Lawmakers reach a deal on financial reform

By Tribune newspapers
Posted June 25, 2010 at 10:37 a.m.

House Financial Services Committee Chairman Barney Frank (D-Mass.) talks with a group including Rep. Spencer Bachus (R-Ala.), left, during a recess from a committee conference on Wall Street reform. (Jonathan Ernst/Reuters)

Ending more than two weeks of often-contentious negotiations, House and Senate lawmakers reached agreement early Friday on the most far-reaching rewrite of financial rules since the Great Depression.

The final details, including creation of an agency to protect consumers in the financial marketplace and new regulations to reduce risk-taking by large banks and limit their trading of complex derivatives, were hashed out in a marathon 20-hour session that began Thursday morning.

Lawmakers on a joint conference committee labored until dawn reconciling House and Senate versions of the legislation in time for President Obama to brief foreign leaders on the completed deal at a major economic summit in Canada starting Friday.

The House and Senate are expected to approve the bill next week, meeting Obama’s July 4 deadline for passage of his top legislative priority heading into November’s midterm elections. Lawmakers christened the bill the Dodd-Frank Act after the two main architects, Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) and House Financial Services Committee Chairman Barney Frank (D-Mass.).

Speaking before leaving for the summit Friday morning, Obama praised the “incredibly hard work” of Dodd, Frank and other key supporters of what he called “the toughest financial reform since the ones we created in the aftermath of the Great Depression.”

“Our economic growth and prosperity depend on a strong, robust financial sector, and I will continue to do what I can to foster and support a dynamic private sector,” Obama said on the South Lawn of the White House. “But we’ve all seen what happens when there’s inadequate oversight and insufficient transparency on Wall Street.”

“The reforms making their way through Congress will hold Wall Street accountable so we can help prevent another financial crisis like the one that we’re still recovering from,” he said.

The sweeping legislation — about 2,000 pages long — overhauls the regulatory system in an attempt to prevent a repeat of the financial crisis. Among its major initiatives, it would create a Consumer Financial Protection Bureau, impanel a council of regulators to monitor the financial system for major risks, impose tough regulations on complex financial derivatives and grant the government power to seize and dismantle teetering firms whose failure would pose a danger to the economy.

“We’ve done something that’s been badly needed, sorely needed for a long time and we hope will protect our country, create the kinds of jobs and wealth and optimism and trust once again in our financial systems that’s been so missing,” Dodd said after the final vote shortly before 6 a.m. EDT. “It’s a great moment.”

Treasury Secretary Timothy F. Geithner said the final bill was strong and “provides crucial momentum for global financial reform.”

“As the president travels to Toronto to attend the G-20 Summit, Congress has shown that America is ready to lead by example,” he said, urging Congress to quickly pass the legislation.

Asked by reporters if the bill could get through the Senate, where four Republicans were crucial to its passage in May, Obama responded, “You bet.”

To pay for the increased oversight of Wall Street and the rest of the industry, lawmakers in their last move on the bill agreed to impose a tax on the largest financial institutions that would raise $19 billion.

“It was the collective errors of the financial industry that led to this set of problems,” Frank said. “We think to go to the Goldman Sachses and the JP Morgan Chases and the Blackstones and other large hedge funds and ask them to collectively make a fairly small contribution is reasonable.”

The levy would be assessed on financial institutions with more than $50 billion in assets and hedge funds with more than $10 billion in assets.

The conference committee’s final vote split along party lines. House members voted 20-11 to approve the revised legislation and senators voted 7-5. Republicans, who sharply criticized the legislation as an unwarranted government intrusion into the private sector, all voted against the final bill, which will be sent to the House and Senate for approval.

House and Senate negotiators made hundreds of changes to the complex legislation since June 10 during a rare public conference committee whose sessions were broadcast live by C-SPAN.

In the final frantic day, lawmakers worked deep into the night as a room full of lobbyists watched the proceedings. Shortly before 4 a.m. Friday there was an unexpected delay when copy machines churning out stacks of amendments ran out of paper.

The thorniest issues were left until the end of the negotiations, among them a decision to exempt most auto dealers from oversight by the new consumer agency.

The sticking point on derivatives was a controversial provision that would force banks to spin off their derivatives businesses as part of new regulations of the complex financial instruments.

Just after midnight, House Agriculture Committee Chairman Collin C. Peterson (D-Minn.) announced a compromise. The proposal would limit the types of derivatives banks could trade, including those dealing with interest rates, foreign exchange rates, gold and silver and hedging a bank’s risk.

Other derivatives, including credit default swaps that were at the heart of the financial crisis, could only be traded by a bank affiliate. Banks would have up to two years to spin off those businesses.

The leading proponent, Senate Agriculture Committee Chairwoman Blanche Lincoln (D-Ark.), negotiated throughout the day with Peterson, White House officials, centrist Democrats and members of the New York congressional delegation, all of whom have concerns about overly restrictive derivatives regulations.

Members of the conference committee also agreed to a provision known as the Volcker rule, which would limit so-called proprietary trading — investments of the bank’s funds for its own profit instead of for its clients — as well as investments in hedge funds and private equity funds.

Late Thursday, the conference committee accepted a proposal by Dodd to strengthen the Volcker rule’s language while also allowing some exceptions.

The provision would mandate a ban on risky investments instead of simply allowing regulators to implement such a ban after a study. But it also would allow banks to make small investments in hedge funds and private equity funds, limiting such investments to 3% of a bank’s capital.

The decision to exempt auto dealers from oversight by the new consumer agency was a major loss for the Obama administration. The independent Consumer Financial Protection Bureau, which would be housed in the Federal Reserve, is the centerpiece of the sweeping overhaul of financial rules. Along with some key congressional Democrats, the administration pushed hard to have dealer-arranged financing covered by the new agency.

Auto dealers and their allies — Republicans and some Democrats — fought back aggressively. They said the additional oversight wasn’t needed and would raise the prices of cars while hurting the struggling auto industry.

“We concede on our side — that there will be no consumer [agency] role for autos,” said Frank, who had tried to keep auto dealers under the new agency’s authority.

“Buy here, pay here” auto dealers that lend their own money to customers would be covered by the agency.

But under the legislation, the vast majority of auto dealers would not be covered by the consumer agency if they only arrange loans through banks, credit unions and industry financing companies such as GMAC. The Federal Trade Commission would retain its oversight of auto dealer activities, but would have new powers to enact regulations more quickly.

Democrats from states with a strong auto industry presence joined with Republicans on the committee last year to try to exempt auto dealers from the agency’s oversight.

The White House opposed the exemption, and this year the Pentagon made an unusual public plea to senators to subject the dealers to the bureau’s oversight. Top Defense Department officials said young members of the military often were victims of unscrupulous auto deals.

The Senate never voted on an exemption in their version of the financial reform legislation. But senators voted 60 to 30 to instruct their negotiators on the conference committee to include an exemption. Frank led an attempt to find a compromise that would give the consumer agency some backup authority over auto dealers.

But one attempt failed this week, and House negotiators rejected another compromise offered by Dodd.

Some auto industry supporters also objected to the streamlined rule-writing authority for the FTC, where normal procedures can take up to eight years to complete.

“Did they cause the financial instability? No. Are they a part of Wall Street? No,” Rep. Spencer Bachus (R-Ala.) said of auto dealers. He argued that they were hurt more than any other business sector by the credit crunch. “I really think we’re tightening the screws on an industry that has had a desperate two or three years.”

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  1. Al in Chicago June 25, 2010 at 7:44 a.m.

    Screwed again !!!!

    Another major bill finalized “in the wee hours”….

    See a pattern here?

    How do you related finanical reform with Barney Frank?

    That says it all !!!

  2. Tom in Milwaukee June 25, 2010 at 8:30 a.m.

    Because of Barney Frank and Chris Dodd we’re in this economic mess to begin with. They very specifically relaxed mortgage requirements during the Bush Admin even though Bush and congressional Repubs wanted the regulations tightened. As a result the housing market collapsed and then the economy with it. The media loves to ignore this fact but those two men are incompetent and need to be removed from office (Dodd may not be running again…let’s all hope).

  3. ChicagoFinance June 25, 2010 at 9:12 a.m.

    Hey Al in Chicago– this stuff happens in the “wee hours” because they are working day and night to get it completed in a short time frame because many of these people also have responsibilities to be in their states not just in DC. (Like IL for example, or least you forget all of the scandals and money issues in this state.)

    Before you ***** and complain about the government, maybe you should learn how it works. Then maybe you should run for an office so you can actually add your two cents, instead of complaining on a website. Yes, I am actually encouraging you to go somewhere productive to voice your opinion, in hopes that maybe one day, you too can add value so the government can again be “for and by the people”. Whether you are right or wrong, discussions in a productive setting lead ro reform and change.

  4. Todd van den hoek June 25, 2010 at 11:32 a.m.

    The Chicago president just killed the financial industry in Chicago. Whether you know it or not, youre all going to pay the price. That’s what happens when you vote in solicialism.

  5. Todd van den hoek June 25, 2010 at 11:35 a.m.

    Mr. ChicagoFinance above seems to think that only members of the government (or party) should have the right to an opinion. Regular voters apparently do not have the right to an opinion. That is exactly what communism is. Be careful people, they are coming to take away your rights and your freedom.

  6. Steve June 25, 2010 at 12:47 pm

    Any financial bill that doesn’t deal with the government’s current relationship with the FMs is a huge wasted effort. We’re going to end up paying upwards towards half a trillion dollars in that bailout before it’s all over. And how come the Trib so conveniently glossed over Dodd’s comment of “No one will know until this is actually in place how it works”?

  7. ChicagoFinance June 25, 2010 at 1:29 pm

    I guess I didn’t come across too clear. I think everyone has a right to opinion, but the way the government seems to work, only people in office seem to have their voices heard. The old saying, “If you can’t beat them, then join them.” I think you actually are agreeing with me, because I am saying, instead of complaining you should become the politican who ACTUALLY represents the PUBLIC’s views and opinion.

    (I probably should have been more clean to begin with, but I thought this pretty much summed up representing the public.. “…in hopes that maybe one day, you too can add value so the government can again be “for and by the people”. .)

    (I’m also impressed you made the assumption that I am a Mr., I am actually a 26 year old female, who has been researching for a finance firm for about 5 years- perhaps MY opinion now is of little value to you.)

  8. CGull June 25, 2010 at 1:39 pm

    The moment this thing was christened “The Dodd-Frank Act”, red flags should have shot up all over the landscape and people should have been emailing their representatives to howl about this!

    If ever there were two people who have wrecked more havoc on the economy of this nation that anyone else in known history, it is Barney Frank and Christopher Dodd. And now with the potential passage of this bill, they are going to wreck even more havoc, possibly cripple the economy more than it is right now.!

    I would urge anyone reading these words to write or call their Congressional representative and urge them to not allow the Dodd-Frank Act to be allowed to see the light of day! Because what these two certified fools are doing here is going to affect not only you and me, but generations to come!

  9. mike h June 25, 2010 at 3:23 pm

    Just wait until this fails and the people who signed off on it will say “I didnt know what was in the bill”. Its amazing how many times I have heard this on the federal and state level. They work on something for months or years and nobody will admit what is in it sometimes.

  10. Joshua June 25, 2010 at 3:25 pm

    Once again the brains of the financial collapse building up speed – boy, when can we vote again??? I need to rescind my vote and put Mickey Mouse on the ballot, I’ll get more out of that vote! (or less screw ups- you pick)

  11. Pete June 25, 2010 at 3:39 pm

    “Todd van den hoek” has no idea what he is talking about (usually you can count on those sputtering our hyperbolic statements to be the most ignorant — on either side of the argument). I think Todd is confusing communism with totalitarianism. Not that I’m advocating communism, or even defending this bill, but at the heart of communism is the ideal that the common man does have a say their government, and have as much a right to express and act on their opinion as any member of government or an elite member of the media, academia, or the business world. Not that any “communist” nation over the past 100 years has actually embodied the true principles of communism…maybe that’s why Todd is confused.

  12. Steve June 25, 2010 at 4:40 pm

    Everyone has an opinion on this but it doesn’t DO ONE BIT OF GOOD to post in on a Chicago Tribune site. If you want to be heard you should contact your Representatives in Congress (and you should have done it days and weeks ago). It’s not like what happens in Congress is a secret. Almost all the details are published way in advance. The time to support or complain about a bill is way before the day it passes. Posts on this site are useless. Please let this be the last post anyone makes in regards to a Trib story.