Congress Has Hands Full With FinReg Compromise Bill

Though the Democratic leadership likes to emphasize the similarities between the House and Senate bills on sweeping financial reform, the upcoming conference to merge the two has the potential to be both fractious and divisive with a number of minefields to cross.

Mandel Ngan | AFP | Getty Images House Financial Services Committee Chairman Rep Barney Frank and Senate Banking Committee Chairman Senator Chris Dodd.

“They're going to be drowning a lot of puppies,” quips one senior Senate aide

Amendments--tacked on or ignored during earlier rounds—will be disposed of, adding to the existing frustration of Senate members in particular.

“There are too many issues to horse trade on,” says bank analyst Bert Ely. “What’s going to happen is that because the Senate bill was so poorly drafted—there was no committee markup…is that many portions of the bill will be substantially rewritten in resolving the differences.”

Meanwhile, additions will be made, even though the bills already run 1,400-1500 pages.

“It’s inevitable that once you have a certain amount of reform there will be a lot of other things hitched on to it,” says former White House economist and regulator Lawrence White, now a professor at NYU’s Stern School of Business.

Then there’s the role and influence of the White House, because reform is both an important personal issue to President Obama and a chance to reassert some control over the Democratically-controlled Congress.

All the conference members haven’t even been named yet and the event itself is still two weeks, yet both the White House and the conference chairman--House Financial Services Chairman Barney Frank—are already weighing in with their positions on key differences in the two bills. (See a rundown of key differences here)

(The other major Democratic player—Senate Banking Committee Chairman Chris Dodd—seems less interested in showing his cards at this point.)

Republican conference members are also already setting the table. Sen. Bob Corker of Tennessee—who negotiated with Dodd for weeks at the committee level and is a conference member—has already criticized the President for taking a non-partisan approach, while Sen. Judd Gregg has called the bill “a disaster.”

And, if all this weren’t enough, extraneous events and personal circumstances may play a sizable role in the negotiations and their outcome.

Here’s’ some potential minefields.

Derivatives Regulation

One area where personal fortune, politics and policy converge is in derivatives.

The regulation of over-the counter trading, for example, is a contentious issue that divides Democrats and Republicans alike in both chambers.

RELATED LINKS

test

Current DateTime: 08:38:20 28 May 2012
LinksList Documentid: 37384051

• Frank Names Democratic Candidates for Bank Bill Conferees
• Four Ways to Start Fixing Fannie And Freddie
• Realty Check Blog

Thanks to Agriculture Committee Chairwoman Blanche Lincoln of Arkansas, the Senate bill goes beyond the simple regulation of trading by requiring financial firms to create special swaps subsidiaries with their own capital requirements.

Such a tough approach helped Senate Democrats get Maine Republican Olympia Snow to cross party lines and support the bill.

The House version has no such measure, and essentially leaves new supervision to the creation of exchange and clearinghouse systems.

None other than House Financial Services Chairman and conference leader Barney Frank says the provision is unlikely to survive, while the administration continues to make its opposition known. Lincoln, meanwhile, is sticking to her guns.

Analysts—perhaps of the cynical sort—say watering down or even removing the Lincoln provision may partly depend on the results of a primary runoff election June 8, the day before the first meeting of the conference.

If Lincoln losses, then either scenario becomes more likely, say sources. If she wins, then there’s an 800-pound gorilla in the room.

Republicans like Gregg made his ballistic opposition clear on the Senate floor even before Lincoln’s change was added.

He and others are worried about the competitiveness of US firms, even though both the House and Senate bills allow so-called end-user exemptions for firms that want to hedge against their own business risk.