A few minutes ago, the Senate passed Wall Street reform, 59-39. Tim Fernholtz breaks down the vote:Grassley, Snow, Collins, Scott brown vote yes on #FinReg. Cantwell, Feingold vote no. Specter and Byrd did not vote.
Notably, the bill passed without votes on both the Brownback weakening amendment, and the Merkley-Levin strengthening amendment which had been attached to Brownback. Brownback withdrew his weakening amendment in order to kill the Merkley-Levin strengthening amendment, which basically means the Senator Merkley killed the Brownback amendment by a clever procedural maneuver:
As the Senate neared a final vote Thursday evening, Senator Sam Brownback, Republican of Kansas, withdrew an amendment that would have inserted into the Senate bill an exemption for auto dealers similar to the House version.Mr. Brownback’s move had the effect of killing an amendment by Senators Jeff Merkley, Democrat of Oregon, and Carl Levin, Democrat of Michigan. to bar banks from proprietary trading, or playing the markets with their own money – a restriction generally known as the Volcker rule for the former Fed chairman Paul Volcker, who proposed the idea.
The bill already contains a version of the Volcker rule, but the Merkley-Levin amendment would have gone farther in trying to prevent conflicts of interest between banks and their depository customers.Now, the fight is onto the conference committee. I will work on putting together a complete list of the ways the House bill is better than the Senate bill, and that the Senate bill is better than the House bill. Fighting to get the best of both bills–and removing the worst parts of each bill–is the goal now. Annie Lowrey has probably the best description of the path ahead for Wall Street reform.
What can the conference committee change? It cannot introduce any new language to the bill. It can only adopt either House or Senate measures, or split the difference between the two [that said, if the bill needed new language coming out of conference committee, there are ways to tack it on].
What are the major issues pending?
The Volcker Rule: The current Dodd bill requires the new Financial Stability Oversight Council to study firms’ proprietary trading operations and to create new rules prohibiting the practice. It says banks should not invest in or house hedge funds either. The House bill has no such language. The Merkley-Levin amendment would bolster the Dodd language — immediately barring federally insured banking institutions [think: Main Street banks] from engaging in speculative trading and requiring non-banking institutions [think: Goldman Sachs] to post appropriate collateral to cover their risky trades. If the Merkley-Levin amendment does not make it into the Dodd bill, there is no way to bolster the Dodd language.
Derivatives trading: Derivatives remain a major question. The House bill is very weak on requiring banks to put derivatives trades through clearinghouses. The Lincoln language in the Dodd bill is strong — forcing financial firms to spin off their derivatives trading operations into separate subsidiaries. The Obama administration opposes the Lincoln language, as do Dodd, Treasury Secretary Timothy Geithner, Wall Street and a bevy of others. The best guess right now is that the provision will be watered down, though it is not clear how.
One problem: If the Cantwell amendment fixing the loopholes in Lincoln’s language is not voted on [and it looks like it won’t be], the conference committee cannot add the language in. The House and Senate would have to vote on the fix separately, or there would have to be some procedural maneuvering to figure out a patch.
Capital requirements: The House bill has a hard 15:1 leverage requirement that the conference committee could adopt. The Dodd bill gives regulators the authority to set capital and leverage requirements. Progressives should be looking for hard numbers in the conference committee report.
··· Update: A clarification. The McCain-Cantwell amendment imposing Glass-Steagall-type requirements was declared not germane to the Dodd bill, meaning it can no longer be brought up as an amendment. As I understand it, it is not technically germane because it modifies another act rather than changing the substance of the Dodd bill itself.
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