Two weeks into deliberation over a package of sweeping financial reforms, the Senate has approved major items such as too-big-to-fail authority, Federal Reserve audits and larger capital requirements for banks, but major battles still loomover the powers of a new consumer financial protection agency and regulation of over-the counter derivatives.
Senate Democrats are trying to push through a bill, known as The Wall Street Reform Act, as soon as possible to catch up to the efforts of the House, which approved its version of financial reform late last year.
The President has said he wants to sign a compromise measure into law by Memorial Day weekend, but Congressional sources say sometime closer to the Fourth of July now looks more realistic.
Here’s a scorecard of major measures in the legislation, which runs well over 1,500 pages, as well as notable amendments.
In Or Out
First and foremost is the creation of new authority for the federal government to intervene in the affairs of struggling financial giants and, if necessary, wind down their business in an orderly fashion to protect the overall financial system.
Senate Banking Chairman Chris Dodd (D-Conn.) has called this the single-most important area of his bill, which covers eight important areas of reform.
Several amendments or changes to the original proposals covering this "too big to fail" issue have been approved and integrated:
- a new government protocol for seizing and dismantling big firms.
- a prohibition of taxpayer funds for bailouts.
- use of the bankruptcy court system where possible.
- elimination of a requirement that banks contribute $50 billion to a pre-paid resolution fund.
Another amendment that would essentially limit the size of commercial banks by creating a firm cap on their share of insured deposits at 10 percent failed to win enough votes.
In a move related to the too-big-to-fail crackdown, an amendment authorizing regular and special retroactive audits of the Fed’s balance sheet was approved, addressing Congressional concerns about the central bank’s role in the rescue of AIG , Citigroup , Bank of America , Bear Stearns and others.
One area that was barely touched was reform of Fannie Mae and Freddie Mac , the two failing mortgage giants taken over by the government in late 2008.
An amendment that would force the government to put them in receivership was defeated, while one that mandates a study of the problem was approved.
The Senate also approved amendments that would require the biggest banks to set aside more capital to boost their stability—capital requirements would rise as firms grow in size or engage in riskier lending practices—and make them pay more for deposit insurance while smaller banks pay less.
Credit agencies were also hit with a reform measure, wherein the government would set up a clearinghouse to match rating agencies on a semi-random basis with debt issuers. (Read more here)
On the consumer side, one key amendment was approved. It would limit fees charged on credit and debit card transactions, building on the new and improved protections under last year's Credit Card Reform Act.
Still To Come
The big battleground in the consumer area is the creation of a powerfulregulator to protect consumers from potential abuse by financial services companies, especially in the area of mortgages.