Financial Reform Watch

Following financial regulatory reform's path in the Senate may require a scorecard. This coming Monday, Senate Banking Committee Chairman Chris Dodd (D-CT) plans to file his committee's report on the legislation it adopted before the spring recess. Sen. Majority Leader Harry Reid (D-NV) announced that the Senate will begin floor debate on the bill starting next week. Meanwhile, Senate Agriculture Committee Chairman Blanche Lincoln (D-AR) today unveiled her much anticipated derivatives bill, which her committee will markup next week. Reportedly, the current Lincoln bill does not reflect the negotiations she has been having with her Republican counterparts, and the legislation is likely to change significantly during next week's markup. Of course, the Agriculture Committee markup could end up like the Banking Committee markup with no amendments and a party line vote. It is too early to predict, but President Obama's threat today -- that he would "veto legislation that does not bring the derivatives market under control" -- signals that the White House is not looking to compromise.

Earlier today, it looked like Democrats would have been able to entice at least one Republican to help them break a possible filibuster next week. By this afternoon though, all 41 Republican Senators sent a unified letter to Reid opposing the Banking Committee bill and asking for support for the bipartisan negotiations several Senators have continued conducting.

From a political viewpoint, there is little upside to this bill for Republicans. Most members of the caucus believe the current bill is bad policy and bad politics. They see it as institutionalizing taxpayer-funded bailouts of big Wall Street firms and government-sponsored entities. They also believe the bill fails to address some of the main causes of the financial crisis such as mortgage underwriting standards, Fannie Mae, and Freddie Mac. Senate Democrats characterize the Republican criticism as pure politics. Most in the Democratic caucus believe the bill is a vehicle for ending the "too big to fail" mentality, reining in the excesses of Wall Street, and protecting consumers. Democratic campaign committees are eager to cast Republicans as defeating this bill in order to protect wealthy Wall Street bankers. Democrats have the added advantage of the White House megaphone with the president and his team reinforcing and promoting the bill.
 

In addition to all of this, House Financial Services Chairman Barney Frank (D-MA) and Dodd are reportedly working together to ensure that a final Senate bill incorporates enough key House elements so that the House could easily adopt the Senate-passed bill and send it straight to the president. As of Friday afternoon, the Democratic leadership is prepared to take the financial reform battle to the floor next week and wants to see a bill enacted before Memorial Day. Of course, everything could change yet again.