Financial Regulatory Reform Bill

On Monday, the Senate resumed its consideration of S. 3217 the Restoring American Financial Stability Act of 2010. The Senate rejected an amendment sponsored by Sen. Mike Crapo (R-ID) which would have limited further bailouts of Fannie Mae and Freddie Mac and passed an amendment sponsored by Sen. John Cornyn (R-TX) that protects United States taxpayers from paying for the bailouts of foreign governments. On Tuesday, the Senate adopted an amendment sponsored by Sen. Tom Carper (D-DE) that limits the powers of state attorneys general to enforce consumer financial regulations, permits state attorneys general to enforce consumer regulations against any state-licensed or chartered bank but limits their powers to enforce regulations on national banks that are prescribed by the new consumer protection office, and removes a requirement that the federal government, prior to preempting states, must find an applicable substantive standard. The Senate rejected an amendment sponsored by Sen. Byron Dorgan (D-ND) that would have banned naked credit default swaps but passed an amendment sponsored by Sens. Charles Grassley (R-IA) and Claire McCaskill (D-MO) that prevents inspectors general at five financial regulatory agencies, namely the Federal Reserve Board of Governors, the Commodity Futures Trading Commission, the National Credit Union Administration, the Securities and Exchange Commission, and the Pension Benefit Guaranty Corporation, from becoming presidential appointments. On Wednesday, the Senate rejected a cloture motion sponsored by Senate Majority Leader Harry Reid (D-NV) to end debate on the bill and also rejected an amendment sponsored by Sen. Sheldon Whitehouse (D-RI) that would have forced lenders to abide by state-mandated caps on interest rates. Current federal regulations allow credit card companies to follow interest rate caps of the states in which they are located, rather than those prescribed by their customers’ home states. On Thursday, the Senate reconsidered and passed a cloture motion sponsored by Senate Majority Leader Harry Reid (D-NV) to end debate on the bill before passing the bill itself by a vote of 59-39.

The bill now proceeds to a House-Senate conference where the two bodies will iron out the substantial differences between their two bills. The key issues on which the House and Senate bills deviate are the new consumer financial protection agency, the regulation of auto dealers, over-the-counter derivatives, and the “Volcker Rule.” Regarding a new Consumer Financial Protection Agency, the Senate bill would move a proposed consumer protection agency into the Federal Reserve and the House bill would create it as a stand-alone agency with more leeway to implement regulations. House Speaker Nancy Pelosi (D-CA) and House Financial Services Committee Chairman Barney Frank (D-MA) have both voiced their strong support for keeping the House-passed language in the final version of the bill.

Regarding the issue of derivatives, the Senate bill contains language authored by Sen. Blanche Lincoln (D-AR) that would require banks to spin off their derivatives trading desks into separate companies, at a cost of billions in lost revenues. The House bill has no such measure. Both the House and Senate bills require most new derivatives to be cleared on regulated exchanges and would subject these transactions to new collateral and margining requirements. Both bills also exempt most corporate end users that use derivatives to hedge commodity prices from clearing requirements, but the House bill provides broader exemption limits and clearing requirements to those firms engaged in a substantial amount of speculative trading or that have derivative positions large enough to pose a threat to the financial system. The auto dealers exemption and the “Volcker Rule,” which would prevent depository banks from proprietary trading, became intertwined during the final hours of consideration Thursday. Republican leaders convinced Sen. Sam Brownback (R-KS) to withdraw his auto dealers’ exemption amendment in order to quash a second degree amendment on the “Volcker Rule” that had been attached to Brownback’s proposal by Sens. Jeff Merkley (D-OR) and Carl Levin (D-MI). Senate GOP and Democratic leaders agreed to allow Brownback to offer a motion to instruct Senate conferees to make the auto dealer amendment change he was seeking in exchange for his willingness to drop the amendment.

On Monday, the Senate will appoint seven Democratic and five Republican conferees to the House-Senate conference. The Senate will then vote on Sen. Brownback’s auto dealer motion and another motion from Sen. Kay Bailey Hutchison (R-TX) regarding proprietary trading (not directly related to the Volcker Rule). The Senate conferees likely will be some combination of Senate Majority Leader Harry Reid (D-NV), Senate Majority Whip Dick Durbin (D-IL), Senate Banking Committee Chairman Chris Dodd (D-CT), Senate Agriculture Committee Chairman Blanche Lincoln (D-AR), Senate Vice Chair of the Democratic Caucus Charles Schumer (D-NY), Senate Chairman of the Democratic Policy Committee Byron Dorgan (D-ND), Senate Secretary of the Democratic Conference Patty Murray (D-WA), Senate Chief Deputy Whip Barbara Boxer (D-CA), and Senate Democratic Deputy Whip Tom Carper (D-DE), and possibly senior members of the Banking Committee such as Tim Johnson (D-SD), Jack Reed (D-RI), and Evan Bayh (D-IN). The Republican conferees may include some combination of Senate Minority Leader Mitch McConnell (R-KY), Senate Minority Whip Jon Kyl (D-AZ), Senate Banking Committee Ranking Member Richard Shelby (R-AL), Senate Agriculture Committee Ranking Member Saxby Chambliss (R-GA), and Senate Chairman of the Republican Policy Committee John Thune (R-SD), along with senior Banking Committee members Robert Bennett (R-UT), Mike Crapo (R-ID), Judd Gregg (R-NH), and Bob Corker (R-TN). The House and Senate each determine the number of conferees from their respective bodies, and it is unknown at this point how many conferees the House will appoint. The conference is expected to conclude before the July 4th congressional recess.

More Information

If you have any questions regarding any of these issues, please contact:

Matt Jessee


Policy Advisor

1 202 508 6341



Dave Russell


Senior Policy Advisor

1 202 508 6353