Financial Reform Watch

Next Up in Harry Reid's Playbook: Go Long

In the eyes of Senate Democratic Leadership, the writing is on the wall. A recent poll shows that nearly two-thirds of Americans support reforms to the financial industry and a majority of those voters trust President Obama over Republicans in getting the job done. And now, following a series of tactical maneuvers this week that forced Senate Republicans into voting not once, twice, but three times against moving forward with the debate on financial regulatory reform, Senate Majority Leader Harry Reid’s (D-NV) next play appears simple: ride the populist wave against Wall Street all the way to November.

Beginning next week, the Senate will begin formally debating and considering amendments to the Restoring American Financial Stability Act of 2010 (S.3217)—a process likely to consume at least two weeks of floor time. Reid’s announced timeline of Memorial Day for completion of S.3217, coupled with President Obama’s new goal of September for the signing of a final bill, provide a clear indication that Democrats are looking to financial reform as a signature issue in the 2010 elections.

Pushing the debate forward was an agreement brokered this week between Senate Banking Committee Chairman Christopher Dodd (D-CT) and Ranking Member Richard Shelby (R-AL) that removes a controversial $50 billion “Orderly Liquidation Fund” that GOP members argued would prompt future taxpayer bailouts. In addition, Republicans say they have received assurances from both Reid and Dodd that their amendments will receive sufficient consideration under an open amendment process—although both parties are still negotiating the ground rules for debate, and are mulling a 60-vote threshold for adoption of amendments.

Below is a list of amendments that have already been introduced or are expected to be introduced by early next week:

Too Big To Fail

  • Sen. Barbara Boxer (D-CA) – Seeks to neutralize GOP efforts to portray the bill as perpetuating the concept of “too big to fail” by specifying that “no taxpayer funds shall be used to prevent the liquidation of any financial company.”
  • Sens. Sherrod Brown (D-OH) and Ted Kaufman (D-DE) – Prohibits U.S. banks from holding more than 10 percent of the nation’s total deposits; puts in place a leverage cap of six percent of total consolidated assets; and limits a bank’s liabilities — other than deposits — at two percent of national gross domestic product (GDP).

Bank Regulation

  • Sens. John McCain (R-AZ) and Maria Cantwell (D-WA) - Reinstates the Glass Steagall Act, which would prohibit the merging of commercial and investment banking.
  • Sens. Jeff Merkley (D-OR) and Carl Levin (D-MI) – Explicitly prohibits banks from engaging in “proprietary trading” activities — also known as the “Volcker Rule.” This amendment goes further than the current Dodd bill, which merely directs federal regulators to study whether or not such restrictions should be implemented.

Consumer Protection

  • Sen. Jack Reed (D-RI) - Establishes a freestanding Consumer Financial Protection Agency. The Dodd bill currently includes the creation of a Consumer Financial Protection Bureau (CFPB) as an independent division of the Federal Reserve.
  • Sen. Sam Brownback (R-KA) – Exempts automobile dealers from regulations promulgated by the newly-created CFPB.
  • Sen. Kay Hagan (D-NC) - Prohibits payday lenders from making more than six loans to the same borrower in a 12-month period; and would grant borrowers additional time to repay such loans.

Amendments are expected to multiply in the days ahead as both Democrats and Republicans will seek to put their stamp on nearly every component of the 1,400-page legislation, with particular focus likely to be placed on the regulation of derivatives, along with the size and scope of the new consumer agency. In addition, Dodd is planning to spend the weekend discussing further changes to the bill that will likely be incorporated into a broader “manager’s amendment.”

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