Friday, June 25, 2010House-Senate panel works to move financial regulation bill to Obama
Lawmakers scrambled Thursday to solidify a series of political deals in an effort to get a bill that would overhaul the nation's financial regulation to President Obama by July 4.
As the House-Senate conference committee played out its endgame, Democratic leaders spent much of the day negotiating behind the scenes over a pair of divisive issues -- bank trading and derivatives -- in a bid to win crucial votes for the final legislation in both houses of Congress.
Lawmakers worked Thursday evening to find a compromise on the "Volcker rule," named after former Federal Reserve chairman Paul Volcker. The measure could bar banks from trading with their own money, a practice known as proprietary trading.
Senate Democrats proposed legislation previously offered by Sens. Jeff Merkley (D-Ore.) and Carl M. Levin (D-Mich.) that would ban certain forms of proprietary trading and forbid firms from betting against securities they sell to clients. The Merkley-Levin measure never got a vote on the Senate floor.
"One goal of these limits is to reduce participation in high-risk activity that can cause significant losses at institutions which are central to the financial system," said the Senate banking committee's chairman, Christopher J. Dodd (D-Conn.). "A second goal is to end the use of low-cost funds, to which insured depositories have access, from subsidizing high-risk activity."
According to the Senate proposal, firms would have up to two years to scale back their proprietary trading and investments in hedge funds and private equity funds.
But even as they worked to toughen the Volcker language, Senate Democrats also proposed a narrow exemption at the behest of Sen. Scott Brown (Mass), one of four Republicans to vote for the financial regulation bill when the Senate approved it last month. Brown, whose state is a hub of the asset-management industry, wanted the bill to allow banks to put at least a small amount of capital in hedge funds and private equity investments. The Senate proposal would limit a bank's investment in private equity or hedge funds to 3 percent of the firm's tangible common equity.
The bill the Senate passed last month contained a version of the Volcker rule but gave regulators the power to tweak or nullify the provision depending on the outcome of a government study. The House bill, meanwhile, would have let regulators impose tougher standards at companies where proprietary trading threatens "the safety and soundness" of the company or the United States.
Democrats also rushed late Thursday to resolve differences over a proposal by Sen. Blanche Lincoln (D-Ark.) that would force big banks to spin off their derivatives businesses. Her amendment has been a thorny issue for Democrats for months.
Lincoln has stayed firm, saying that her provision is essential for protecting the financial system and preventing taxpayers from having to bail out banks again. Many liberals support the amendment, but it is opposed by an influential bloc of moderate Democrats and House Democrats from New York, where much of the derivatives industry is concentrated.
"We just want to make sure there are no unintended consequences," said Rep. Gregory W. Meeks (D-N.Y.), a member of the conference committee. "We always knew the hardest part of the bill to get done is the derivatives."
Administration officials and Democratic leaders continued to try to bridge the divide Thursday. Top Treasury officials, including Deputy Secretary Neal Wolin and Michael Barr, an assistant secretary, roamed the Dirksen office building, talking on cellphones and whispering with key lawmakers. Gary Gensler, chairman of the Commodity Futures Trading Commission, worked the committee room for much of the day. As dusk fell Thursday, the anxiety among administration officials was clear.
"I don't like the looks on your faces," Dodd's staff director told Wolin and Barr as the trio headed into the hall around 7 p.m.
Lawmakers also moved closer Thursday to exempting the nation's 18,000 auto dealers from oversight by a new consumer financial protection watchdog, a victory for one of the nation's most influential lobbying groups and a blow to consumer advocates and Democratic leaders who have long opposed such a loophole.
"It is time for people like myself to concede that the votes are not there to give the consumer regulator any role in this," said Rep. Barney Frank (D-Mass.), the chairman of the conference committee.
The language lawmakers agreed to would exclude auto dealers from the purview of the new consumer watchdog. The Federal Trade Commission would be able to quickly write new rules governing dealers. The exemption has been opposed by Obama and the Pentagon, where military officials recounted stories of service members falling victim to abusive loans.
http://www.washingtonpost.com/wp-dyn/content/article/2010/06/24/AR2010062403170.html
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