Now the bill advances to a conference committee with the House, where a handful of Senators and Representatives get to hammer out the differences and come up with one final bill. This final bill must pass both chambers again before Obama can sign it into law.
David Dayen of FDL has a great run-down of the differences between the two bills:
• The Volcker rule. Contrary to some media reports, there is a “Volcker rule” in the Senate bill; it essentially authorizes a study and tells the regulators to come up with something on it. This is but one of the 28 “studies” in the bill. The House bill passed before there was such a thing as the “Volcker rule” in the lexicon, so that’ll probably be the best we can get here. But we should at least get that.In my opinion, the two most important pieces to preserve are the 15x leverage cap, which ensure that companies will not borrow more than 15x their worth, and the derivative regulations. The companies that got into the most trouble in 2008 were those who borrowed more than 30x their worth and came crashing down when it turned out that their investments were worthless. And the derivatives market must be brought under control. There is no reason to have a largely unregulated market that is worth $600 trillion, ten times the GDP of the entire world.
• The Fed. The House bill has a full annual audit of the Federal Reserve; the Senate bill has a one-time audit of emergency lending facilities. In addition, the Senate bill allows a much bigger role for the Fed than the House version; in fact, the Fed gained more power while the Senate bill was on the floor. Some of that could be reeled in if the House language is adopted.
• Derivatives. Everyone expects the 716 provision, which forces the mega-banks to spin off their swaps trading desks, to be excised in conference. But Michael Greenberger believes something like it will be retained. The House’s derivatives piece is a mess and nearly useless, but Barney Frank has admitted a mistake on that front, and wants to preserve strong rules against derivatives, like in the Senate bill.
There’s also the matter of Maria Cantwell’s main complaint, that the mandate of all trades going through clearinghouses is unenforceable. Obama Administration officials appear to think this is a misreading of the legislation, and that Cantwell’s fix could have unintended consequences. So it looks unlikely that this loophole will be closed, if the major players in conference don’t think it’s a loophole.
• The CFPA. The House bill has an independent Consumer Financial Protection Agency with a compromised, exemption-riddled mandate. The Senate bill has a CFPA inside the Federal Reserve but without as many exemptions. Both bills include some pre-emption of state consumer financial protection laws, though the Senate bill preserves a role for the state Attorneys General in enforcement. A mix of both of these would be preferable. The Senate motion to instruct conferees will urge adoption of the auto dealer exemption from the CFPA, which is in the House bill, but given the Administration’s position there is almost no chance that conference will adopt that.
• Capital requirements. The House bill, in its strongest plank, has a hard 15:1 leverage cap for financial institutions. The Senate bill leaves capital requirements and leverage up to the regulators, although the Collins amendment does force bigger banks to have stronger requirements. The more distinct and specific the language is, the better. And the bank lobbyists will work hard to get the opposite, pure discretionary language.
• Credit rating agencies. There were two competing options for the rating agencies: end the conflict of interest by giving government more of a role, or end the rating agency process altogether. The Senate kind of opted for BOTH approaches, with the Franken amendment empowering an SEC bureau to assign initial ratings to qualified agencies, and the LeMieux amendment eliminating the qualified “seal of approval” for the rating agencies. Franken insists they’re compatible. The House has language similar to the LeMieux amendment. If possible, the Franken amendment should be retained.
• Mortgage underwriting. Both bills actually have some pretty good new standards for mortgage lending, banning the premiums for pushing borrowers into riskier loans, and forcing some ability to pay. This is likely to stay in the bill.
• Interchange fees. One of the toughest measures in the Senate bill changes the swipe fees charged to local merchants when their customers use debit cards. The bank lobbyists will have their knives out for this one.
How can we prevent these provisions from being gutted now that the bills are off the floor?
Well...
Should the final act of the financial reform fight be televised? If it is, it would make any efforts--whether Republican or Democrat-led--to weaken the final product a heavier lift. And so there will be significant pressure to cut the final deal in as much darkness as possible. But if that's the route legislators decide to go they'll have to walk back from earlier nods toward the importance of transparencyIf the conference committee is televised, it will become much more difficult for members of Congress to strip out the strongest parts of the bill. The amendment process on the Senate floor strengthened the bill overall once Senators were on camera and told to "put up or shut up" regarding their tough-talk against Wall Street. Furthermore, with a televised conference committee, progressives can better target troublesome members when they work to weaken the bill.
Several weeks ago, House Financial Services Committee Chairman Barney Frank dared Senate Republicans to oppose Wall Street reform, and warned that, after the Senate passed its legislation, any further efforts to weaken the final product would have to be public: a formal conference committee to iron out the differences between the House and Senate bills, even a C-SPAN camera so the whole world could see where each party stood.
Well, last night, the Senate passed its bill, and on Monday the Senate will take formal steps to begin the conference committee process. And in conversation, key Republicans and Democrats last night say they think inviting the cameras along would be just fine.
If you'd like to see the conference committee conducted in the open, please call your Senator or Representative. This is especially important if your member is the chair or ranking member of the relevant committees and subcommittees:
Barney Frank (MA)
Spencer Bauchus (AL)
Paul E. Kanjorski (PA)
Scott Garrett (NJ)
Maxine Waters (CA)
Shelley Moore Capito (WV)
Christopher Dodd (CT)
Richard Shelby (AL)
Blanche Lincoln (AR)
Saxby Chambliss (GA)
If your member is on the Senate Banking Committee or the House Financial Services Committee, please give them a call!
The Senate will be acting on this issue on Monday. Action must be taken as soon as possible.
Thanks for your help!
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