Senate passes financial regulation bill
By Brady Dennis
Friday, May 21, 2010; A01
The Senate approved far-reaching new financial rules on Thursday aimed at preventing the risky behavior and regulatory failures that brought the economy to the brink of collapse two years ago and cost millions of Americans their jobs and savings.
The final vote, just after 8:30 p.m., was 59 to 39. Four Republicans voted in favor of the bill, and two Democrats opposed it.
"When this bill becomes law, the joy ride on Wall Street will come to a screeching halt," Majority Leader Harry M. Reid (D-Nev.) said after the vote.
The 1,500-page measure, shepherded through the Senate by Christopher J. Dodd (D-Conn.), chairman of the banking committee, seeks to reshape both Washington and Wall Street.
In providing for the most profound remaking of financial regulations since the Great Depression, the legislation would create a new consumer-protection watchdog housed at the Federal Reserve to prevent abuse in mortgage, auto and credit card lending. It also would give the government power to wind down large failing financial firms and set up a council of federal overseers to police the financial landscape for risks to the global economy. Moreover, the legislation would establish oversight of the vast market in financial instruments known as derivatives, impose new restrictions on credit rating agencies and give shareholders a say in corporate affairs.
Passage of the measure marks a milestone in President Obama's efforts to tackle the financial abuse and excess that contributed to the crisis and prevent another meltdown.
The vote gives Obama his second major legislative victory of the year, following the March passage of his landmark health-care bill. "Our goal is not to punish the banks," he said in the White House Rose Garden hours before the final vote, "but to protect the larger economy and the American people from the kind of upheavals that we've seen in the past few years."
The bill now appears headed to a House-Senate conference committee, where a handful of lawmakers will work to resolve differences between the two chambers. House Financial Services Chairman Barney Frank (D-Mass.) said he aims to wrap up that task in short order.
"I think the president will sign this bill before the Fourth of July," he said.
Thursday's vote hinged in large part on Democrats' ability to win over key Republicans.
Leaders successfully courted GOP Sens. Olympia J. Snowe and Susan Collins, both of Maine, in part by including in the final bill provisions that each wanted. Sen. Charles E. Grassley (R-Iowa) also backed the bill. Equally critical was the last-minute push to win over Scott Brown (R), the Senate's newest member.
Brown's vote was secured partly through the help of Frank, his Massachusetts colleague. In an interview, Frank said Brown called him Wednesday evening as Frank was working out on the elliptical machine in the House gym. Brown wanted assurances that Frank would fight in conference to preserve provisions in the House bill that protect large and solvent Massachusetts institutions, such as State Street and Fidelity, from "unnecessary intrusion" by government regulators. Over the next 24 hours, Frank sent Senate leaders two letters stating his position, and Brown indicated that "on that basis, he could vote for cloture," Frank said.
Democratic Sens. Maria Cantwell (Wash.) and Russell Feingold (Wis.) voted against the legislation because they said parts of it did not go far enough.
Consumer advocates who pressed for tough regulations said that the bill falls short in places but that they are delighted it passed.
"No bill that deals with big issues is ever perfect, but the Senate's Wall Street reform package will go a long way toward preventing the kinds of abusive practices that brought our economy to its knees," Elizabeth Warren, head of the Congressional Oversight Panel and an advocate of the new consumer watchdog, said in a statement.
But financial and business groups called the bill flawed.
"If you want to drive capital out of the United States, this is your bill," Thomas J. Donohue, president of the U.S. Chamber of Commerce, said in a statement. "Today we have taken a significant step in the wrong direction, and it will put American companies and our financial system at a competitive disadvantage to the detriment of our long-term economic growth."
Dodd's bill, like the one Frank guided through the House, largely mirrors the blueprint the administration laid out last year. But it didn't always.
Dodd's initial draft, introduced in November, differed in significant ways from Frank's legislation and the administration's original vision. But after administration officials, industry lobbyists and fellow lawmakers attacked portions of Dodd's proposal, he spent months crafting a more modest draft and trying to win Republican support. Eventually, the bill sailed through the banking committee on a party-line vote, and was sent to the Senate floor virtually untouched.
Republicans filibustered the bill at the outset, refusing to allow debate to begin. But they quickly switched course, and lawmakers considered dozens of amendments during three weeks of unusually civil debate.
Despite conventional wisdom that the bill would get watered down as it moved through the Senate, the opposite happened.
For instance, Sen. Blanche Lincoln (D-Ark.), chairman of the Senate agriculture committee, proposed dramatic restrictions on trading in derivatives, including a provision that could force big banks to spin off the lucrative business altogether. Her language was added to Dodd's bill and endured, despite efforts by the administration, lobbyists and Dodd himself to temper it.
In the meantime, other senators added tough amendments that, for example, would place new restrictions on credit rating agencies, force big banks to meet higher capital requirements and limit the fees that merchants have to pay banks when a customer uses a credit or debit card.
In the final hours, a pair of issues remained unresolved. One was a Republican proposal that would exempt from new oversight auto dealers providing loans. The other, a Democratic proposal, would ban banks from making speculative investments using their own capital and from owning hedge funds or private-equity funds. Ultimately, neither came up for a vote, but the auto dealer provision could still be addressed in the House-Senate negotiations.
Even with the legislation's passage assured, Republicans continued to take shots at it. They have argued that it would not prevent future government bailouts, that the new rules would harm small businesses and that the overall effort would result in unnecessary red tape.
"In the end, we will be judged by whether we have created a more stable, durable and competitive financial system," said Sen. Richard C. Shelby (Ala.), the ranking Republican on the banking committee. "That judgment will not be rendered by self-congratulatory press releases but, rather, by the marketplace. And the marketplace . . . does not give credit for good intentions."
Other issues remained unresolved heading into the conference process, such as Lincoln's derivatives provision. Frank said he expects to abandon a House provision that would require the financial industry to pay into a fund that could be used to liquidate failing firms, an issue that became a political lightning rod in the Senate. And he said he expects the Senate to back off its proposal to house an independent consumer protection agency within the Federal Reserve.
For Dodd, who this year announced his retirement after nearly three decades in the Senate, the bill's success marked a personal triumph.
"I wanted to demonstrate that the Senate of the United States could also conduct its business much as our founders intended," said Dodd, who was surrounded by his wife and two young daughters and receiving congratulations from colleagues. "And that is to have that full-throated, engaging, vibrant debate on a critical issue in front of our country. . . . And we did that."
Staff writers Lori Montgomery, Shailagh Murray, David Cho, Neil Irwin, Jia Lynn Yang, Renae Merle and Zachary A. Goldfarb contributed to this report.
May 21, 2010
White House Moves to Shape Financial Bill
WASHINGTON — Fresh off a Senate vote to overhaul financial regulations, the Obama administration on Friday immediately began trying to influence the process for combining the Senate and House bills, pressing for tough provisions in the face of a final onslaught of Wall Street lobbying.
In areas like protecting consumers, managing risk-taking by banks and dealing with institutions before they become “too big to fail,” there are substantial differences between the bills. But both the White House and Congressional Democrats said they hoped to get a bill signed before the Fourth of July.
“It is hard for me to think that this is going to take us more than a month,” said Representative Barney Frank of Massachusetts, who steered the legislation through the House.
Senate passage of the bill on Thursday has put Congress on the brink of approving a broad expansion of government oversight of the increasingly complex banking system and financial markets. The legislation is intended to prevent a repeat of the 2008 crisis, but also reshapes the role of numerous federal agencies and vastly empowers the Federal Reserve in an effort to predict and contain future debacles.
In both chambers, the legislation passed largely along party lines. Although Republicans will be represented on the joint conference committee to reconcile the two versions, the process will now be tightly controlled by congressional managers, with strong input from the White House and the Treasury Department.
At the White House, Mr. Obama met with Mr. Frank, the chairman of the House Financial Services Committee, and Senator Christopher J. Dodd, the chairman of the Senate Banking Committee, and outlined the approach he favors for finalizing the legislation.
While there are important differences — notably the Senate provision on derivatives trading — the bills are broadly similar.
The bill seeks to curb abusive lending, particularly in the mortgage industry, and to ensure that troubled companies, no matter how big or complex, can be liquidated at no cost to taxpayers. And it would create a “financial stability oversight council” to coordinate efforts to identify risks to the financial system. It would also establish new rules on the trading of derivatives and require hedge funds and most other private equity companies to register for regulation with the Securities and Exchange Commission.
Passage of the bill would be a signature achievement for the White House, nearly on par with the recently enacted health care law.
In addition to its position on the derivatives provision, the administration is expected try to remove an exemption in the House bill that would shield auto dealers from oversight by a new consumer protection agency. Earlier, Mr. Obama had criticized the provision as a “special loophole” that would hurt car buyers.
As the Senate neared a final vote on Thursday, Senator Sam Brownback, Republican of Kansas, withdrew an amendment to put a similar exemption for auto dealers into the Senate bill.
While Republicans criticized the bill in mostly political terms, arguing that it was an example of Democrats’ trying to expand the scope of government, some experts have warned that the bill, by focusing too much on the causes of a past crisis, still leaves the financial system vulnerable to a major collapse.
The Senate bill, sponsored primarily by Mr. Dodd, Democrat of Connecticut, would seek to curb abusive lending by creating a powerful Bureau of Consumer Protection within the Federal Reserve to oversee nearly all consumer financial products.
In response to the huge bailouts in 2008, the bill seeks to ensure that troubled companies, no matter how big or complex, can be liquidated at no cost to taxpayers. It would empower regulators to seize failing companies, break them apart and sell off the assets, potentially wiping out shareholders and creditors.
To coordinate efforts to identify risks to the financial system, the bill would create a “financial stability oversight council” composed of the Treasury secretary, the chairman of the Federal Reserve, the comptroller of the currency, the director of the new consumer financial protection bureau, the heads of the Securities and Exchange Commission and the Federal Deposit Insurance Corporation, the director of the Federal Housing Finance Agency and an independent appointee of the president.
The bill would touch virtually every aspect of the financial industry, imposing, for instance, a thicket of rules for the trading of derivatives, the complex instruments at the center of the 2008 crisis.
With limited exceptions, derivatives would have to be traded on a public exchange and cleared through a third party.
And, under a provision written by Senator Blanche L. Lincoln, Democrat of Arkansas, some of the biggest banks would be forced to spin off their trading in swaps, the most lucrative part of the derivatives business, into separate subsidiaries, or be denied access to the Fed’s emergency lending window.
The banks oppose that provision, and the administration has also said that it sees no benefit.
Concern about the derivatives provisions also led Senator Maria Cantwell, Democrat of Washington, to vote against the bill, saying it still included a dangerous loophole that would undermine efforts to regulate derivative trades. Senator Russ Feingold of Wisconsin was the other Democrat to oppose the measure.
The four Republicans to support the bill were Senators Susan Collins and Olympia J. Snowe of Maine; Scott Brown, the freshman from Massachusetts; and Charles E. Grassley of Iowa, who is up for re-election this year.
Among the differences between the House and Senate bills is the inclusion in the House measure of a $150 billion fund, to be financed by a fee on big banks, to help pay for liquidation of failing financial companies.
The administration opposes the fund, which it says it believes could hamper its ability to deal with a more costly collapse of a financial company. Republicans demanded that a similar $50 billion fund be removed from the Senate bill because they said it would encourage future bailouts of failed financial companies.
There are numerous other differences. For instance, the House bill addresses the consumer protection goals by establishing a stand-alone agency that would be subject to annual budget appropriations by Congress. The Senate bill establishes its consumer protection bureau within the Federal Reserve, limiting future Congressional oversight.
Lawmakers said that the bills would be reconciled in a formal conference proceeding, possibly televised.
Edward Wyatt contributed reporting.