What Happens Next to the FinReg Bill?

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Thursday, May 20, 2010 at 5:01 pm

This afternoon, the Senate voted to end debate on Sen. Chris Dodd’s (D-Conn.) financial regulatory reform bill, 60 to 40. Today or tomorrow, the Senate will take a final vote on the bill, which will almost certainly pass. But what happens until then? After then? What about all those amendments? Here is a rundown of the process and remaining questions.

First, Senate Majority Leader Harry Reid (D-Nev.) will allow votes on “germane” amendments to the bill. At this point, all amendments that might come up for a vote are technically “germane,” in that they substantively alter the bill at hand rather than, say, funding a technical center college campus in rural Wyoming. But it is the Senate leadership’s discretion to choose the amendments allowed an up-or-down vote.

Right now, Reid has indicated he will allow a vote on Sen. Sam Brownback’s (R-Kans.) amendment barring Consumer Financial Protection Agency from enforcing rules on autodealers making car loans. He will also allow a vote on a secondary amendment attached to Brownback’s, Sens. Jeff Merkley (D-Ore.) and Carl Levin’s (D-Mich.) provision on the Volcker Rule, barring banks from risky proprietary trading. Right now, the fates of those two amendments are intertwined. If Brownback is not passed, no dice for Merkley-Levin. Republicans will attempt to table the Merkley-Levin secondary amendment. Merkley and Levin will attempt to get their amendment considered by itself.

Other senators might lobby to have their amendments come up for a vote — notably Sen. Susan Collins (R-Maine), who wants to strengthen capital requirements, and Sen. Maria Cantwell (D-Wash.), who wants to fix holes in Sen. Blanche Lincoln’s (D-Ark.) derivatives language and has offered an amendment with Sen. John McCain (R-Ariz.) to impose Glass-Steagall-type provisions barring combined commercial and investment banks.** But, right now at least, Senate staffers say Brownback and Merkley-Levin will be the only amendments getting an up-or-down.

Then, today or tomorrow, the Senate will vote on and presumably approve the Dodd bill. Next up: conference committee.

The conference committee is comprised of senior members of the committees that worked on the bills. In this case, that means the House Financial Services Committee, the Senate Banking Committee and the Senate Agriculture Committee — expect to see Rep. Barney Frank (D-Mass.), Rep. Spencer Bachus (R-Ala.), Sen. Richard Shelby (R-Ala.) and Sen. Saxby Chambliss (R-Ga.) as well as Dodd, Lincoln and others. The committee will prepare a “conference report,” splitting the difference between the House and Senate bills; the House and Senate approve the report and then, once signed by President Barack Obama, the bill becomes law. Frank, the head of the House Financial Services Committee, says he expects that done by July 4.

What can the conference committee change? It cannot introduce any new language to the bill. It can only adopt either House or Senate measures, or split the difference between the two. (That said, if the bill needed new language coming out of conference committee, there are ways to tack it on.)

What are the major issues pending?

The Volcker Rule: The current Dodd bill requires the new Financial Stability Oversight Council to study firms’ proprietary trading operations and to create new rules prohibiting the practice. It says banks should not invest in or house hedge funds either. The House bill has no such language. The Merkley-Levin amendment would bolster the Dodd language — immediately barring federally insured banking institutions (think: Main Street banks) from engaging in speculative trading and requiring non-banking institutions (think: Goldman Sachs) to post appropriate collateral to cover their risky trades. If the Merkley-Levin amendment does not make it into the Dodd bill, there is no way to bolster the Dodd language.

Derivatives trading: Derivatives remain a major question. The House bill is very weak on requiring banks to put derivatives trades through clearinghouses. The Lincoln language in the Dodd bill is strong — forcing financial firms to spin off their derivatives trading operations into separate subsidiaries. The Obama administration opposes the Lincoln language, as do Dodd, Treasury Secretary Timothy Geithner, Wall Street and a bevy of others. The best guess right now is that the provision will be watered down, though it is not clear how.

One problem: If the Cantwell amendment fixing the loopholes in Lincoln’s language is not voted on (and it looks like it won’t be), the conference committee cannot add the language in. The House and Senate would have to vote on the fix separately, or there would have to be some procedural maneuvering to figure out a patch.

Capital requirements: The House bill has a hard 15:1 leverage requirement that the conference committee could adopt. The Dodd bill gives regulators the authority to set capital and leverage requirements. Progressives should be looking for hard numbers in the conference committee report.

** Update: A clarification. The McCain-Cantwell amendment imposing Glass-Steagall-type requirements was declared not germane to the Dodd bill, meaning it can no longer be brought up as an amendment. As I understand it, it is not technically germane because it modifies another act rather than changing the substance of the Dodd bill itself.

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Comments

23 Comments

Inaru
Comment posted May 21, 2010 @ 12:28 am

This 'reform' is a fiasco. What was the point in having such a large majority of Dems if they serve lobbyists as much as Repubs do? For 'social' issues? What kind of society will we have when our markets are crashing? Will it be 20% unemployment, or 30%, or 50%? The stock market dove almost 350 pts today, just on what Goldman Sachs did to Europe's market – there go the 401k's, again. It's exhausting to see every meaningful reform to help real people get so watered down, and be left at the mercy of private corporate profiteers. My Dem Sen. Patty Murray's up for re-election in Nov, and I'm too disgusted to vote for her. It's a truly liberal 3rd Party candidate who will get my vote. A truly 'wasted' vote would be for pro-Bankster Murray.


1 Boring Old Man » 59-39…
Pingback posted May 21, 2010 @ 6:18 am

[...] Mr. Brownback’s move had the effect of killing an amendment by Senators Jeff Merkley, Democrat of Oregon, and Carl Levin, Democrat of Michigan. to bar banks from proprietary trading, or playing the markets with their own money – a restriction generally known as the Volcker rule for the former Fed chairman Paul Volcker, who proposed the idea. The bill already contains a version of the Volcker rule, but the Merkley-Levin amendment would have gone farther in trying to prevent conflicts of interest between banks and their depository customers. Now, the fight is onto the conference committee. I will work on putting together a complete list of the ways the House bill is better than  the Senate bill, and that the Senate bill is better than the House bill.  Fighting to get the best of both bills–and removing the worst parts of each bill–is the goal now. Annie Lowrey has probably the best description of the path ahead for Wall Street reform. [...]


Morning Constitutional – Friday, 21 May 2010 - Verities and Vagaries
Pingback posted May 21, 2010 @ 10:39 am

[...] package on a 59-39 vote. Four Republicans voted for the package, and two Democrats voted against. The bill now goes to conference to be reconciled before it will hit President Obama’s desk for signing. Slate on how the [...]


GuardianAngle
Comment posted May 21, 2010 @ 10:17 am

What are you talking about, this bill forces financial institutions to spin off derivatives, forcing them to sell them in the open market instead of under their hats.


ajm8127
Comment posted May 21, 2010 @ 11:44 am

Dude if you think that one day of trading will tank your 401(k), you should not be talking about banking and regulation like you are an authority. Do some research about long term investing. You sound more like a mouthpiece against Patty Murry than someone who knows anything about financial regulation.


Inaru
Comment posted May 21, 2010 @ 12:06 pm

Dude, so happens I was disabled and had to cash in my 401k during yet another recession. Seniors are postponing retirement to avoid cashing in with major losses. Think that all goes according to plan? The saying is “Man plans, God laughs.”


Inaru
Comment posted May 21, 2010 @ 12:09 pm

The derivatives part is only included to provide cover for Blanche Lincoln as she faces a runoff – Bernanke and Geithner oppose it, even tho it already has exemptions. So, expect that little item to die in conference committee too.


Conference Matters: What To Expect In The FinReg Negotiations | NEWS Gate
Pingback posted May 21, 2010 @ 2:34 pm

[...] With both houses of Congress now having passed a Wall Street reform bill, the action now moves to the conference committee. There, House and Senate negotiators will work to finalize a bill with new regulations for the financial services industry, and report back for a final Congressional vote. Annie Lowrey runs down the participants: [...]


ajm8127
Comment posted May 21, 2010 @ 1:39 pm

As you get older, you need to shift your investments, even in your 401(k), into less risky funds, like bonds, that are less affected by the market. You cannot count on the market continually increasing, because that is not realistic. Recessions happen. It's a hope for the best, plan for the worst situation.

There is disability insurance, both for the short and long term. It's unfortunate that you didn't have it at the time, and I understand that you probably had no other choice. However, you need to take the steps to protect yourself from the volatility of the market. It's not a pretty world, and you have to take the initiative for your own well-being.

Patty Murray was not mentioned in the article. I'm not saying you are not justified in not voting for her, but I am unfamiliar and some citations of her voting record would help me understand.


The Big Story: Senate passes Dodd financial reform bill « Read NEWS
Pingback posted May 21, 2010 @ 3:00 pm

[...] Eric Alterman: Obama’s impossibly complex win – Annie Lowery: What happens next? – The Economist: Almost there – Paul Krugman: Lost decade looming? – Pell and [...]


Financial Reform: What Will Definitely Stick? | LesBnB.com
Pingback posted May 21, 2010 @ 4:24 pm

[...] They serve as the foundation for the regulatory effort that is beginning to wrap up in Congress. According to House Financial Services Chairman Barney Frank, the President should have a final bill to sign by [...]


Wall Street Reform: Off to conference | Gabbur
Pingback posted May 21, 2010 @ 9:17 pm

[...] Posted on22 May 2010. Tags: conference, House, Senate, Wall Street reform Now that the Senate has passed the financial regulation reform, we're off to conference. Annie Lowery has the basics of how it will proceed. [...]


Wall Street Reform: Off to conference « Adibit
Pingback posted May 22, 2010 @ 7:31 am

[...] the financial regulation reform, we're off to conference. Annie Lowery has the basics of how it will proceed. The conference committee is comprised of senior members of the committees that worked on the [...]


Loans - United States National News Headlines - Town Hall « Loans
Pingback posted May 23, 2010 @ 2:16 am

[...] What Happens Next to the FinReg Bill? – The Washington Independent.comFirst, Senate Majority Leader Harry Reid (D-Nev.) will allow votes on “germane” amendments to the bill Sam Brownback’s (R-Kans.) amendment barring Consumer Financial Protection Agency from enforcing rules on autodealers making car loans. [...]


Loans - Chrysler To Offer Lower-Cost Subprime Loans - ClickOnDetroit.com « Loans
Pingback posted May 23, 2010 @ 9:30 am

[...] What Happens Next to the FinReg Bill? – The Washington Independent.comFirst, Senate Majority Leader Harry Reid (D-Nev.) will allow votes on “germane” amendments to the bill Sam Brownback’s (R-Kans.) amendment barring Consumer Financial Protection Agency from enforcing rules on autodealers making car loans. [...]


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