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Sen. Brown Flexes Muscle in Wall Street Reform

Sen. Scott Brown (R-Mass.) is a rookie in the United States Senate, and rookies aren't supposed to be power players, but the freshman was able to flex plenty of muscle in the Wall Street reform legislation.

Scott Brown
AP
Scott Brown

Brown won two negotiating victories that are particularly sweet for home state financial institutions Fidelity Investments and State Street Corporation.

The two financial firms keep a fairly low profile in Washington compared to Wall Street powerhouses, but because they're located in Brown's home state, and Brown's moderate Republican vote became the deciding factor in whether the reform billwould pass or not, Fidelity and State Street had out-sized influence on the final package.

So what did Brown do for them?

Fidelity was concerned about the way the Senate bill would define systemically significant firms — one initial proposal would have done that by size of the firm, which would have likely encompassed the Boston-based firm, which has $1,289.1 billion in mutual fund assets under management.

Instead of size, Brown demanded that the definition of systemically significant firm focus on that firm's activities, such as whether they were highly leveraged and interconnected with other firms. That was a standard much less likely to ensnare Fidelity, and thus less likely to burden the firm with additional regulatory oversight.

Because Brown's vote was crucial to final passage, he got what he, and Fidelity, wanted. It didn't hurt that Brown worked closely on the issue with House Financial Services Committee Chairman Barney Frank, a Democrat, and the key driver of the reform bill, who just happens to share Brown's home state. Frank, too, favored the changes that Brown sought.

To Brown's thinking, the new language is much more likely to focus on the types of the firms that were at the epicenter of the 2008 meltdown, leaving out the firms that were less involved.

"While it isn't perfect, I expect to support the bill when it comes up for a vote," Brown said of the bill in his statement endorsing it this week. "It includes safeguards to help prevent another financial meltdown, ensures that consumers are protected, and it is paid for without new taxes," he said.

For its part, Fidelity issued a statement to CNBC: "During the debate over the past several months we expressed concern that some financial regulatory reform proposals would have unintended consequences and restrict well run entities in Massachusetts and elsewhere, and treat Fidelity as a bank — which would be inappropriate for our business and risk model. We believe it is important to avoid a "one size fits all" approach for different segments of the financial sector."

For the other big in-state financial firm, State Street, Brown was mindful of the effect the proposed Volcker Rule might have on its business.

As an all-out ban on proprietary trading, which was the initial proposal, could be harmful, Brown pushed for, and won, a loophole: banks would now be allowed to invest their own capital into hedge funds and private equity firms, but they could account for no more than three percent of the funds capital. And, they could not invest more than three percent of their Tier one capital.

That carve-out allows for significant wiggle room. State Street, which provides financial services to institutional investors, has $1.9 trillion in assets under management. A spokesperson for State Street did not immediately respond to a call for comment Tuesday evening.

Brown was also instrumental in blocking a proposed $19 billion bank fee that appeared in the bill in a late night negotiating session. But that effort, which was widely popular on Wall Street does not appear to have been specifically designed to benefit any one firm.

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