Financial Regulatory Forum

U.S. financial reform faces Republican challenges

By Reuters Staff
November 2, 2009

By Kevin Drawbaugh and Rachelle Younglai

WASHINGTON, Nov 2 (Reuters) – Key U.S. senators are still deeply divided on basic financial regulation reforms, making it unlikely a bill expected soon from Senate Democrats could become law this year, analysts said on Monday.

Despite progress in the House of Representatives, where completed bills are emerging from committee and headed for floor votes, financial reform is moving slowly in the Senate and faces daunting political obstacles, analysts said.

More than a dozen proposals have been sent to Congress by the Obama administration, with most meeting resistance from lobbyists for banks and financial services firms

Legislation focused on creating a single U.S. bank supervisor, possibly accompanied by proposals on handling systemic risk and “too big to fail” firms, may be released this week by Democratic Senator Christopher Dodd, analysts said.

“We do not believe that there is broad bipartisan support for whatever Senator Dodd will introduce,” said Brian Gardner, policy analyst at investment firm Keefe Bruyette & Woods.

Dodd chairs the Senate Banking Committee, which must handle financial reform. Committee Republicans are undecided on the need to create a systemic risk regulator, but do support creating a mechanism for unwinding troubled firms, said a source familiar with discussions within the committee.

Republicans are considering Dodd’s idea of consolidating federal banking regulators to one from four, the source said.

But the bill that is expected to be released soon in the Senate, possibly within days, will not be a bipartisan venture. “This will be a Democratic bill,” said the
source.

Gardner said: “It will require months of negotiations before the bill is ready to be considered on the Senate floor … Completion of the issue will likely be in 2010.”

The banking committee is targeting mid-November to begin debating the Dodd bill, sources said.

That is the same time period in which the full House hopes to vote on a final comprehensive financial reform bill.

Congressional Democrats and the Obama administration want to overhaul financial regulation to prevent a repeat of last year’s financial crisis, the worst in generations.

The House Financial Services Committee is expected to approve a bill on Tuesday that would beef up the U.S. Securities and Exchange Commission, as well as strengthen certain standards for investor protection.

Later this week, the House committee is slated to debate and vote on a landmark bill, proposed last week by President Barack Obama, on systemic risk and large financial firms.

The bill would set up an inter-agency council to police financial risks in the economy and give existing regulators — including the Federal Reserve — sweeping new powers to manage and shut down firms that threaten economic stability.

Several aspects of the bill — including one requiring firms to pay into a fund to pay for fixing problems at other firms — pose risks to financial stock investors, said Jaret Seiberg, policy analyst at investment firm Concept Capital.

“The good news here is that we continue to believe the Senate will moderate or drop many of these provisions as the legislation advances in that chamber,” Seiberg said.

(Reporting by Kevin Drawbaugh; Editing by Andrew Hay)
((kevin.drawbaugh@thomsonreuters.com, +1 202 898 8390, +1 202 488 3459 (fax)))

 

By Kevin Drawbaugh and Rachelle Younglai
WASHINGTON, Nov 2 (Reuters) – The top Republican on the U.S. Senate Banking Committee wants a bipartisan financial reform deal, but opposes creating a new consumer protection agency and sees other key issues as open to debate, an aide told Reuters on Monday.
Senator Richard Shelby supports stronger consumer protections “where appropriate, but believes the creation of a stand-alone agency is neither necessary nor wise,” said Jonathan Graffeo, spokesman for the Republican senator.

Senator Christopher Dodd, a Democrat and chairman of the banking committee, welcomed an Obama administration proposal to set up a Consumer Financial Protection Agency to regulate mortgages and credit cards — one of several reform proposals that must be handled by the banking committee.

The new agency would strip existing bank regulators, such as the Federal Reserve, of their consumer protection duties and centralize them.

In Shelby’s judgment, “divorcing consumer protection from prudential regulation would make the system less safe,” Graffeo said. But the consumer agency is not the only unresolved issue.

Shelby sees more room for debate on derivatives regulation, overseeing systemic risk, and bank supervision, Graffeo said.

Dodd was expected to unveil draft financial reform legislation soon, but final action in the Senate was unlikely until next year, analysts and Senate aides said.

“Comprehensive bank regulatory restructuring legislation is likely to be introduced in the next few days, but we continue to believe that completion of the issue will likely be in 2010,” said financial services policy analyst Brian Gardner at investment firm Keefe Bruyette & Woods.
SENATE MOVING SLOWLY
Despite progress in the House of Representatives, financial reform is moving slowly in the Senate and faces daunting political obstacles, analysts said.

More than a dozen proposals have been sent to Congress by the administration, with most meeting resistance from lobbyists for banks and financial services firms.  (Click here for details of the main proposals.)

A bill focused on a single bank supervisor, possibly accompanied by proposals on handling systemic risk and “too big to fail” firms, may come soon from Dodd, analysts said.

“We do not believe that there is broad bipartisan support for whatever Senator Dodd will introduce,” Gardner said.

The bill that is expected to be released soon in the Senate will not be a bipartisan venture, said a source familiar with discussions at the committee level.

“This will be a Democratic bill,” the source said.
Congressional Democrats and the Obama administration want to overhaul financial regulation to prevent a repeat of last year’s financial crisis.

The House Financial Services Committee is expected to approve a bill on Tuesday that would beef up the U.S. Securities and Exchange Commission, as well as strengthen certain standards for investor protection.

Later this week, the House committee is slated to debate and vote on a landmark bill, proposed last week by President Barack Obama, on systemic risk and large financial firms. (Editing by Leslie Adler)

((kevin.drawbaugh@thomsonreuters.com, +1-202-898-8390, +1-202-488-3459 fax)) Keywords: FINANCIAL REGULATION/

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