Financial Regulatory Forum

SCENARIOS-How U.S. financial regulation fight might play out

By Reuters Staff
March 23, 2010

March 23 (Reuters) – The financial regulation debate has a long way to go in the U.S. Congress, with the action shifting to the full Senate and big headlines unlikely until April.

The Senate Banking Committee approved a sweeping Democratic bill by a party-line vote on Monday. That bill is now headed for the Senate floor, but not before lawmakers try again to hash out a bipartisan deal in closed-door negotiations.

With Congress adjourning on Friday for a two-week holiday break, the off-line financial reform talks probably will not produce results before lawmakers return next month.

Here is a look at what could be coming for Democrats and Republicans as they craft possibly the biggest regulatory changes for banks and capital markets since the 1930s, based on discussions with analysts, aides and lawmakers.

CLOSED-DOOR DEAL

Between now and mid-April, Senate Banking Committee Chairman Christopher Dodd and top committee Republican Senator Richard Shelby will try again to find compromise on reform.

The two failed to cut a deal last year after months of discussions. Dodd gave it another shot with Republican Senator Bob Corker in January and February, but they failed, as well.

With that disappointing record as a backdrop, and some stubborn disputes remaining on fundamental points of policy, the odds would not seem to favor a Dodd-Shelby agreement.

But the political ground is shifting under the Republicans and Shelby habitually waits until the last minute to close a deal. At the same time, Dodd is retiring at the end of the year and is highly motivated to produce a bill that will help define his legacy. So a bipartisan pact could yet emerge.

If a deal can be cut, putting Shelby’s considerable clout behind a revised bill, financial reform legislation would likely win Senate approval. That could happen by May.

The next step would be to merge the Senate bill with one approved in December by the House of Representatives. If that happened promptly, President Barack Obama could have a final bill on his desk to sign into law by June or July.

SENATE PROCEDURAL HURDLE

If Dodd and Shelby cannot cut a deal, analysts say Democrats will face an uphill battle on the Senate floor.

Procedural roadblocks routinely thrown up by Republicans in the 100-member Senate mean Democrats would likely need 60 votes to get debate on the bill moving. They only control 59 votes.

So, if Dodd could hold onto moderate Democrats, he would need one or more Republicans to vote for starting debate.

At this stage, Republicans would have to make a political judgment, with November elections looming and the worst financial crisis in decades still fresh in voters’ minds.

Should they block debate, opening themselves to criticism from Democrats that they are allies of the deeply unpopular financial services industry opposed to most reforms?

Or should they let a handful of Republicans who want to overhaul the financial regulation system — and there are some — break ranks and vote to let debate begin?

If Republicans decide that depriving the Democrats and Obama of a legislative accomplishment is more important than continuing to discuss financial reform, then debate will be blocked and the long push for financial reform will end.

SENATE DEBATE

If one or more Republicans vote to open debate, a Senate floor battle will ensue, with the outcome uncertain.

Republicans had a list of 300 amendments they wanted to attach to the Dodd bill this week in the banking committee. Most sought to weaken or kill parts of Dodd’s bill, but the Republicans’ measures were uncoordinated and lacked focus.

Committee Democrats had a list of 100 amendments of their own, most geared toward making Dodd’s bill tougher.

At the last minute on Monday, Shelby and Dodd decided not to cross swords and the Democratic bill won quick approval at the committee level in a 13-10 vote.

If the two sides bring their amendments to the Senate floor, further procedural roadblocks could be thrown up by Republicans, with Democrats at a disadvantage on each one.

Significant delays could follow, but Senate leaders could navigate around this by agreeing to set aside most amendments and let a few, substantive ones come to a floor vote.

Here again, Republicans would face a tricky political judgment, and Democrats’ ability to hold together a pro-reform coalition could be tested on each vote.

Defeat for financial reform could easily result, but legislation could also ultimately be approved.

HOUSE-SENATE COMPROMISE

If the Senate produces an amended bill, it would almost certainly be more moderate than the one backed in December by the House, which garnered no Republican support.

Merging the two bills could be done in a back-and-forth process by the two chambers, or through a conference committee, which is favored by House Financial Services Committee Chairman Barney Frank. He would play a central role in either case.

OBAMA SIGNATURE

If a House-Senate compromise could be hammered out, it would then go to Obama, who would likely sign it. (Reporting by Kevin Drawbaugh; Editing by Andrew Hay) ((kevin.drawbaugh@thomsonreuters.com, +1 202 898 8390))

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