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Friday, May 24, 2024

Some agreement on Wall Street reform


Key senators reached a partial agreement on Wall Street reform on Tuesday, but disputes over some issues continued, and the Senate adjourned without casting votes on amendments as planned.

The chief Democratic and Republican negotiators agreed on a new government protocol for dismantling financial giants in distress. Their pact briefly stirred hopes among lawmakers that final approval of the sweeping reform bill was drawing near.

But when votes on bill amendments did not occur as scheduled late on Tuesday evening, Senate Democratic Leader Harry Reid complained anew of obstructionism by Republicans.

“Republicans are stopping us from moving to anything,” he said, clearly exasperated, in remarks on the Senate floor. “We can’t even get to votes on amendments we’ve agreed to.”

President Barack Obama has pushed hard for Wall Street reform to prevent a recurrence of the 2008-2009 financial crisis that paralyzed capital markets and tipped the U.S. economy into a deep recession. Parallel reform efforts are under way in the European Union, which also was hit hard.

Obama said on Tuesday that proposed regulatory reforms were “in no way designed to hamstring businesses.”

If Democrats can win passage of their bill, they would score an important legislative victory going into November’s congressional elections. Republicans have worked for months to weaken and delay the legislation, along with Wall Street and banking interests whose profits are threatened by reform.

Aides said Senate voting would be delayed at least until Wednesday, while details were ironed out on the new agreement on dealing with ‘too big to fail’ firms in trouble.

As part of that deal, Democrats were expected to drop a provision from the bill calling for establishment of a $50-billion fund, paid into by large firms, that regulators could tap to cover the cost of liquidating failing firms.

Further details were not immediately clear on the deal between Senate Banking Committee Chairman Christopher Dodd, a Democrat and the bill’s primary author, and Senator Richard Shelby, the committee’s top Republican.

The fund has been a point of contention between the two, who have been negotiating off and on for months.

Other unsettled disputes included a proposal to set up a new consumer protection watchdog. Republicans object to that provision, as well as to one that would force banks out of the swap-trading business. The swap-trading proposal was losing headway.

Swaps are derivative contracts that allow financiers to wager on the direction of interest rates, foreign currencies or — in the case of a type known as credit default swaps — the likelihood of a borrower defaulting on its debts.

Credit default swaps were at the core of the financial crisis and Senate Agriculture Committee Chairman Blanche Lincoln has proposed that banks be required to spin off their swap-trading desks to get them out of that risky business.

But banks that rake in huge profits from the unregulated, $450 trillion over-the-counter derivatives market, including swaps, oppose the Lincoln provision.

The OTC derivatives market is dominated by a handful of large Wall Street companies, including Goldman Sachs, JPMorgan Chase, Citigroup, Bank of America and Morgan Stanley.

An influential Republican lawmaker said on Tuesday that he expects the Lincoln provision will be dropped. “One way or another it will go away,” Senator Bob Corker told reporters.

“I know Treasury doesn’t support it. I know the FDIC doesn’t support it. I don’t think the Obama administration wants to support it,” Corker said.

Democratic Senator Robert Menendez, a banking committee member like Corker, said he was uncertain whether the Lincoln provision would be adopted. “There are many moderate voices who have legitimate concerns about what that means,” he said.

Obama administration officials have declined to publicly endorse the provision. Federal Deposit Insurance Corp Chairman Sheila Bair over the weekend criticized it, saying it would drive swaps trading into less regulated venues.

While the economy was still deep in recession in December, the House of Representatives approved a bill that embraced many of Obama’s ideas, unveiled in mid-2009, for tougher oversight and stricter limits on banks and capital markets.

Whatever the Senate produces will have to be merged with the House bill. Analysts said a final piece of legislation could be on Obama’s desk to be signed into law by mid-year.

Dodd said on Tuesday the Senate could vote soon on a number of other amendments that enjoy bipartisan support.

One amendment, for instance, would allow smaller, less risky banks to pay lower premiums to the Federal Deposit Insurance Corp than larger, riskier banks.

On another issue, Democratic Senator Ben Nelson told Reuters the bill will probably be modified to exempt existing derivatives contracts from greater collateral requirements. “I think it is being resolved right now,” he said.

The move could benefit Berkshire Hathaway Inc, billionaire Warren Buffett’s investment powerhouse.

Berkshire, based in Nelson’s home state of Nebraska, has objected to the current version of the bill because the company would be required to post greater collateral on billions of dollars’ worth of derivatives contracts.

(Additional reporting by Tabassum Zakaria, Karey Wutkowski and David Morgan)

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2 thoughts on “Some agreement on Wall Street reform”

  1. Obama said on Tuesday that proposed regulatory reforms were “in no way designed to hamstring businesses.

    Right, because it’s completely natural for business to have to submit to private banking cartel oversight and if the Federal Reserve does not like your business plan, or if your business is a “threat” to their vision of the future for the economy, for them to put you out of business. So much for the American Dream.

    CDS’s should never have been allowed by banking regulators, but now they seem to be here to stay despite them being nothing more than casino bets even referred to in this article as “wagers.”

    Fact about casinos, sometimes customers win, but the house always wins. But look who dominates this $450 trillion dollar market and surprise, surprise, the same crooks that caused the market crash to begin with. As long as their money has a stranglehold on government, we’ll be in for more hardship.

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