BREAKINGVIEWS-U.S. financial reform process takes risky turn

By Reuters Staff
March 23, 2010

– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –

By James Pethokoukis

WASHINGTON, March 23 (Reuters Breakingviews) – The effort to reform the U.S. financial regulatory system was supposed to show the Senate working more or less as intended — bipartisan up to a point, and largely non-confrontational. But it’s starting to follow the healthcare bill’s more contentious path.

Hundreds of Republican and Democratic amendments to the legislation authored by Democrat Chris Dodd, the panel’s chairman, were supposed to be hashed out by the relatively expert Senate Banking Committee this week. Instead, Republicans yanked their proposed changes, and the bill was approved with just Democratic support. Now it will be hashed out on the Senate floor. Democrats will need to bring at least one Republican across the aisle to hit the 60 votes needed to be certain of passage.

How might that happen? The bulls’ case is that the surprise move was OK with both sides. It permits continued closed-door chats between Dodd and key Republican Senators Richard Shelby and Bob Corker. The result could be a compromise that sails through the full Senate. That’s what happened last year with credit card legislation.

But this round of financial reform is far more wide-ranging and complicated. One look at the discarded committee amendments shows huge differences. Take Dodd’s proposed $50 billion bank-funded reserve that would backstop troubled institutions. Key Republicans want no fund at all, arguing it would encourage risky bank behavior and anyway wouldn’t be big enough. Some Democrats, on the other hand, want to make the fund $150 billion.

So it looks as if senators on both sides may be shunning compromise in the hope of scoring a clear political win. Some think they can get a better deal amidst the controlled chaos of the Senate floor. Others would prefer to kill the bill. Still others hope the debate will provide fodder to portray Democrats as promoting bailouts or Republicans as soft on bank regulation in elections later this year.

At the least, Republicans would prefer a delay that squeezes the retiring Dodd, who desperately wants a bill this year. They know even a final Senate bill still has to be blended with the already-passed House version. The Democrats’ healthcare legislation has survived what ended up as a highly partisan process. But it’s a risky course, and politics could yet derail needed financial reform.

CONTEXT NEWS

– The U.S. Senate Banking Committee on March 22 approved financial regulatory reform legislation, pushing the fight over the issue to the full Senate in April.

– The committee voted 13-10 along party lines to pass a 1,336-page bill, which will need more than a simple majority to move ahead on the Senate floor.

– The bill would set up a council of regulators to oversee financial risk, create a process for liquidating distressed financial firms, crack down on derivatives markets, and take other steps meant to avert another financial crisis.

– Just hours before voting, the committee dropped plans for a week-long debate of more than 400 amendments that were to be offered by Republicans and Democrats to a bill unveiled last week by the panel’s chairman, Democratic Senator Christopher Dodd.

– Republicans opted instead to take their fight to the Senate floor, where they have a better chance at blocking reforms that they oppose.

– Amendments via politico.com: http://r.reuters.com/mes84j

(Editing by Richard Beales and Martin Langfield)

((james.pethokoukis@thomsonreuters.com))

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Spreadsheet of the offered amendments (download available):

http://www.editgrid.com/user/cate_long/D odd_amendments_as_of_March_22,_2010

More at Riski: http://freerisk.org/wiki/index.php/Main_ Page

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