Threatened with mandatory sessions into the weekend, Republicans caved in late Wednesday after three consecutive days of filibuster votes and agreed by unanimous consent to begin debates on the chamber's version of finance reform.
The joke circulating the Capitol corridors was that Senate Minority Leader Mitch O'Connell, who kept the Republicans in line, did not want to be deprived of returning home to Kentucky to watch Saturday's running of the Kentucky Derby.
The Washington Post reported McConnell was willing to concede as long as Democrats would allow a reasonable number of amendments to the bill, a 1,300-page monstrosity authored by Senate Finance Committee chairman Chris Dodd (D-Connecticut).
The political grandstanding was an effort by Democrats to embarrass Republicans, portraying them as pawns of the banking financial lobbies, extremely unpopular among the nation's voters. Republicans argued they were attempting to make the legislation tougher against unruly banking activities they described as unregulated "gambling casinos."
With politics finally taking a back seat to substance, I offer you a broad outline of the Senate financial reform bill and the House version passed months ago.
TOO BIG TOO FAIL
Lawmakers want to squash the idea that some financial firms are "too big to fail" and avert anymore bailouts like AIG's and Citigroup's. But they also want to prevent the potential for disaster that can come from refusing to bail out troubled firms, as the Bush administration did in 2008 with Lehman Bros.
Seeking a middle ground between bailout and bankruptcy, the Senate bill sets up a new process for "orderly liquidation" of large firms that get into trouble. Republicans object to parts of the bill that would let the fund borrow more money from the U.S. Treasury if needed.
The House bill, like the Senate's, sets up a new liquidation process, but it would be simpler to invoke and it would come with a higher taxpayer and bank assessment price-tag.
Neither bill in their present forms guarantees no bailouts if a large firm such as Goldman Sachs is about to collapse.
CONSUMER PROTECTION AGENCY
Democrats want to put a stop to abusive home mortgages and deceptive credit cards. The Senate bill creates a financial consumer protection bureau inside the Federal Reserve to regulate such products, which are now overseen inadequately by several regulators.
Obama and many Democrats want the watchdog to be an independent agency, with more power than a Fed unit would have. The House bill included the White House proposal for an independent agency.
If the bill is enacted, consumers can expect stronger protections. Credit card firms, mortgage lenders and payday loan companies all face a tougher regulatory regime ahead, regardless of where the watchdog is situated.
THE VOLCKER RULE
Obama wants to ban risky trading unrelated to customers' needs at banks that enjoy a competitive edge in the market because they have some form of taxpayer support. Obama proposed a ban on such proprietary trading in January with adviser Paul Volcker, a former Federal Reserve Board chairman, at his side. The so-called "Volcker rule" may become law, but probably not as written.
Provisions embodying the Volcker rule are in the Senate bill, but it leaves the door open to regulators watering down or invalidating the rule later. The Volcker rule is not in the House bill, which was approved before Obama unveiled it.
Volcker, a widely respected economic sage, says enacting his rule would help head off the next financial crisis. Large financial firms could lose a major profit center if the rule becomes law, but the Senate bill as written falls well short of making that a certainty.
DERIVATIVE MARKETS AND HEDGE FUNDS
The unpoliced, $450-trillion over-the-counter derivatives market was a hothouse for risk during the boom years that greatly amplified the crisis when it finally hit.
The Senate bill would impose a new set of rules along the lines of those sought by Obama. He wants to force as much of the derivatives traffic as possible through exchanges, electronic trading platforms and central clearinghouses.
The House bill is similar but exempts a wider range of end users of financial contracts from mandatory central clearing.
A handful of Wall Street megafirms -- Goldman Sachs, JPMorgan Chase, Citi, Bank of America and Morgan Stanley -- dominate the market. The substantial profits they reap from it could be reduced if more transparency and accountability impinged on their franchise. It would protect investors such as those who lost billions in offerings promoted by Goldman Sachs, as an example from the civil suit brought against the firm by the Securities Exchange Commission.
EARLY WARNING CENTER
Lawmakers want some sort of new entity that can spot and head off the next crisis -- something that existing regulators have failed repeatedly to do.
The Senate bill would set up a nine-member council of regulators, chaired by the Treasury secretary. The House bill proposes a similar interagency council but gives the Fed a bigger role as chief policy agent.
Big banks and financial firms would be forced into a tighter regulatory straitjacket than their midsized and small rivals under Congress' proposals.
The jigsaw puzzle of the U.S. bank supervision system let problems fester in the cracks. But efforts to fix it have lost headway amid resistance from turf-protecting agencies and bank lobbyists keen to preserve the status quo.
The Senate bill would let the Fed keep oversight of large bank holding companies with assets over $50 billion. That would cover about 44 major firms, including giants already under the Fed, such as Citigroup and Bank of America. The Fed would lose authority over state banks with less than $50 billion in assets, under the Senate bill. Those banks would shift to the Federal Deposit Insurance Corp, which would be in charge of all state banks and thrifts, as well as holding companies of state banks under $50 billion.
National banks with assets below $50 billion would be under the Office of the Comptroller of the Currency, which would also absorb the Office of Thrift Supervision, which would close.
The House bill preserved the Fed's and the FDIC's bank supervision roles intact.
Banks would lose the ability to shop around for the weakest regulator.
FANNIE MAE AND FREDDIE MAC
These two giant mortgage lenders were responsible for issuing most of the sub-prime loans that led to the 2007 housing market collapse. They are EXEMPT from the current legislation under debate. Congress essentially took control of Fannie Mae and Freddie Mac in 2009. Both Rep. Barney Frank (D-Massachusetts), chairman of the House Financial Services Committee, and the Senate's Chris Dodd said new rules regulating these two giants will be addressed in separate legislation.
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