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After nearly three months of intense negotiations between the White House and Congress, President Obama signed into law yesterday the Budget Control Act of 2011 (S.365) (the “Act”), a bill that establishes a process for raising the $14.3 trillion statutory debt ceiling by at least $2.1 trillion and results in deficit reductions totaling at least $2.117 trillion over 10 years.

With the Treasury Department’s August 2 deadline for raising the nation’s borrowing capacity looming, President Obama and Congressional leadership in both chambers formulated a last minute compromise on July 31 that succeeded in averting an unprecedented and potentially catastrophic national default that threatened to destabilize both the U.S. economy and global markets.

In a pivotal House vote on Monday evening, 174 Republicans and 95 Democrats rallied to approve the Act by a vote of 269-161. Viewed by many as a test of House Leadership, Speaker John Boehner (R-OH) and Minority Leader Nancy Pelosi (D-CA) were able to muster sufficient votes from their respective caucuses despite deep misgivings from Republicans who called for additional spending cuts and Democrats who called for a combination of spending cuts and revenue increases. On Tuesday, the Senate followed suit by passing the Act by a vote of 74-26, with 19 Republicans, 6 Democrats and 1 Independent voting in opposition.

Overall, President Obama and Congressional Democrats successfully secured debt limit increases large enough to extend through the 2012 elections, while Congressional Republicans were equally successful in preventing deficit reduction by way of revenue increases. However, the Act’s creation of a 12-member Joint Select Committee on Deficit Reduction, tasked with reducing the deficit by at least $1.2 trillion through fiscal 2021 virtually guarantees that a thorny debate over the national debt—particularly as it relates to taxes and entitlement spending—will resume quickly when Congress returns from its month-long August recess.

Below is a summary of the key provisions of the bill:

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After nearly three months of intense negotiations between the White House and Congress, President Obama signed into law yesterday the Budget Control Act of 2011 (S.365) (the “Act”), a bill that establishes a process for raising the $14.3 trillion statutory debt ceiling by at least $2.1 trillion and results in deficit reductions totaling at least $2.117 trillion over 10 years.

With the Treasury Department’s August 2 deadline for raising the nation’s borrowing capacity looming, President Obama and Congressional leadership in both chambers formulated a last minute compromise on July 31 that succeeded in averting an unprecedented and potentially catastrophic national default that threatened to destabilize both the U.S. economy and global markets.

In a pivotal House vote on Monday evening, 174 Republicans and 95 Democrats rallied to approve the Act by a vote of 269-161. Viewed by many as a test of House Leadership, Speaker John Boehner (R-OH) and Minority Leader Nancy Pelosi (D-CA) were able to muster sufficient votes from their respective caucuses despite deep misgivings from Republicans who called for additional spending cuts and Democrats who called for a combination of spending cuts and revenue increases. On Tuesday, the Senate followed suit by passing the Act by a vote of 74-26, with 19 Republicans, 6 Democrats and 1 Independent voting in opposition.

Overall, President Obama and Congressional Democrats successfully secured debt limit increases large enough to extend through the 2012 elections, while Congressional Republicans were equally successful in preventing deficit reduction by way of revenue increases. However, the Act’s creation of a 12-member Joint Select Committee on Deficit Reduction, tasked with reducing the deficit by at least $1.2 trillion through fiscal 2021 virtually guarantees that a thorny debate over the national debt—particularly as it relates to taxes and entitlement spending—will resume quickly when Congress returns from its month-long August recess.

Below is a summary of the key provisions of the bill:

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With near-perfect unity, Senate Republicans joined their House counterparts this week in calling for significant structural reforms to the new Consumer Financial Protection Bureau (CFPB). And unlike the House, the Senate can take hostages.

On Monday, 44 Republican Senators sent a letter to President Obama threatening to block any CFPB director nominee—regardless of party affiliation—unless their concerns regarding the new agency’s structure and lack of appropriate accountability mechanisms are addressed by Congress. Senators Scott Brown (MA) and Lisa Murkowski (AK) were the only Republicans not to sign the letter.

Specifically, the GOP letter calls for the adoption of reforms in three main areas, including:

• Leadership Structure - Alter the CFPB’s leadership structure from that of a single director to a board of directors, similar to the Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board, or Securities and Exchange Commission (SEC). GOP senators expressed concern that Dodd-Frank “failed to provide any real checks on the CFPB director’s powers” by providing limited tools for Congress or the administration to remove a director for poor performance and granting the director with “unfettered authority” over the CFPB’s annual budget.

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Coinciding with Elizabeth Warren’s inaugural testimony before Congress in her capacity as Special Advisor to the Secretary of the Treasury for the Consumer Financial Protection Bureau (CFPB) on Wednesday, House Financial Services Committee Chairman Spencer Bachus (R-AL) revived a dormant proposal that would decentralize the leadership of what Bachus calls the “most powerful agency that’s ever been created in Washington.”

Joined by 26 GOP colleagues, Bachus introduced H.R.1121, the Responsible Consumer Financial Protection Regulations Act, legislation that would replace the position of CFPB Director with a five-member Commission consisting of members that are nominated by the President and confirmed by the Senate. In addition, H.R. 1121 requires the commission to be comprised of no more than three members of the same political party—a bipartisan structure similar to that of the FTC, FDIC and SEC. According to Bachus, Dodd-Frank consolidates too much authority in the hands of a single CFPB director.

The commission structure—an idea first proposed in Congress by former Rep. Walt Minnick (D-ID) during the initial stages of the Dodd-Frank debate in 2009—has long been under discussion on Capitol Hill and was ultimately included within the financial reform legislation that first passed the House in December of 2009. (The commission language was ultimately scrapped during the House-Senate conference negotiations.)

Although no Democrats have signed onto H.R. 1121 thus far, House Republicans view the commission proposal as perhaps the most palatable CFPB reform option for Congressional Democrats, who have remained unified in resisting recent GOP efforts to slash the agency’s budget.

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In an abrupt and somewhat anti-climactic fashion, House and Senate Congressional leadership temporarily averted the first government-wide shutdown since 1996 this week, agreeing to a two-week extension of a Continuing Resolution (CR) that will fund government operations through March 18.

With recent public polls showing that neither Democrats nor Republicans would benefit from a protracted budget stalemate, the White House is now ramping up its engagement, as Vice President Joe Biden and Congressional leaders are in the middle of behind-the-scenes negotiations to hammer out a long-term agreement to fund government operations for the remaining seven months of Fiscal Year 2011.

The recent budget deal and the White House’s active engagement may provide relief to some of the roughly 2 million civilian employees on Uncle Sam’s payroll, but don’t tell that to the folks at the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Despite substantial new regulatory responsibilities granted to the agencies under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub.L. 111-203, H.R. 4173), both the SEC and CFTC budgets for FY11 and FY12 are under attack.

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Resolving a Federal budget impasse that threatens the first government-wide shutdown since 1995 will undoubtedly be Congress’s top priority when it returns on Monday following a week-long President’s Day recess. But who says lawmakers can’t walk and chew gum at the same time? Below is a preview of next week’s critical financial services hearings on Capitol Hill, as both chambers continue to oversee the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and discuss various proposals for reforming the housing finance sector.

GSE Reform

Treasury Secretary Timothy Geithner will make his first appearance of the year before the full House Financial Services Committee (HFSC) on Tuesday to discuss the Obama Administration’s long-awaited report to Congress—unveiled on February 11—that details both short-term administration initiatives and long-term options for reforming Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac. House Republicans have targeted GSE reform as a key agenda item for the 112th Congress, as the HFSC has already conducted three separate hearings related to housing finance this Congress.

In addition, HFSC Chairman Spencer Bachus (R-AL) announced yesterday that his committee will be marking up four separate bills that will seek to terminate Obama administration foreclosure and housing assistance programs that Bachus argues are “doing more harm than good for struggling homeowners.” The Home Affordable Modification Program (HAMP), the Neighborhood Stabilization Program, the FHA Refinance Program, and the Emergency Homeowner Relief Program would all be terminated under the GOP proposals.

Republicans have been particularly critical of HAMP, a program spearheaded in March of 2009 by the Obama administration to assist struggling homeowners avoid foreclosure by providing federal incentives for borrowers, servicers and investors to modify delinquent home loans. HAMP has led to over 500,000 permanently modified home loans, yet has fallen far short of the Obama administration’s initial goal of 3 to 4 million modifications.

Consumer Financial Protection Bureau (CFPB)

On Wednesday, the House Financial Services Subcommittee on Financial Institutions and Consumer Credit – chaired by West Virginia Republican Shelley Moore-Capito – will conduct a hearing entitled "The Effect of Dodd-Frank on Small Financial Institutions and Small Businesses.” The CFPB’s potential impact on U.S. job creation and commercial credit access are likely to dominate the discussion.

The hearing follows the House’s passage on February 19 of a Continuing Resolution (CR) – a bill to fund government operations through September 30, 2011—that would cap the Federal Reserve’s funding for the CFPB at $80 million, representing a steep cut from the $134 million the White House requested for the agency’s FY11 start-up costs. Under the Dodd-Frank legislation, once the CFPB is officially established in July 2011, its funding will derive from the Federal Reserve’s operating expenses budget and could be as high as $500 million in FY12.

During the House budget debate, Chairwoman of the Appropriations Subcommittee on Financial Services Jo Ann Emerson (R-MO) defended the hefty cuts. "Providing half a billion dollars a year without any congressional oversight to the bureau is, I believe, a very irresponsible abdication of a constitutional check and balance," said Emerson.

Derivatives

Newly-minted Chairwoman of the Senate Agriculture, Nutrition and Forestry Committee, Debbie Stabenow (D-MI) will hold a hearing on Thursday to review agency implementation of Dodd-Frank’s provisions related to the regulation of over-the-counter swaps markets.

The hearing will primarily focus on Dodd-Frank’s imposition of enhanced regulatory requirements on the derivative market and its participants, including a requirement for stringent margin and capital requirements for all derivative market participants. During a HFSC oversight hearing on February 15, Commodity Futures Trading Commission Chairman Gary Gensler attempted to alleviate lawmaker and industry concerns that the new derivatives regulations will negatively impact so-called commercial “end-users” – those businesses ranging from farm equipment manufacturers to breweries -- who seek to hedge against interest rates and raw material prices through derivatives contracts. Gensler testified that the CFTC, which has been given broad leeway in determining the businesses who will be exempted under the law, does not intend to target legitimate commercial end-users.

Stay tuned for hearing updates next week.
 

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With only 34 days remaining before the November 2nd mid-term elections, President Obama signed into law on Monday the Small Business Jobs and Credit Act of 2010 (H.R. 5297), a bill that represents Congress’s final legislative attempt at stimulating the sluggish economy before House and Senate lawmakers leave Washington this week to finish out their reelection campaigns.

The centerpiece of H.R. 5297—and the provision which drew the fiercest Republican opposition—is the creation of a $30 billion lending fund that allows Treasury to invest in small to medium-sized financial institutions that will, in turn, be encouraged to increase small business lending. The legislation also includes roughly $12 billion in tax breaks and incentives for small businesses.

Long stalled in the Senate, H.R. 5297 was unable to muster the 60 votes necessary to overcome a Republican filibuster in late July, as a party-line vote of 58-42 failed to invoke cloture and essentially halted the bill’s movement until after Congress returned from its August recess. Upon return in September, Senate Democrats reached 60 votes by picking off the support of Republican Senators George Voinovich (OH) and George LeMieux (FL), both of whom will be retiring from the Senate after this Congress.

Below is a summary of the key provisions included within H.R. 5297:

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On July 16, 2010, Blank Rome presented a webinar on The Dodd Frank Wall Street Reform and Consumer Protection Act of 2010.

This legislation will affect everyone, from financiers working on Wall Street to publicly-traded companies in all industries to consumers on Main Street. To view a video presentation of the topics discussed during the webinar please click on the individual links below.

The Blank Rome team addressed the following provisions of the financial reform bill:

• Political Overview—the Evolution of the Financial Reform Legislation
• Executive Compensation and Shareholder Rights—New Rules for "Say-on-Pay" and Independent Compensation Committees
• New Rules for Banks and Derivatives—Capital Requirements, Bank Fees and "the Volcker Rule", Central Clearing and Trading, Increased Market Transparency, and Regulating Foreign Exchange Transactions
• Hedge Funds—SEC Registration, Providing Systemic Risk Data, and Expanded State Supervision
• Funeral Plans and Restructuring—Periodic Reporting for Rapid Shutdown and the Consequences of Non-Compliance
• Questions and Answers

To download a PDF copy of the presentation, please click here.

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To download the final, enrolled version of the Dodd Frank Wall Street Reform and Consumer Protection Act, please click here.
 

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Earlier today, President Obama signed into law the Dodd Frank Wall Street Reform and Consumer Protection Act—marking the completion of the legislative road and the beginning of the regulatory road for the financial reform bill that is now the law of the land.

In his remarks at the bill signing, the president thanked congressional leaders, praised the effort, and described the package as a "...set of reforms to empower consumers and investors, to bring the shadowy deals that caused this crisis into the light of day, and to put a stop to taxpayer bailouts once and for all."

The 2,300 page bill now falls into the hands of the Treasury Secretary and other financial regulators to execute. In the coming days and weeks, Financial Reform Watch will be "watching" for many things including whom the president nominates to be the head of the new Consumer Financial Protection Bureau; when the first meeting of the Financial Stability Oversight Council will be scheduled; and which proposed rules begin to flow from the financial regulators tasked with implementing the mandates of the Dodd Frank Act.

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This afternoon the Senate passed the Dodd Frank Wall Street Reform and Consumer Protection Act by a vote of 60 to 39.  As expected, all but three Republicans -- Senators Scott Brown (MA), Olympia Snowe (ME) and Susan Collins (ME) -- voted against the bill, and Sen. Russ Feingold (D-WI) was the only Democrat to vote against it. The president is expected to sign the legislation next week.

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Date:  Friday, July 16

Time:  12:00 noon - 1:30 p.m. EST

Cost:  Free

Registration: Click here to register by July 15

Please join the Financial Reform Watch Team for a free webinar covering the key provisions of the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 :

• Political Overview—the Evolution of the Financial Reform Legislation
• Executive Compensation and Shareholder Rights—New Rules for "Say-on-Pay" and Independent Compensation Committees
• New Rules for Banks—Capital Requirements, Bank Fees and "the Volcker Rule"
• Hedge Funds—SEC Registration, Providing Systemic Risk Data, and Expanded State Supervision
• Derivatives—Central Clearing and Trading, Increased Market Transparency, and Regulating Foreign Exchange Transactions
• Funeral Plans and Restructuring—Periodic Reporting for Rapid Shutdown and the Consequences of Non-Compliance

For more information, please contact Alexandra Sevilla at [email protected]

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Date:  Friday, July 16

Time:  12:00 noon - 1:30 p.m. EST

Registration: Click here to register by July 15

The Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 brings the most ambitious reform to the financial industry in 70 years. This legislation will affect everyone, from financiers working on Wall Street to publicly traded companies in all industries and to consumers on Main Street.

Join the Financial Reform Watch team for a complimentary webinar that will address the overall provisions of the financial reform bill, including:

• Political Overview—the Evolution of the Financial Reform Legislation
• Executive Compensation and Shareholder Rights—New Rules for "Say-on-Pay" and Independent Compensation Committees
• New Rules for Banks—Capital Requirements, Bank Fees and "the Volcker Rule"
• Hedge Funds—SEC Registration, Providing Systemic Risk Data, and Expanded State Supervision
• Derivatives—Central Clearing and Trading, Increased Market Transparency, and Regulating Foreign Exchange Transactions
• Funeral Plans and Restructuring—Periodic Reporting for Rapid Shutdown and the Consequences of Non-compliance

For more information, please contact Alexandra Sevilla at [email protected]

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By a vote of 237-192, the U.S. House of Representatives tonight passed the conference report for the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The Senate must also approve the legislation before it can go to the president for his signature. The Senate is expected to take up the measure when it returns from the Independence Day recess the week of July 12th.

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The Fourth of July deadline for enacting financial regulatory reform legislation is likely to be postponed, yet again, to the middle or end of July. The House and Senate conference committee completed its work on the Dodd Frank bill in the wee hours of last Friday morning, but the death of Sen. Robert Byrd (D-WV) and the objections of four Senate Republicans are forcing the conference committee back into session this afternoon.

Senate Democratic leadership is now struggling to find the 60 votes necessary to overcome a filibuster. Sen. Byrd was a reliable “yes” vote for the conference report, and his replacement is not expected to be sworn in for at least several weeks. The four Republican Senators who had earlier supported the Senate bill are now likely to oppose the conference report -- Scott Brown (MA), Susan Collins (ME), Charles Grassley (IA), and Olympia Snowe (ME). Sen. Brown yesterday sent a letter to Conference Chairmen Dodd (D-CT) and Frank (R-MA) explaining that he was withdrawing his earlier support of the measure due to the addition of an FDIC assessment on large banks and hedge funds that was inserted at the last minute in order to raise the $18 billion necessary to make the legislation budget-neutral. Senators Snowe and Collins have also expressed reservations about the addition of this provision, and Sen. Grassley is facing additional constituent pressure being generated around a difficult primary challenge that may cause him to reconsider his earlier support.

Of the two Senate Democrats who voted against the bill last time – Senators Russ Feingold (D-WI) and Maria Cantwell (D-WA) – Sen. Feingold continues to oppose the legislation and Sen. Cantwell remains undecided. The leaders are holding today’s conference meeting in an effort to find alternative means to pay for the shortfall and make the bill budget neutral. House Financial Services Chairman Barney Frank and Senate Banking Committee Chairman Christopher Dodd have now proposed to raise the FDIC reserve ratio to 1.35 and divert unused TARP funds to replace the current $18 billion assessment. Of course, the new solution may well alter the support of other Senators.

Paying tribute to Senator Byrd, resolving the assessment issue, lining up the votes, and getting through significant procedural requirements in time to get members of Congress home for their Independence Day events now appears unlikely if not impossible.

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With the clock ticking on a self-imposed deadline for the completion of House and Senate conference negotiations, House Financial Services Chairman Barney Frank (D-MA) did his best impersonation of (soccer star) Landon Donovan early Friday morning, clearing a conference report that will bring Congress one step closer to passing the most sweeping financial regulatory reform legislation in nearly a century. 

Capping off two weeks of publicly-televised conference committee negotiations that included a nearly 24-hour marathon session on the final day, House conferees voted 20-11 and Senators voted 7-5 to approve the measure on party lines; and provided President Obama with a critical victory prior to this weekend’s G-20 Summit in Toronto.

Below are the key issues that were resolved in conference committee on Thursday:

Derivatives
A broad array of industries, both inside and outside the financial sector, anxiously awaited the conferees’ response to controversial Senate language authored by Sen. Blanche Lincoln (D-AR) that would require banks to spin-off or “wall off” their swaps operations. After many weeks of behind-the-scenes negotiations -- including a contentious session yesterday in which House Democrats threatened to pull their support for the overall bill if the Lincoln language was included -- conferees ultimately agreed to a watered-down version that allows banks to continue trading with certain derivatives that are deemed less risky. Under the proposal offered by House Agriculture Committee Chairman Collin C. Peterson (D-MN), derivatives tied to interest rate swaps, foreign exchange swaps, gold and silver, and investment-grade credit default swaps will be exempted from the prohibition, while derivative trading related to agriculture, commodities, energy, equities, metals, and below-investment-grade credit default swaps must be walled off from a bank’s federally insured deposits.

Volcker Rule
Aside from the derivatives title, the debate surrounding the “Volcker Rule” -- or the proposed ban on proprietary trading for banks and bank holding companies -- proved to be the most contentious item on the conferees’ agenda in the final week. In the end, negotiators agreed to strengthen the Volcker Rule provisions by incorporating language offered by Senators Carl Levin (D-MI) and Jeff Merkley (D-OR) that would strip the ability of regulators to halt the Volcker Rule‘s implementation. However, in deference to the wishes of Sen. Scott Brown (R-MA)—who was one of only four Republicans to vote for the financial reform bill in the Senate— the final language would allow banks to engage in proprietary trading activities with up to three percent of their tangible common equity.

Banking Capital Standards
Another major agreement involved language authored by Sen. Susan Collins (R-ME) that would limit the ability of banks to use commonly held securities known as “trust-preferred” to meet capital requirements. Although House Democrats sought a 10-year phase-in for financial institutions with assets between $15 billion and $100 billion, negotiators agreed to a five-year phase-in period for $15-$100 billion institutions and a full exemption for those with less than $15 billion.

Corporate Governance
Conferees decided to retain a Senate provision that requires publicly-trade companies to grant certain shareholders -- those owning five percent of the outstanding shares for at least two years -- to nominate and elect members of the board of directors through a proxy vote.

Levy on Banks and Hedge Funds
In order to defray the legislation’s projected $22 billion cost -- as estimated by the Congressional Budget Office -- conferees approved last-minute language that would allow the Federal Deposit Insurance Corporation (FDIC) to levy fees on financial institutions with assets of $50 billion or more and hedge funds with managed assets of over $10 billion.

The House and Senate are expected to vote on the final conference report next week -- which is not subject to further amendment -- before sending it on to the White House for President Obama's signature and enactment into law .
 

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After gaveling in day six of financial reform conference negotiations, House Financial Services Committee Chairman Barney Frank (D-MA) reaffirmed this afternoon his goal of completing conference negotiations by June 24, stating that conferees will “stay [on Thursday] until we’re finished.”

Despite a handful of controversial issues that await consideration this week—including the scope of the so-called “Volcker Rule,” heightened banking capital standards and more stringent regulations for financial derivatives—both Frank and Senate Banking Committee Chairman Christopher Dodd (D-CT) appear increasingly determined to wrap up conference negotiations before President Obama travels to Toronto for this weekend’s G-20 Summit. According to Frank, any potential delays would undercut the president’s leverage at the G-20 and cause further uncertainty for global financial markets. If Frank and Dodd meet their timeline it will likely set up House and Senate floor consideration of a conference report next week.

Consumer advocates secured a significant victory on Tuesday, as conferees came to a general agreement regarding the size and scope of a newly-created Consumer Financial Protection Bureau (CFPB), which will be housed in the Federal Reserve and will be funded independently. An agreement also appears imminent regarding an exemption from CFPB regulation for auto dealers. Although House conferees are seeking a blanket exemption, Chairman Dodd has offered to allow the CFPB to issue rules that apply to auto dealers under the Truth in Lending Act, while the Federal Reserve would have discretion as to whether or not it enforces such rules.

Today, conferees are examining prudential banking regulation under Title 6 of the bill—which includes the Volcker Rule. Conferees are expected to consider an amendment offered by Senators Carl Levin (D-MI) and Jeff Merkley (D-OR) that would explicitly prohibit banks and bank holding companies from engaging in proprietary trading activities, as opposed to the current Senate language that provides latitude to regulators over the Volcker Rule’s implementation. In addition, Senator Scott Brown (R-MA)—who was one of only four Republicans to vote for the financial reform bill in the Senate—is lobbying conferees to include an exemption from the Volcker Rule for non-bank mutual funds and insurance companies.

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With several issues leftover from last week and several more controversial ones on the agenda this week—such as the Consumer Financial Protection Agency and derivatives—it may be a challenge for the congressional conferees to finish their work by the Fourth of July. In addition to sorting out the policy issues, Congress also has to get through certain procedural hoops before the financial regulatory reform proposals become law.

July 4th is the quoted deadline, but the real deadline for Congress to finish its business on this legislation is more likely to be Thursday, July 1, or Friday, July 2, because most members will be anxious to get back to their states and districts for Independence Day events. Between now and then, several things must happen. Assuming the conferees come to a conclusion and the majority agrees to a final package, the conference committee must produce two documents:

1. A conference report, which the majority of conferees must sign; and
2. A joint explanatory statement, which explains what the conference report does.

The House will then act first and take up the conference report. The House Rules Committee will have to meet to agree to a rule for the report’s floor consideration. House rules require that conference reports must layover 72 hours, however, the Rules Committee may vote to waive that rule. If not, that could add three extra days to the process.

Once the conference report goes to the House floor, the members can vote to adopt, reject, or recommit it (to the conference committee). Assuming the House adopts the conference report, it would then go to the Senate where it is subject to debate and possibly a filibuster. Even if Majority Leader Harry Reid (D-NV) has the 60 votes needed to invoke cloture and end the filibuster, there is a two day process for cloture plus 30 hours of post-cloture debate.

What this means is that process issues alone could take up a week’s worth of congressional time. House Financial Services Chairman Barney Frank (D-MA) and Senate Banking Committee Chairman Chris Dodd (D-CT) are seasoned legislators who have likely factored these procedural constraints into their strategy. Financial Reform Watch predicts the Chairmen will push hard to finish the conference committee work by the end of this week or weekend, leaving next week to get through the procedural hurdles. If they are unsuccessful in bringing the conference’s work to a close by next Monday, the July 4th deadline may be in real jeopardy.

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Beginning at noon tomorrow, House and Senate conferees for the financial reform legislation will return to the negotiating table for round two – this time with their attention fixed on the contentious Title 10, which props up a new regulator for consumer financial protection.

In preparation for tomorrow’s proceedings, House Financial Services Chairman Barney Frank (D-MA) unveiled this afternoon the House’s proposals for amending the Senate language in regards to not only consumer financial protection, but also mortgage reform and predatory lending, and risk retention.

In a critical concession, Frank’s proposal would retain the Senate version’s placement of the newly-created Consumer Financial Protection Bureau (CFPB) inside the Federal Reserve, a move that is likely to provoke disapproval amongst Frank’s Democratic colleagues who favor the creation of a stand-alone agency. Even Frank, himself, panned the idea of housing a new consumer regulator inside the Fed when it was first proposed in the Senate in March. But once again, Frank’s concession largely reflects the political dynamics in the Senate, where the creation of a stand-alone agency would likely unravel a fragile coalition of 60 votes required for passage.

Striking another controversial note, Frank defied long-standing White House objections by reviving language included in the House-passed version and offered as amendment in the Senate by Sen. Sam Brownback (R-KS) – but which did not receive a vote -- that would exempt auto dealers from the CFPB’s regulatory oversight. It remains uncertain whether the White House will continue to lobby against the provision during negotiations this week.

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As the 43 House and Senate conferees today begin debating reforms related to insurance, credit rating agencies, the thrift charter, and private funds within the financial regulatory reform bill, House Financial Services Chairman Barney Frank (D-MA) and Senate Banking Committee Chairman Christopher Dodd (D-CT) announced further details of the conference committee agenda over the next couple of weeks.

Most notably, the two most contentious items of financial reform—the newly-created Consumer Financial Protection regulator and the enhanced oversight of derivatives—will be dealt with next week according to the schedule. The somewhat divisive resolution authority provisions (aimed at preventing “too-big-to-fail”) will be considered this Thursday. Below is the tentative schedule:

Week 1 (The week of June 14)

Wednesday, June 16

• Title 9, subtitles A, B, F, H, I and J of base text: Investor protection/regulatory improvements
• Title 9, subtitles E and G of base text: Executive compensation/corporate governance
• Title 11 of base text: Fed audit and governance, and emergency liquidity provisions

 Thursday, June 17

• Titles 1, 2 and 8: Systemic risk regulation, resolution authority, payments/clearing/settlement

Week 2 (The week of June 21)

• Consumer Protection Agency, CFPA/CFPB
• Predatory lending
• Interchange
• Remittances
• Access issues
• Prudential regulation
• Derivatives; miscellaneous

DOWNLOAD: HR 4173 - Conference Base Text (PDF)

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Jump-starting what is expected to be two weeks of conference negotiations over the competing House and Senate versions of financial regulatory reform legislation, this afternoon House Financial Services Chairman Barney Frank (D-MA) formally unveiled the first tranche of House proposals that will be considered – beginning on Tuesday at 11 a.m. -- to the base Senate bill.

Although Frank’s proposals are largely technical in nature, some present significant departures from the Senate bill. In particular, Frank is aiming to strike language added by Sen. Al Franken (D-MN) that targets the so-called practice of “rating shopping” by creating an SEC-regulated clearinghouse that would assign a rating agency for newly-created securities. Frank – who joins Senate Banking Committee Chairman Christopher Dodd (D-CT) in opposing the Franken proposal -- is instead offering to insert a provision that calls for a one-year SEC study to evaluate the efficacy of such a clearinghouse; and would charge the SEC with issuing recommendations to Congress.

In addition, Frank has thrown his support behind a House-passed provision that would require SEC registration and examination for private equity fund managers, contrasting with Senate language that provides for a private equity exemption. However, although both House and Senate bills require hedge fund managers to register with the SEC, Frank is proposing to broaden the Senate bill’s exemption for hedge fund managers with less than $100 million in assets to include those with less than $150 million in assets.

Frank’s proposals would amend the following titles (with links to the proposed language), which are the first titles to be considered by the conference committee on Tuesday:

• Title III - Transfer of Powers to the Comptroller of the Currency, the Corporation, and the Board of Governors
• Title IV - Regulation of Advisers to Private Funds and Others
• Title V - National/Federal Insurance Office
• Title IX, Subtitle C - Improvements to the Regulation of Credit Rating Agencies

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The House Leaders just released their lists of conferees who will work on reconciling the House and Senate financial regulatory reform bills.  See below for the complete list.

Democratic Conferees Appointed by Speaker Pelosi (CA) --

Committee on Financial Services
Barney Frank (MA), Chair, full committee
Paul Kanjorski (PA), Chair, Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises
Maxine Waters (CA), Chair, Subcommittee on Housing and Community Opportunity
Carolyn Maloney (NY), Member of Committee
Luis Gutierrez (IL), Chair, Subcommittee on Financial Institutions and Consumer Credit
Mel Watt (NC), Chair, Subcommittee on Domestic Monetary Policy and Technology
Gregory Meeks (NY), Chair, Subcommittee on International Monetary Policy and Trade
Dennis Moore (KS), Chair, Subcommittee on Oversight and Investigations
Mary Jo Kilroy (OH), Member of Committee
Gary Peters (MI), Member of Committee

Democratic Conferees on specific portions of the legislation on which their committees have jurisdiction:

Committee on Agriculture
Collin Peterson (MN), Chair, full committee
Leonard Boswell (IA), Chair, Subcommittee on General Farm Commodities and Risk Management

Committee on Energy and Commerce
Henry Waxman (CA), Chair, full committee
Bobby Rush (IL), Chair, Subcommittee on Commerce, Trade, and Consumer Protection

Committee on the Judiciary
John Conyers (MI), Chair, full committee
Howard Berman (CA), Member of Committee

Committee on Oversight and Government Reform
Edolphus Towns (NY), Chair, full committee
Elijah Cummings (MD), Member of Committee

Committee on Small Business
Nydia Velazquez (NY), Chair, full committee
Heath Shuler (NC), Chair, Subcommittee on Rural Development, Entrepreneurship and Trade
 

Republican Conferees Appointed by Minority Leader John Boehner (OH) --

Spencer Bachus (AL), ranking member on the House Financial Services Committee

Joe Barton (TX), ranking member of the House Energy and Commerce Committee

Sam Graves (MO), ranking member of the House Small Business Committee

Darrell Issa (CA), ranking member of the House Oversight and Government Reform Committee

Frank Lucas (OK), ranking member of the House Agriculture Committee

Lamar Smith (TX), ranking member of the House Judiciary Committee

Ed Royce (CA), member of the House Financial Services Committee

Judy Biggert (IL), member of the House Financial Services Committee

Shelley Moore Capito (WV), member of the House Financial Services Committee

Jeb Hensarling (TX), member of the House Financial Services Committee

Scott Garrett (NJ), member of the House Financial Services Committee
 

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The Senate has appointed twelve of its members to the House-Senate conference committee that will soon meet to resolve the differences between the financial regulatory reform bills that each body has now passed. (Click here for the recently-finalized text of the Senate-passed bill.) The Senate’s list is below along with the list of representatives that House Financial Services Committee Chairman Barney Frank (D-MA) sent to House Speaker Nancy Pelosi (D-CA) as recommended Democratic conferees. Frank explained the rationale behind his choices in a memo to his committee colleagues; essentially, he picked his subcommittee chairs, with the exception of Carolyn Maloney (whom he selected because she was a subcommittee chair until she took over as Chairman of the Joint Economic Committee at the Speaker’s request).

Frank has also floated the following timetable for the conference, but Financial Services Committee Ranking Republican Spencer Bachus (R-AL) sent Frank a letter yesterday expressing concerns that the timetable is too compressed for legislation of this magnitude. In addition, House Republican Leader John Boehner sent a letter to Speaker Pelosi last week asking for a bipartisan and open conference process, but Republicans have yet to name their conferees. FR Watch will update the timetable and conferee list as more information becomes available. --

Frank’s Proposed Conference Timetable

Tuesday, June 8th- House conferees appointed

Wednesday, June 9th- First open meeting of the conference; organizational issues and opening statements only

Tuesday, June 15th through Thursday, June 17th and Tuesday, June 22nd through Wednesday, June 23rd - Conference meets to consider substantive issues

Thursday, June 24th- Conference concludes and conference report will be filed shortly thereafter

Monday, June 28th - House Rules Committee meets to grant rule for floor consideration

Tuesday, June 29th - House passes the conference report; Senate will have three days to pass the conference report before the July 4th recess.

Senate Banking Committee Members appointed as conferees – Dodd (D-CT), Johnson (D-SD), Reed (D-RI), Schumer (D-NY), Shelby (R-AL), Corker (R-TN), Crapo (R-ID), Gregg (R-NH)

Senate Agriculture Committee Members appointed as conferees – Lincoln (D-AR), Leahy (D-VT), Harkin (D-IA), Chambliss (R-GA)

Chairman Frank’s recommended list of House Conferees --

1. Barney Frank (D-MA) – House Financial Services Committee Chairman

2. Carolyn Maloney (D-NY) -- Joint Economic Committee Chairman

3. Paul Kanjorski (D-PA) -- Subcommittee Chairman on Capital Markets, Insurance, and Government Sponsored Enterprises

4. Luis Gutierrez (D-IL) -- Subcommittee Chairman on Financial Institutions and Consumer Credit

5. Maxine Waters (D-CA) -- Subcommittee Chairman on Housing and Community Opportunity

6. Melvin Watt (D-NC) -- Subcommittee Chairman on Domestic Monetary Policy and Technology

7. Greg Meeks (D-NY) -- Subcommittee Chairman on International Monetary Policy and Trade

8. Dennis Moore (D-KS) -- Subcommittee Chairman on Oversight and Investigations
 

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Aiming to deliver a financial regulatory reform bill to President Obama’s desk before the July 4th recess, this morning Senate Democratic leadership unveiled its list of members charged with reconciling the competing House and Senate versions of the Wall Street Reform and Consumer Protection Act of 2009.

The Senate's lineup of conferees includes seven Democrats and five Republicans, eight of which are members of the Banking Committee and four from the Agriculture Committee:

Banking, Housing and Urban Affairs Committee

• Chairman Christopher Dodd (D-CT)
• Ranking Member Richard Shelby (R-AL)
• Senator Tim Johnson (D-SD)
• Senator Jack Reed (D-RI)
• Senator Chuck Schumer (D-NY)
• Senator Bob Corker (R-TN)
• Senator Mike Crapo (R-ID)
• Senator Judd Gregg (R-NH)

Agriculture Committee

• Chairwoman Blanche Lincoln (D-AR)
• Ranking Member Saxby Chambliss (R-GA)
• Senator Patrick Leahy (D-VT)
• Senator Tom Harkin (D-IA)

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 By a vote of 59 to 39, the Senate tonight passed the financial regulatory reform package it has been debating for the past few weeks.  Four Republicans -- Senators Chuck Grassley (IA), Olympia Snowe (ME), Susan Collins (ME), and Scott Brown (MA) -- broke ranks and voted with all but two Democrats to pass the bill.  The two Democrats who voted against the bill were Senators Russ Feingold (WI) and Maria Cantwell (WA).  The next step in the process will be reconciling the House and Senate-passed bills in a conference committee. The White House and Congressional leadership have said they expect to have the legislation ready for the president's signature by the Fourth of July. 

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Without any votes to spare, the Senate this afternoon approved, by a tally of 60-40, a motion to limit debate on the Restoring American Financial Stability Act of 2010 (S.3217), effectively bringing the Senate’s debate over financial reform to its final stages. Senate Majority Leader Harry Reid (D-NV) says he is now aiming to complete the bill tonight following the consideration of a handful of remaining amendments.

After falling just short of garnering the necessary 60 votes to invoke cloture during yesterday’s session, Senate Democrats were able to pick-up the support of  Sen. Scott Brown (R-MA)—who joined GOP colleagues Olympia Snowe and Susan Collins of Maine as the only Republicans to support cloture—along with Sen. Arlen Specter (D-PA), who was absent during Wednesday’s session. For the second day in a row, Sens. Maria Cantwell (D-WA) and Russ Feingold (D-WI) voted in opposition. Brown appears to have switched his vote after receiving assurances from Democratic leadership that the bill’s proprietary trading ban would be modified in order to shield the insurance industry.

As a result of the successful cloture motion, only amendments deemed “germane” to the legislation will be eligible for consideration, ultimately nixing the possibility for consideration of most of the pending amendments. Amendments likely for consideration are a proposal offered by Sen. Sam Brownback (R-KS) to exempt automobile dealers from the regulatory purview of a newly-created Consumer Financial Protection Bureau (CFPB) and an amendment from Sens. Jeff Merkley (D-OR) and Carl Levin (D-MI) that would explicitly prohibit banks and bank holding companies from engaging in proprietary trading activities.

With the votes secured, we expect Democratic leadership to wrap things up either tonight or tomorrow morning.
 

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Falling short of the necessary 60 votes to cut off debate on the Restoring American Financial Stability Act of 2010 (S.3217), a motion to invoke cloture failed in the Senate this afternoon by a vote of 57-42.

Although Maine’s Republican Senators Olympia Snowe and Susan Collins decided to break rank with their GOP colleagues by supporting cloture, Senate Majority Leader Harry Reid (D-NV) was unable to keep his caucus in line, ultimately losing the votes of both Maria Cantwell (D-WA) and Russ Feingold (D-WI). In a parliamentary maneuver, Reid switched his vote in order to reconsider the cloture motion at a time that has yet to be determined.

Both Reid and Senate Banking Committee Chairman Christopher Dodd (D-CT) must now return to the negotiating table in order to establish a timeline for the consideration of additional amendments. Until then, the magic number of 60 remains elusive.

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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.

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The stalemate is over, and the Senate will begin voting on on amendments to the Restoring American Financial Stability Act of 2010 (S. 3217) this afternoon. As of noon today, there were nearly 100 amendments filed and that number is expected to increase. It is unclear yet which amendments will require 60 votes to pass -- since the possibility of a filibuster constantly looms in the Senate -- but Senate Banking Committee Chairman Chris Dodd (D-CT) cleared six amendments for consideration this afternoon.

The breakthrough occurred earlier today, when Sen. Dodd announced that he and Ranking Member Richard Shelby (R-AL) reached a formal agreement on modifications aimed at ending "Too Big To Fail" – an issue on which Republicans have focused their opposition. GOP Senators have repeatedly argued that the proposed $50 billion "Orderly Liquidation Fund" to help finance the resolution of failing financial institutions would only serve to perpetuate taxpayer-funded bailouts.

According to Dodd, the latest agreement would remove the $50 billion fund and would instead require both creditors and the financial industry to reimburse the government, but only after an FDIC-led resolution occurs. In addition, the agreement includes 1. A "clawback" provision that requires creditors to pay back amounts received under an orderly resolution that exceed the amount the creditors would have received through liquidation or bankruptcy; 2. An authorization for federal regulators to break up institutions that pose a "grave threat to the financial stability of the United States"; and 3. Further limitations on the Federal Reserve’s ability to invoke its emergency 13(3) authority, which allows any individual, partnership or corporation in "unusual and exigent circumstances" to access the Fed's discount window.

Along with the Dodd-Shelby amendment and a Republican proposal that is expected to deal with consumer protection, the Senate will also consider the following amendments this afternoon:

• Senator Barbara Boxer (D-CA) - An amendment specifying that “no taxpayer funds shall be used to prevent the liquidation of any financial company."
• Senator Olympia Snowe (R-ME) - An amendment that strikes language that forces banks to disclose certain customer data; and a second amendment that seeks to maintain credit opportunities for small business owners by preserving their ability to use their homes as collateral.
• Senators Jon Tester (D-MT) and Kay Bailey Hutchison (R-TX) - An amendment requiring the FDIC to implement risk-based assessments in order to charge riskier banks with higher premiums over less-leveraged banks.

With "Too Big to Fail" apparently resolved, the only other speed bumps ahead are derivatives and the consumer financial protection regulator -- both complex and controversial. Financial reform is expected to continue dominating Senate floor time for the remainder of this week, all of next week, and into most of the following week.

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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.

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Fresh off a newly-brokered compromise between Senate Banking Committee Chairman Christopher Dodd (D-CT) and Ranking Member Richard Shelby (R-AL), Senate leaders announced this evening that both sides have unanimously agreed to begin debating the Restoring American Financial Stability Act of 2010 (S.3217) – officially putting an end to nearly three days of legislative stalemate.

Although details of the Dodd-Shelby compromise language – which reportedly only changes provisions related to eliminating taxpayer bailouts of large and interconnected financial institutions -- have yet to be unveiled, a senior GOP aide said it amounted to “huge concessions” by the Democrats, and ultimately led to the Republicans' final decision to move debate on the broader legislation forward. The Senate made progress tonight in spite of the fact that two other major areas of contention -- derivative regulation and the powers of a newly-created Consumer Financial Protection Bureau (CFPB) -- remain unresolved.

Beginning on Thursday, the amendment process will kickoff with the consideration of a Dodd-Lincoln substitute amendment.  Particular attention will be paid to the derivative language, especially whether or not a broader exemption should be provided for "end-users " and also whether or not banks will be forced to spin-off or “wall off” their swaps operations -- a proposal that is currently opposed by Republicans, the Federal Reserve, a few Democrats (including New York Senator Kirsten Gillibrand and Virginia's Mark Warner), and even some in the Obama Treasury Department.

Both Republicans and Democrats are expected to introduce a laundry list of amendments in what Senate Democratic leadership pledges will be an open process.
 

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The Senate Democratic leadership asked for the same vote – and they got the same result. Once again, Sen. Ben Nelson (D-NE) joined a unified GOP this afternoon in opposing a motion to begin debating the Restoring American Financial Stability Act of 2010 (S.3217).

 Despite the repeat vote of 57-41, Senate Majority Leader Harry Reid’s (D-NV) strategy of continually putting the GOP on record -- ostensibly as opponents of financial reform legislation -- conveniently coincides with the investigation of a major Wall Street player. This morning, executives at Goldman Sachs received an earful from lawmakers on the Senate Permanent Subcommittee on Investigations who are currently probing Goldman’s trading practices related to toxic mortgage securities.

 Directly following the vote, Senate Banking Committee Chairman Christopher Dodd (D-CT) and Ranking Member Richard Shelby (R-AL) met at 5 p.m. to continue their negotiations on the divisive areas of the overhaul legislation that continue to stall progress, including new language regulating the derivatives market that has been agreed to by Chairman Dodd and Senate Agriculture Committee Chairwoman Blanche Lincoln (D-AR), along with a $50 billion “Orderly Liquidation Fund” that Democrats say is intended to eliminate the concept of “too big to fail.”

If today feels like Déjà Vu, maybe tomorrow will feel like Groundhog Day, as Senate Majority Leader Harry Reid (D-NV) has already filed a cloture motion that could set up a third vote on Wednesday. Unless a deal is struck by Dodd and Shelby in the next 24 hours, we expect more of the same.
 

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Less than 24 hours after the Senate failed to secure the necessary 60 votes to begin debating financial regulatory reform legislation—and after the electorate woke up to newspaper headlines reading “Financial Overhaul Blocked by GOP” and “Filibuster Stalls Financial Reform Bill”—Senate Majority Leader Harry Reid (D-NV) has announced plans to do it all over again.

At 4:30 p.m. today, the Senate will once again vote on a motion to begin debate on the Restoring American Financial Stability Act of 2010 (S.3217). Although there are currently no indications that the results will be any different—as Senate Banking Committee Chairman Christopher Dodd (D-CT) and Ranking Member Richard Shelby (R-AL) have yet to agree on a bill that both sides find acceptable—the Senate Democratic leadership is continuing a strategy that aims to portray Republicans as road blocks to Wall Street reform. Appearing determined to turn up the political heat, Reid has also taken steps to set up another vote on Wednesday if necessary.

Stay tuned for the results.

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Tonight the Senate Democratic leadership was unable to get the 60 votes necessary to advance comprehensive financial regulatory reform legislation (S. 3217). The motion to proceed to the bill failed by a vote of 57-41. Sen. Ben Nelson (D-NE) was the lone Democrat to vote with the united Republicans. Senate Banking Committee Chairman Chris Dodd (D-CT) and Ranking Minority Member Richard Shelby (R-AL) continue to work behind the scenes toward a compromise package that could attract more than 60 votes. At the same time, Senate Republicans are rumored to be drafting a Republican alternative to the Banking Committee-passed bill. Senate Majority Leader Harry Reid (D-NV) can move to reconsider tonight's vote -- i.e. a do-over -- at any time, but he is not likely to do that until he has secured at least 60 votes.
 

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Today the Senate Agriculture Committee, led by Chairman Blanche Lincoln (D-AR), completed its work on the over-the-counter derivatives section of financial regulatory reform. By a vote of 13 to 8, the committee adopted the Wall Street Transparency and Accountability Act. Sen. Charles Grassley (R-IA) was the only Republican to join the committee Democrats in voting for the bill.

The Senate is set to vote to end the filibuster on the Senate Banking Committee bill next Monday evening, which would allow Banking Chairman Chris Dodd (D-CT) to bring the legislation to the floor next Tuesday, April 27. The Monday night vote is dependent on getting at least one Republican to break ranks and vote for cloture, which would end the delay. No one knows which Republican will cave, but some likely candidates are the moderate Senators from the Northeast: Olympia Snowe (R-ME), Susan Collins (R-ME), or Scott Brown (R-MA).

We expect Sen. Dodd to incorporate Lincoln’s Wall Street Transparency and Accountability Act into the financial reform package he brings to the floor. Following are a few shorthand highlights of the Lincoln bill, but click here for the Senate Agriculture Committee’s more extensive summary and the most up to date bill language.

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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.

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This afternoon at 5 p.m. the Senate Banking Committee will meet and likely adopt along party lines Chairman Chris Dodd's "Manager's Amendment" to his financial regulatory reform draft unveiled earlier this month. Instead of dedicating a week or more to consideration of the 473 amendments filed by committee members -- 98 of which were filed by Sen. Bob Corker (R-TN) -- Dodd decided to incorporate a fraction of the amendments into one roughly 100-page package and then move the bill swiftly and successfully out of committee.

Corker said this morning that he was disappointed about the process, since he had hoped to work through many of the issues in a bipartisan fashion within the Banking Committee.  Assuming things go as predicted tonight, many compromises to the bill will be worked out behind the scenes prior to floor consideration, while still other issues will play out on the Senate floor.

Corker still believes the bill has a 90 percent chance of passing ultimately and thinks that there may be a "better opportunity with a different cast of characters -- the full Senate -- to do something policywise."
 

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Taking a pivotal step towards the enactment of comprehensive financial regulatory reform, this afternoon Senate Banking Committee Chairman Christopher Dodd (D-CT) released the Restoring American Financial Stability Act of 2010, which includes broad revisions to legislation that Dodd introduced in November and represents the base bill for a full committee markup that is slated to begin next week.

The introduction of the Dodd bill comes amidst increasingly protracted negotiations between the chairman and his fellow banking committee members Richard Shelby (R-AL) and Bob Corker (R-TN), which were halted before both sides could hash out bipartisan compromises on several significant policy issues—including the authority of a proposed Consumer Financial Protection Bureau and a newly-created process for winding down large and interconnected financial institutions. But according to Dodd, the Senate’s dwindling timeline for action was the most immediate factor driving his decision; while others are viewing Dodd’s move as an effort to ramp up the political pressure on Senate Republicans by bringing the debate out in the open.

Below are the bill’s highlights:

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 Congress was in recess last week for the President’s Day holiday, but Senate Banking Committee staff remained focused on financial reform. Despite the fact that committee Chairman Chris Dodd (D-CT) was spending his break on a congressional trip to Central America – by happenstance with his new negotiating partner Sen. Bob Corker (R-TN) – the committee staff announced that the Chairman would release his “new wide-ranging bill" this week. As of today, that deadline has already slipped to the first week of March, meaning that the committee will not markup the legislation until the second or third week of March at the earliest.

We are hearing reports that the new draft will establish a council of regulators, led by the Treasury Secretary, responsible for monitoring systemic risk across the entire financial system. There have also been reports the draft will include provisions for a new bankruptcy-like system to wind down institutions previously considered “too big to fail.” The FDIC is expected to have a key role in that process.

Separately last week, Sen. Richard Shelby (R-AL), the committee’s Ranking Republican, announced that he was working on a Republican alternative to the Chairman’s financial reform draft. Shelby has made no public statements about Corker’s decision to work with Dodd, but the fact that Shelby is producing his own bill speaks volumes.

There is a lot of prognosticating right now. Corker’s positions are far more in line with Shelby’s than Dodd’s. The question is will Corker be able to convince Dodd to pass a streamlined bill that deals with a few key issues and tables the thorny issue of the Consumer Financial Protection Agency? Many industry experts are saying that Dodd and Shelby would have already worked out that deal if it was possible, and the Republican caucus is likely of the same mind, which puts Corker in a tough position. The outlook for financial reform continues to be very uncertain.

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Senate Banking Committee Chairman Chris Dodd (D-CT) and Ranking Member Richard Shelby (R-AL) continue to work towards bipartisan agreement on at least some key elements of a financial reform measure. While the process has been a rocky one, both Senators appear to be working hard to find common ground. They appear to have found agreement on at least two things:

1. There will NOT be a stand-alone Consumer Financial Protection Agency.  Rather, consumer protections functions will be folded into another agency or agencies.

2. The president's proposal to limit the size of financial institutions (the "Volcker rule") has complicated the process and may have come too late in the game.

Our contacts on the Hill are telling us to expect committee action on a financial reform package by the end of the month. Regardless of the final outcome of the Dodd-Shelby discussions, the Chairman appears committed to moving ahead.

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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.

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Treasury Secretary Timothy Geithner notified Congress today that the $700 billion Troubled Asset Relief Program (TARP) would be extended until October 3, 2010 – a move that, although expected, adds fuel to an ongoing debate on Capitol Hill whether to wind down the politically unpopular program or utilize its excess funds for broader economic recovery efforts.

In a letter sent to House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, Geithner sought to quell political concerns by outlining a TARP “exit strategy” and narrowing the program’s focus to three specific areas in 2010: home foreclosure mitigation; small-business lending; and the Term Asset-Backed Securities Loan Facility (TALF) in order to facilitate lending through securitization markets.  According to Geithner, no TARP funds will be spent beyond these specific areas “unless necessary to respond to an immediate and substantial threat to the economy.”  In addition, the Capital Purchase Program – aimed at boosting bank lending through nearly $250 billion in direct capital injections – will cease.

Key to the administration’s TARP extension is the assumption that only $550 billion of the $700 billion program will be necessary for deployment, a figure buoyed by Treasury estimates that TARP-recipient banks could repay as much as $175 billion by the end of 2010.  Sanguine figures such as these have opened the floodgates to recent congressional proposals that would use TARP proceeds to create or expand economic recovery initiatives -- including a job-creation proposal outlined yesterday by President Obama – and, at the same time, remain budget-neutral.

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On home improvement shows, it’s called the big “reveal.”  In Washington, the “reveal” is expected on Monday in the Senate Banking Committee with the much anticipated release of Chairman Chris Dodd’s (D-CT) omnibus financial reform bill. Rumors of its content have been leaking out for several days. Also being revealed --although it has been hinted at for weeks-- is the partisan divide that has opened up on Chairman Dodd's committee.

One of the most controversial elements expected to be in Dodd’s plan is the removal of bank supervisor authorities from the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of Comptroller of the Currency, and the Office of Thrift Supervision in order to consolidate those authorities into one new super bank regulator. Neither the administration proposal nor House Financial Services Committee measures contemplated this approach. In fact, Financial Services Committee Chairman Barney Frank (D-MA) has criticized the concept because it does not “respect and preserve the dual banking system;” it undercuts the role of state bank supervisors; and it fails to preserve the role of the FDIC, an agency that Frank thinks is performing well.

Other expected provisions are a “Council of Regulators” approach to systemic risk; a Consumer Financial Protection Agency that will have oversight over most financial service products except for insurance or securities; credit rating agency reform; resolution authority for large financial institutions; and regulation of derivatives. Dodd plans to hold one or more hearings on his bill the week of November 16th and expects the committee to markup the bill after Thanksgiving.

Dodd has decided to move ahead without the support and assistance of Ranking Member Shelby (R-AL) and the other committee Republicans. Some are viewing this as a setback given that Dodd and Shelby had made a show in the past year of their shared views on some key parts of the financial reform agenda. Over the past six-to-eight weeks, as Dodd has pushed to pull the package together, it became clear the GOP side of the committee was reticent to come along. While this prevents the bipartisan approach Dodd had wanted, it does free him to take the bold approach it now appears we will see. Given the importance to his re-election of appearing to shake-up the financial establishment, Dodd may benefit from the freedom to stake out this turf. Whether that will contribute to the ultimate enactment of legislation remains to be seen.

Watch this space early in the week for a discussion of the outlook on the House side for continuation of the progress in assembling a comprehensive financial reform package.
 

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Gaining strong momentum after its passage out of the House Financial Services Committee last week, a bill crafted by Chairman Barney Frank (D-MA) to create a new Consumer Financial Protection Agency (CFPA) ran into a significant and unforeseen roadblock on Thursday – fellow Democrat and equally powerful House Energy and Commerce Chairman Henry Waxman (CA). In what could have been a routine markup of H.R. 3126, the Consumer Financial Protection Agency Act of 2009, the House Energy and Commerce Committee -- whose jurisdiction includes consumer protection and Federal Trade Commission oversight -- made dramatic changes to Frank's bill. One of the most obvious can be gathered from the amended bill's title: the Consumer Financial Protection Commission Act of 2009.

Waxman and the committee's Ranking Member Joe Barton (R-TX) collaborated on the manager’s amendment that would dramatically shift the agency’s governance from a single director to a commission led by a five-person bipartisan panel. Modeled after independent agencies like the Federal Communications Commission and the Federal Trade Commission, the chairman and commissioners would be nominated by the president, confirmed by the Senate, and serve staggered five year terms

Frank expressed sharp disapproval of the Waxman approach, referring to the commission model as “a big mistake” that will “weaken the capacity of the agency to provide consumer protection.” Frank defended the House Financial Services version as a balanced approach that allows a CFPA director to take prompt action, while at the same time, receiving the necessary recommendations and oversight from a board comprised of bank regulators and consumer groups. The differences may need to be resolved on the House floor. Waxman indicated he would have further changes during the floor debate, specifically removing some of the industry exemptions that were carved out by the House Financial Services legislation, including those for merchants, retailers and auto dealers.

The House Rules Committee will be the next stop for the bills where Chairman Louise Slaughter (D-NY) will execute the will of the House Democratic leadership and likely resolve the differences. It would not be in the best interest of the White House or congressional Democrats to have two of its most powerful chairmen battle over consumer protection on the House floor. The schedule is not yet posted, but the Rules Committee reconciliation could occur as early as next week.

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Following last week’s unveiling of his newly-modified draft bill to create a Consumer Financial Protection Agency (CFPA), House Financial Services Chairman Barney Frank (D-MA) announced Wednesday his intention mark up the bill the week of October 12. While the philosophical debate between House Democrats and Republicans over the CFPA’s creation may be coming to a close, the debate amongst Democrats over the CFPA’s contours may be just beginning.

Federal preemption of state banking regulations is one of the first issues to divide Democrats. During Wednesday's committee hearing, Democratic lawmakers expressed concerns over a provision in Frank’s draft that would scrap federal preemption laws related to consumer protection. The Frank bill would have the CFPA set a minimum federal threshold and enable the states to set stricter rules if they choose. The potential exposure of nationally chartered banks to different consumer financial protection laws in every state is a prospect some fear would be overly cumbersome.

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Even Cabinet Members (maybe ESPECIALLY Cabinet Members) need an August break. Various media outlets have reported that Treasury Secretary Geithner delivered an expletive-laced tirade to the principal U.S. financial regulators during a meeting last Friday, in what sources say was a clear show of frustration over the internal opposition to some key elements of the Obama administration's financial regulatory proposal.

Fortunately, for inquisitive lawmakers, several of the meeting attendees were on Capitol Hill today to testify before the Senate Banking Committee on “Strengthening and Streamlining Prudential Bank Supervision,” including Federal Deposit Insurance Corporation (FDIC) Chairman Sheila Bair, Federal Reserve Governor Daniel Tarullo, Acting Director of the Office of Thrift Supervision (OTS) John Bowman and Comptroller of the Currency John Dugan.

Confirming the veracity of the reports, the regulators were also unwilling to soften their criticism, as Bair and her fellow regulators expressed sharp resistance to the administration's proposal to consolidate the bank supervisory functions of the OTS and the OCC into a new National Banking Supervisor -- citing concerns that unified regulation would undercut the interests of community banks and would do little to close the most glaring regulatory gaps that occurred in the non-bank, or "shadow," banking system.

After hearing from the witnesses, Senate Banking Committee Chairman Chris Dodd (D-CT) openly speculated about the administration's plan, commenting that it is “…a thoughtful proposal but I wonder if it is the right prescription.”  Then again, Dodd’s comments may offer more insight on where his mind has focused these past several weeks than about the financial reform outlook.

The House adjourned last Friday and the Senate will adjourn this Friday for the August recess. Dodd is going home to face some challenging poll numbers as he gears up his 2010 re-election campaign. The opinion landscape is shifting rapidly, and legislators may come back in September with some different notions than they left with in August. One thing is for certain, it is going to be a very busy fall.

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The House of Representatives took the first steps towards enacting President Obama’s sweeping financial reform proposal today, voting 237-185 to approve the Corporate and Financial Institution Compensation Fairness Act of 2009 (H.R. 3269) requiring all publicly-held companies to hold non-binding annual shareholder votes and expanding SEC authority over incentive-based compensation structures. Although the bill’s passage represents a major victory for the president and the Democratic Congress, it may prove to be the least controversial element of financial reform, as stark divisions remain on both sides of the aisle concerning the creation of a Consumer Financial Protection Agency and an expanded role for the Fed as a systemic risk regulator.

Unsurprisingly, this afternoon’s vote fell largely along party lines, with only two GOP members supporting the measure and 16 Democrats opposing. The House also approved, by a vote of 242-178, an amendment offered by Chairman Barney Frank (D-MA) that struck language prohibiting “clawbacks ” of executive compensation approved by shareholders. The amendment also inserted language that would prohibit clawbacks of incentive-based pay if a compensation agreement was in effect prior to this bill's enactment.

As the executive compensation legislation moves to the other side of the Capitol, conventional wisdom dictates that the Senate saucer will ultimately cool the House’s hot teacup – but this historical assumption may not apply for this bill.  The executive compensation debate was further inflamed yesterday following the release of New York Attorney General Andrew Cuomo's report showing that the nine largest U.S. banks paid out $32.6 billion in bonuses in 2008 -- a year in which total losses reached $81 billion and nearly $200 billion of taxpayer money was directly injected through the Troubled Asset Relief Program (TARP).  Moreover, a handful of lawmakers on the Senate Banking, Housing and Urban Affairs Committee currently facing tough re-election bids in 2010 – including Committee Chairman Christopher Dodd (D-CT) – will likely avoid putting themselves in a vulnerable political position by advocating reforms that deviate too much from the House legislation.

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Expanding shareholder voting rights to include corporate executive compensation has been a topic of considerable debate in Washington over the past few years, but not until the fall of 2008—when the federal government began undertaking unprecedented steps to stabilize the financial system—did “say on pay” gain real momentum. By late fall, there was strong public outcry for action as recipients of government bailout money reported high executive salaries and bonuses that appeared disconnected from their companies' financial health.

Congress took the first steps towards strengthening investor influence by imposing say on pay requirements for all Troubled Asset Relief Program (TARP) recipients in the American Recovery and Reinvestment Act, passed in February. However, in response to public uproar over American International Group’s (AIG) distribution of $165 million in corporate bonuses to their much-maligned financial products unit, the Obama Administration went one step further in early June by proposing an extension of say on pay to all publicly-traded companies.

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The Treasury Department today released draft legislative language that would require all public companies to hold annual, non-binding shareholder votes on executive compensation packages as well as impose stricter standards to ensure the independence of corporate compensation committees. The "Say on Pay" proposal is modeled after a rule the United Kingdom adopted in 2002. Starting December 15, 2009, proxy materials will have to include tables summarizing the salary, bonus, stock option awards, and total compensation package for senior executives and also narrative explanations of any golden parachute and pension compensation packages. In the event of a merger or acquisition, companies will need to hold separate votes on golden parachutes and must lay out simply and clearly what the departing executives will receive.

To ensure the independence of corporate compensation committee members, the legislation calls for "exacting new standards" modeled on how Sarbanes Oxley established the independence of audit committees. The provisions would require compensation committees to be granted the funding and authority necessary to hire compensation consultants, legal counsel, and other advisers—all of whom should be independent of the company's management—to help the committee negotiate pay packages that are "in the best interests of shareholders."

Financial Reform Watch will be tracking this legislation as it moves through Congress.

Treasury: Proposed Legislation re Executive Compensation or "Say on Pay" (PDF)

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Late yesterday afternoon, the Treasury Department released draft legislation that would require advisers to hedge funds, private equity funds, venture capital funds, and other private pools of capital to register with the Securities and Exchange Commission (SEC) if they have more than $30 million of assets under management. In addition to registering, the advisers will be subjected to new reporting, recordkeeping, compliance, and disclosure requirements as well as conflict of interest and anti-fraud prohibitions. In its release, Treasury said,

"The Administration's legislation would help protect investors from fraud and abuse, provide increased transparency, and provide the information necessary to assess whether risks in the aggregate or risks in any particular fund pose a threat to our overall financial stability."

Financial Reform Watch will be tracking this legislation as it moves through Congress.

Treasury:  Proposed Legislatve Language for the Registration of Hedge Funds (PDF) 

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The quick emergence of GM and Chrysler from bankruptcy has been viewed as a victory for the Obama Administration in demonstrating that the government is focused on moving the companies through their restructuring and keeping them on the road to once again being private companies. Now a majority of Members of the House, including two key Democratic leaders, are pushing legislation that could jeopardize the restructuring plans supported by the White House.

As we write this, a bipartisan group of 240 House Members and 20 Senators are supporting legislation that will allow auto dealers who have lost their franchises in the restructuring to recover them simply by requesting their reinstatement from the auto companies. The legislation was attached to the House version of the Financial Services Appropriations bill last week by a unanimous vote of 60 to 0. The legislation would require Chrysler and GM, at the request of an auto dealer, to restore the dealer franchise agreement in effect prior to each manufacturer’s bankruptcy proceeding. The bill could save around 2000 franchises according to some estimates, although that may be high, since many dealers have already closed. Some had feared the House Rules Committee would remove the language from the Financial Services Appropriations bill, but the language will remain in section 745 of the bill when the House votes on the measure tomorrow.

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House Financial Services Committee Chairman Barney Frank (D-MA) changed the game yesterday with his announcement that the House would tackle financial reform by considering a series of smaller, targeted bills rather than a more comprehensive reform bill. Frank said he anticipates his committee will move four to six separate bills between July and the end of the year. First out of the gate will be legislation to create a new "Consumer Financial Protection Agency" proposed by the Obama administration.

With Frank’s Senate counterpart, Banking Committee Chairman Chris Dodd (D-CT), fully occupied managing health care legislation, the timeline continues to slip in the upper chamber. Frank remains committed, however, to working the major issues through his committee this summer, and has already scheduled thirteen hearings and markups for July.

There is little doubt Congress will impose new consumer protections on the financial service industry. Whether it will create a new agency to police them remains to be seen. Given budget concerns and other competing priorities, Congress may ultimately determine to enhance the consumer protection requirements, including simplified disclosure, within the existing regulatory framework of the SEC, FDIC, Federal Reserve, and the potentially combined Offices of the Comptroller of the Currency and Thrift Supervision.

House Financial Services Committee Schedule

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Tired of being labeled as obstructionists, Republicans on the House Financial Services Committee on Thursday issued their plan for financial regulatory reform. Led by the committee’s Ranking Minority Member Spencer Bachus (R-AL) and TARP Congressional Oversight Committee member Jeb Hensarling (R-TX), the Republican solutions stem from three principles – prevent any future Wall Street bailouts; stop the government from picking winners and losers in the financial system; and restore market discipline.

While the Republican plan does not address every issue -- most notably missing is insurance regulation – those included represent a consensus view within their caucus. Bachus described their plan as a “line in the sand” from which Republicans can negotiate with the Democrats. Hensarling, who before coming to Congress served on the executive compensation committee of a company publicly traded on the New York Stock Exchange, was particularly critical of the latest push to regulate compensation. A better approach, Hensarling believes, is the creation of a new “Market Stability and Capital Adequacy Board,” which would be charged with flagging risky practices across the board. The Republicans offered as an example the practice of rewarding loan originators for loan volume with no regard to loan quality, saying that such a board would have been able to halt that.

The White House plans to release its comprehensive reform plan on June 17th. Will the Obama administration give a nod to bipartisanship by including a few elements of the Republican plan? Financial Reform Watch will compare and contrast the plans later this week.

Central Elements of the Republican Plan

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