Financial Reform Watch

It's Complicated

That is the recent refrain of Senate Banking Committee Republicans when asked about the financial services regulatory reform bill now pending in the Senate.

While Republicans have expressed continued willingness to work with committee Democrats to develop bipartisan legislation that would address the root causes of the recent financial crisis, they appear in no hurry to pass a bill—and certainly not what they consider a “bad bill”—just for the sake of having a bill.

As a whole, Senate Banking Committee Republicans think the Dodd bill and the House-passed reform bill go too far. Chairman Chris Dodd (D-CT) seems well aware of that fact and, as reported previously, has constituted numerous working groups to hammer out the various issues. Those groups are currently working together to resolve outstanding issues, with varying degrees of progress.

While the committee has been expected to mark-up its version of the financial reform bill in February, that schedule will depend upon the level of progress and bipartisanship the committee is able to achieve. One major stumbling block has been the establishment of a new Consumer Financial Protection Agency (CFPA)—a signature issue of the Obama Administration. Chairman Dodd has reportedly expressed a willingness to move away from the CFPA in a favor of giving more consumer protection authority to existing prudential regulators—a position also favored by committee Republicans.

The buzz is that the White House will continue to insist on including the CFPA in any financial regulatory reform package. However, the new math of the Senate allows for Republicans to block initiatives where the party is uniformly opposed, which appears to be the case with the CFPA.

So the question may become, "Do Democrats want a bill or do they want a fight?" While Dodd appears to want a bill—and another legislative feather in his cap before retiring at the end of the 111th Congress—the Obama Administration, by many accounts, may prefer to have a fight. Many jumped to this conclusion last week when the administration announced plans to limit the size and investment activities of commercial banks and bank holding companies, representing a significant departure from their original policy stance of mitigating banking risk through higher capital standards.

A battle would be okay by Republicans too, since they would see that as an opportunity to block passage of an unreasonable bill and push the debate into the 112th Congress when they are likely to have better numbers and could have more influence over the legislation.

With that backdrop, Democrats and Republicans on the Senate Banking Committee are currently working to develop a financial regulatory reform package that can garner the support of most of its members. The outcome of those negotiations—and the level of bipartisan support—will determine how soon the legislation will be marked-up in committee, and when (or even whether) the bill will be considered by the full Senate later this spring.

There are a lot of moving parts—both politically and substantively. As noted earlier, “It's complicated.”

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