Financial Reform Watch

Following a nearly three-day logjam, the Senate is now voting , and voting often, as leaders on both sides continue to queue up a broad array of amendments dealing with nearly every component of the Restoring American Financial Stability Act of 2010 (S. 3217).

Yesterday, the Senate jumpstarted the amendment process by passing overwhelmingly two proposals aimed at ending “Too Big To Fail” through modifications to the bill’s resolution authority language. The first amendment, offered by Senator Barbara Boxer (D-CA), attaches language specifying that “no taxpayer funds shall be used to prevent the liquidation of any financial company”; and the second amendment, offered by Senators Christopher Dodd (D-CT) and Richard Shelby (R-AL), removes the controversial $50 billion fund that would have been used to finance the resolution of failing financial institutions and would limit the payments received by creditors during liquidation. The Boxer amendment passed by a vote of 96-1 and the Dodd-Shelby amendment was approved 93-5.

Although both parties were able to resolve the “Too Big Too Fail” dilemma relatively peacefully through closed door negotiations, the gulf between Democrats and Republicans over a contentious proposal to create a new consumer financial protection bureau (CFPB) may prove to be more difficult. At some point today, the Senate is expected to consider an alternative GOP proposal offered by Shelby and Senate Minority Leader Mitch McConnell that would, as opposed to the current Dodd proposal that places the CFPB within the Federal Reserve, put the new bureau inside the FDIC and grant its board with significant oversight authority over the bureau's rulemaking decisions. The Shelby-McConnell proposal would also limit the bureau’s authority to that of rulemaking, as banking regulators would retain their enforcement and supervisory authority. But nonetheless, the GOP alternative’s prospects of passage are dismal by most accounts.

In addition to the GOP consumer protection alternative, the Senate is expected to consider today an amendment, offered by Sen. Bernie Sanders (I-VT) and cosponsored by a diverse group of 21 senators from both parties, that seeks to match a controversial element of the House-passed financial reform legislation (H.R. 4173) that calls for GAO audits of the Federal Reserve’s monetary policy. In addition, the Senate is expected to consider an amendment offered by Senator John McCain (R-AZ) that attempts to end the conservatorship of the Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac by implementing an “orderly transition period” that will lead to both GSEs operating without government support.

Earlier this morning, the Senate passed, 98-0, an amendment offered by Senators Jon Tester (D-MT) and Kay Bailey Hutchison (R-TX) that requires the FDIC to implement risk-based assessments in order to charge riskier banks with higher premiums over less-leveraged banks.