Congress Begins the Final Push on Financial Regulation

Washington – The fate of the biggest overhaul of the nation’s financial regulatory system in generations now rests with a small group of Capitol Hill lawmakers who are known for their ability to compromise.

In early June, negotiators from the Senate and the House of Representatives are expected to begin work on merging two competing but similar visions for revamping the way the government regulates banks and financial markets.

The Senate passed its version of the legislation on May 20; the House approved its bill last December.

“This is one of the rare occasions when the two bills are really very close to each other. There’s not a great deal of difference,” said Senate Banking Committee Chairman Christopher Dodd, D-Conn.

Even if they’re in the ballpark on the big issues, the two bills have some significant differences.

For example, while both chambers favor the creation of an equivalent of the Consumer Product Safety Commission for consumer credit products such as mortgages, student loans and credit cards, they’d go about it differently.

The House would create a new, standalone agency called the Consumer Financial Protection Agency; the Senate envisions a Bureau of Consumer Financial Protection within the Federal Reserve.

The U.S. Chamber of Commerce hopes to weaken the bill during the negotiations, arguing that the new consumer panel’s leader would have powers beyond those of other government agency heads.

“I don’t know that I’m going to persuade people that my approach to consumer protection is the right way, but we should have a debate about having this much power concentrated in one individual,” said David Hirschmann, senior vice president at the Chamber.

Assistant Treasury Secretary Michael Barr, an intellectual author of the consumer panel, countered that there are numerous checks built into the creation of the new independent agency. It’ll have public rulemaking, must conduct cost-benefit analyses on measures it proposes, and the agency head would serve at the pleasure of the president and require Senate confirmation.

“We’re in fundamental disagreement with the Chamber on this point,” Barr said.

Also contentious is whether auto dealers should be subjected to the consumer panel’s rules. Consumer advocates argue that some auto dealers make more money from lending than they do from selling cars.

“The whole point of this agency is to make sure that lenders have to play by better rules and be fairer,” said Travis Plunkett, legislative director for the Consumer Federation of America.

Pointing to support from the Pentagon, which thinks that auto lenders have preyed on servicemen and servicewomen, Plunkett added that resolving the dealer exemption “is going to be all about raw political power.”

House and Senate lawmakers agree with the auto dealers, who argue that they didn’t cause the financial crisis and aren’t financial institutions. The House bill exempted car dealers; the Senate bill didn’t, but a majority of senators have voiced support for the exemption.

Another battle will be over complex financial instruments called derivatives, which helped cause the near meltdown of financial markets in 2008. The Senate bill would force banks to spin off their derivatives businesses, but the Obama administration and House lawmakers think that goes too far and could prove disruptive.

The Senate language came out of the Agriculture Committee, where Arkansas Democrat Blanche Lincoln, the chairman, faced a primary challenge and wanted to show voters she was tough on Wall Street. Lincoln now faces a June 8 runoff, a day after the Senate returns from its Memorial Day recess — freeing her, and Democrats, from having to keep up the appeal to Arkansas liberals.

Congressional leaders, with the help of the White House, have chosen a bipartisan team of negotiators, called conferees, who’re likely to find common ground on these issues quickly.

“It sounds obvious, but you look at everything and try to find the best approach,” said Sen. Jack Reed, D-R.I., part of the Democrats’ negotiating team.

While conferee Sen. Judd Gregg, R-N.H., said, “there are a lot of places where we can make progress,” but he wasn’t overly optimistic that his or other Republican views would be heard.

“If the same party controls the House, Senate and presidency, they don’t need anybody in that room except the two chairmen and administration officials . . . to make all the decisions,” he said. “This is very much a vehicle of the majority.”

The conferees are expected to write the final bill in coming weeks, with final votes in each house likely by late June.

“I understand the urgency for the financial stability of the country . . . it’s hard for me to think it’s going to make us much more than a month,” Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee and Dodd’s negotiating counterpart, told reporters on May 21.

The White House isn’t expecting a bumpy road.

“Any single provision I think is crazy to discuss as a veto threat,” Farrell of the National Economics Council told reporters on May 26, adding that there’s nothing on the horizon that would warrant a veto threat.

Among the reasons for the unusually conciliatory mood surrounding the talks:

_ Politics: “If I were a Republican, I’d be hard pressed to vote against financial regulation,” said Burdett Loomis, professor of political science at the University of Kansas, especially less than six months before congressional elections. Politicians must show they can get tough with Wall Street, erasing voters’ memories of the unpopular 2008 bailouts of troubled financial firms.

_ Bipartisanship: Dodd and Sen. Richard Shelby of Alabama, the top committee Republican, made sure during this month’s debate that the two parties alternated offering amendments. As a result, some major GOP changes were accepted, such as Florida Sen. George LeMieux’s plan to instruct government agencies to stop relying solely on credit ratings when measuring creditworthiness.

_ The Players: Dodd and Frank will lead the committee, and both have a long history of working with Republicans on major legislation. Sen. Bob Corker, R-Tenn., will participate, even though it’s unusual for a junior member of the Senate to be included in such talks. Corker was involved earlier this year in compromise efforts, complaining later that his views were largely ignored.