Financial Reform Finally Got A Republican Vote Today Making Enactment Likely.
Today, the Senate Agriculture Committee reported Chair Blanche Lincoln's (D-AR) tough derivatives bill 13-8, with Iowa Republican Chuck Grassley joining all 12 Committee Democrats. That's a strong sign that there will be Republican support to consider and pass the Senate Banking bill, S.3172, plus the Ag Committee's derivatives bill next week. Senate Majority Leader Harry Reid (D-NV) plans to file a petition tomorrow setting a cloture vote for 5:30 p.m. next Monday on the motion to proceed.
The harsh Republican talk earlier this week has given way to some Democratic concessions, mainly dropping the $50 billion resolution fund, as intense talks continue behind the scenes. Treasury Secretary Tim Geithner and NEC Chair Larry Summers have met with many members of both parties. Tomorrow, President Obama will journey to Cooper Union in New York City to deliver an appeal for public support for financial reform, which should put the issue over the top.
There will be plenty of amendments seeking to eliminate or reduce the impact on banks and on end users of derivatives. The banks are fighting to keep their swaps desks, often their biggest profit center, which Lincoln's bill would force them to divest or else lose federal assistance in a future crisis. They also are trying to ease the Volcker rule restrictions on proprietary trading and connections with hedge funds and private equity firms. It's doubtful the banks can stop provisions requiring a shareholder vote on compensation and greater power to nominate board members. Defining end users of derivatives gets complicated when you get into the details of hedging agricultural commodities, which consumed much discussion this morning in the Senate Agriculture mark-up. Senator Debbie Stabenow (D-MI) got an exemption for GMAC and similar finance arms of commercial firms. Everyone agrees that financial firms shouldn't qualify, but defining who else is really a commercial end user gets very complicated. Those who don't qualify will face higher costs, capital requirements, and reporting requirements. There are also concerns about the impact on agricultural finance and on community banks. Establishing federal regulation of insurance for the first time has given rise to concerns that this would undermine tougher state requirements and international agreements, so there could be amendments there too.
Assuming the Senate passes S.3172 next week, it will take a few weeks to reach a compromise with the House on its bill, H.R.4173, which passed the House by 223-202 on December 11, but there's a good chance, in my opinion, that Congress can clear the conference report before it departs on its Memorial Day recess on May 28. The main risk to passage would be if the final bill gets watered down enough that President Obama wouldn't sign it, but that seems unlikely.