Financial Regulatory Reform Bill

On Tuesday, the Senate resumed its consideration of S. 3217 the Restoring American Financial Stability Act of 2010. The Senate passed an amendment sponsored by Sen. Bernie Sanders (I-VT) that would require the non-partisan Government Accountability Office to conduct an independent audit of the Board of Governors of the Federal Reserve System as well as an amendment by Sen. Chris Dodd (D-CT) that would require the Secretary of the Treasury to conduct a study on ending the conservatorship of Fannie Mae and Freddie Mac and reforming the housing finance system.

On Wednesday, the Senate passed three amendments to the bill. The first, offered by Senator Jeff Merkley (D-OR), would prohibit certain types of commission payments to loan originators and require greater oversight of lenders. The second, offered by Sen. Kay Bailey Hutchinson (R-TX), would maintain the role of the Federal Reserve Board of Governors as the supervisor of holding companies and state member banks. The final amendment that passed on Wednesday was offered by Sen. Jack Reed (D-RI). It would establish a specific consumer protection liaison for service members and their families.

On Thursday, the Senate adopted three more amendments. The first, sponsored by Sen. Al Franken (D-MN), would instruct the Securities and Exchange Commission to create a new self-regulatory organization that would choose, in a lottery or a rotation, which credit rating agency rated a new security. The second amendment which passed was sponsored by Sen. George Lemieux (R-FL). It would remove all references to credit ratings agencies from the statute effectively requiring federal regulators to develop their own standards for credit rather than relying on assessments from credit rating agencies. The third and most controversial amendment that passed was sponsored by Senator Dick Durbin (D-IL). Durbin’s amendment would empower the Federal Reserve to curb debit-card interchange, or “swipe” fees, charged to merchants for every card transaction.

The Senate held no votes on Friday and was scheduled to resume consideration of amendments on Monday. Senate Majority Leader Harry Reid may file for cloture Monday which would allow a vote to end debate on the bill as soon as Wednesday. One complication for Democrats is the Tuesday, May 18th Arkansas primary election facing Senator Blanche Lincoln (D-AR), whose controversial proposal to force investment banks to spin off their derivatives businesses remains in the underlying bill. Sources indicate that if Lincoln is able to win the primary by over 50% and avoid a runoff, Reid will likely then introduce his manager’s amendment with the Lincoln provision removed. However, if Lincoln does not avoid a runoff in the primary, she faces another election on June 8th, complicating Democrats’ plans to finish debate on the bill. Last week White House Economic Advisor Paul Volcker and Federal Reserve Chairman Ben Bernanke both came out in opposition to the Lincoln provision.

On Monday, the Senate is scheduled to vote on an amendment by Senator Mark Udall (D-CO) that would repeal credit score disclosure fees, an amendment by Senator John Cornyn (R-TX) that would prevent taxpayer funds from being used to bailout foreign countries, an amendment by Senator Jay Rockefeller (D-WV) that would preserve the Federal Trade Commission’s rule-making authority over consumer protection regulations, and an amendment sponsored by Senators Kit Bond (R-MO), Mark Warner (D-VA), and Dodd that would strike a provision relating to angel investors that would raise the threshold for accreditation, require SEC registration, and eliminate federal preemption, and allow state regulation.

Washington Responds to Flash Crash

On Tuesday, the House Financial Services Capital Markets Subcommittee held a hearing on last week’s ‘Flash Crash’ which caused the Dow Jones Industrial Average to fall 1,000 points in just a few minutes before quickly recovering. The subcommittee heard testimony from SEC Chairman Mary Schapiro, CFTC Chair Gary Gensler, NYSE Euronext COO Lawrence Leibowitz, NASDAQ’s Eric Noll, and CME Group Chairman Terrence Duffy. Schapiro said that while it is important to identify what triggered the sudden decline, action was needed quickly because the meltdown undermined investor faith in market integrity. Under questioning from Rep. Scott Garrett (R-NJ), the top-ranking Republican on the subcommittee, Schapiro said there have not been any decisions yet on the exact triggers that would stop in trading in a stock. Garrett criticized Democrats who control the subcommittee for holding the hearing so quickly, before a precise cause had been identified. Committee Chairman Rep. Barney Frank (D-MA) said Garrett was wrong, that Americans were disturbed by what happened on Thursday, and that it was the committee’s duty to find out what happened.

More Information

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

Matt Jessee, Policy Advisor
matt.jessee@bryancave.com
202.508.6341

Dave Russell, Senior Policy Advisor
dave.russell@bryancave.com
202.508.6353