the only way to get elected or re-elected is to take large sums of money from special interests who want something from government," said Daniel Newman, executive director of MAPLight.org, a nonpartisan, nonprofit campaign finance watchdog group.

If large donations buy the same clout today that they have in years past, average citizens should be worried about the scope and shape of next year's reform agenda, said experts in campaign finance and financial market regulation.

"The financial services industry over the last 10 years has been the largest industry that donates to members of Congress ... Both President-elect Obama and (presidential rival) Senator McCain received more than $20 million from this industry," Newman said.

Obama's campaign took in more money from donors in the finance, insurance and real estate sector than any other 2008 candidate, according to the Centre for Responsive Politics, citing Federal Election Commission records as of mid-October.