Financial Reform Watch

End Game is Near as Cloture Vote Looms Over Senate

Senate Majority Leader Harry Reid (D-NV) has teed up a critical vote today at 2 p.m. on the motion to invoke cloture, or limit debate, on the financial regulatory reform legislation, representing the first major step in wrapping up nearly a month of Senate debate.

If cloture is invoked—and Reid says he has commitments from Republican senators in order to garner the necessary 60 votes, despite the cries of a handful of Democrats who are seeking additional floor time for the consideration of their amendments—the Senate will likely vote on final passage of the Restoring American Financial Stability Act of 2010 (S.3217) on Friday.

Although the filing deadline for amendments has passed, Senate Banking Committee Chairman Christopher Dodd (D-CT) and Ranking Member Richard Shelby (R-AL) continue to negotiate a resolution to the remaining amendments that have been offered by senators on both sides of the aisle. Reportedly, Dodd has now approved roughly 40 amendments that will be incorporated into a single manager’s amendment that will be offered this week.

However, in what came as a major surprise to many in the financial services industry, Dodd yesterday foiled the common prediction that he would offer an amendment to scrap controversial language in the derivative portion of the bill that forces banks to divest their swap desks if they wish to receive assistance from the Fed and the FDIC. Instead, Dodd unveiled an amendment on Tuesday that would retain the ban, yet delay its implementation for two years while a newly created council of regulators studies the proposal and makes recommendations to the Treasury Secretary. In addition, while the current derivatives proposal still allows banks to engage in swaps transactions through a separately capitalized entity, the Dodd proposal would apply the ban to both the depository institution and its parent or bank holding company. If the Dodd derivatives language is included within the final legislation, U.S. banks currently engaging in swaps transactions must hope that several members of the council who have expressed concerns over the ban, including Fed Chairman Ben Bernanke and FDIC Chairwoman Sheila C. Bair, can persuade both the council and the Treasury Secretary to prevent such measures from being implemented.

Also on Tuesday, the Senate revived a debate surrounding federal preemption of state consumer laws, which first surfaced during the House’s consideration of its financial reform legislation (H.R. 4173). The Senate overwhelmingly approved yesterday afternoon, by a vote of 80-18, an amendment offered by Senator Tom Carper (D-DE) that would preserve the ability of the Office of the Comptroller of the Currency (OCC ) to preempt state consumer laws if certain standards are met; and would prevent state attorneys general from filing class-action lawsuits against national banks. However, the amendment—which Senator Carper watered-down in order to appease U.S. consumer groups—also provides state attorneys general with the ability to enforce consumer protection rules that are issued by the newly-created Consumer Financial Protection Bureau (CFPB) against national banks.

Stay tuned for the results of today’s cloture vote…

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