Financial regulation scorecard

June 16, 2010

A House-Senate conference committee must find a middle ground between financial regulation bills passed by the two chambers. The committee’s final report could differ from earlier versions.

Once approved by both chambers, the compromise legislation will go to President Barack Obama to sign it into law. That could happen by July 4, analysts say.

Here’s a look at the status of major points in the House and Senate financial regulation bills.

Item Objective House Bill Senate Bill Current Status
Volcker Rule Ban risky trading unrelated to customers’ needs at deposit-insured banks whose federal backing enables them to borrow money more cheaply than rivals. Not Present Under the Senate bill, the Volcker rule would be adopted, but regulators would write its details, possibly weakening it. Some form of the rule is expected to be in the final measure. Banks will push to kill it or water it down.
Derivatives Institutes federal oversight of these financial instruments by putting most through a clearinghouse and prices most on an open market. Present, but weaker than Senate Senate bill regulates derivatives more harshly than House bill as it includes an amendment from Sen. Blanche Lincoln forcing banks to spin-off most of their swap-trading desks. Wall Street firms that dominate the market are lobbying hard against changing the rules.
Higher capital requirements for banks and financial firms Tries to ensure that banks have enough capital to withstand financial shocks and lessen the chance that excessive leverage brings down financial firms. Present but lacking detail. The Senate bill would make bank holding companies adhere to the same capital standards as bank subsidiaries. It would also bar bank holding companies from counting certain kinds of hybrid securities in meeting a key measure of strength. Bank lobbyists will work hard in conference to kill this additional Senate provision. But its author, Senator Susan Collins, was one of only four Republicans to vote for the Senate bill, so she could have an edge.
Ending “Too Big to Fail” Tries to ensure that federal bank bailouts funded by taxpayers are a thing of the past. House bill sets up a pre-paid fund of $150 billion funded by banks, with an extra $50 billion able to be borrowed from the U.S. Treasury if needed. Senate bill sets up an “orderly liquidation” process that lets regulators seize large financial firms in distress and wind them down so as to avoid another Lehman Brothers-type event. The Senate version taxes banks after the fact to pay for bank rescues. The House’s prepaid fund idea looks likely to die in committee, with the Senate plan prevailing.
Oversight of the Fed Tries to ensure the Fed is not taking on too much risk and tries to make it more transparent. The House bill subjects Fed monetary policy for the first time to new scrutiny by a congressional watchdog. Senate bill calls for a one-time audit of the Fed’s emergency lending during the most recent financial crisis. House and Senate negotiators are expected to back away from measures for the Fed that would expose the central bank’s monetary policy to scrutiny and make one of its top officials a political appointee.
Consumer protection Create a government watchdog for consumers to regulate mortgages and credit cards. House bill creates an independent consumer protection bureau but exempts many businesses from oversight. Senate bill puts agency in the Federal Reserve and contains fewer exemptions. Most industry lobbyists and Republicans bitterly oppose any watchdog proposal and will push to block an independent agency, carve out exemptions for a range of businesses and restrict its powers.
Credit Rating Agencies Eliminate perceived conflicts of interest in the industry which led to poor-quality assets like subprime mortgage bonds to receive high ratings. House version makes it easier to sue agencies that issue misleading ratings and removes the requirement that government agencies use their ratings. The Senate version created a new government clearinghouse that would assign debt to ratings agencies on a semi-random basis. The committee agreed to kill the Senate provision that would upend the industry’s business model in favor of regulators addressing the conflicts of interests at the largest rating agencies.
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