Upcoming Today in Financial Reform, 5/13

Overview

David Dayen has an overview of what pieces are still in play:

There is no question that lobbyists are gunning for Merkley-Levin, which would end reckless trading out of the proprietary accounts of banks which receive deposit insurance and cheap money from the discount window. The vote, expected tomorrow, will be extremely close. And that amendment is not alone: the Dorgan amendment which would force an advisory board to break up any firm that presents a systemic risk; the Dorgan amendment banning naked credit default swaps; the Cantwell-McCain amendment restoring the Glass-Steagall firewall between investment and commercial banks; the Franken amendment reforming the credit rating agencies. All of these improvements to the bill are legitimate and not cosmetic, and represent the difference between a bill politicians can wave around and a bill that regulators can actually use.

The difference between this being a really strong, a really so-so, and a really weak bill is still up in the air in the Senate and committee.

Potential Bad News, Derivatives

Disappointing move of the day, Brian Beutler is reporting what I had feared (my bold):

One of the most far-reaching pieces of the Senate’s Wall Street reform bill has powerful enemies. The White House doesn’t like it. FDIC chief Sheila Bair doesn’t like it. Obama adviser Paul Volcker–the patron saint of financial reform–doesn’t like it. And neither do a number of key Democrats, including Banking Committee Chairman Chris Dodd. All of them say that a controversial proposal to force financial firms to spin off their derivative-trading desks into separate entities goes too far.

But they may have gotten themselves stuck with it–at least for now. With their assent, the plan was authored by Sen. Blanche Lincoln (D-AR), who designed it to guard her left flank against a somewhat formidable primary challenge, and has been boasting of it on populist grounds for weeks. And that according to Republican and Democratic Senate sources, has led Democrats to quietly agree to postpone any changes they decide to make to her proposal until after this Tuesday’s election has passed, to avoid embarrassing her in front of voters.

The Chambliss amendment to severely weaken derivatives reform was beaten yesterday, which made me optimistic that they could get derivatives out the door relatively unscathed. But now this. So the question is, in order, will they drop Section 106, which spins out swap dealers from commercial banks, will they drop the new fiduciary requirements, will they weaken clearing requirements by expanding end-users and will they mess with the definition of what constitutes an exchange and/or clearing?

Collins Amendment

Senator Collins has an amendment on leverage, text here. It’s sadly not a 15-to-1 requirement as far as I can read it, but it does show promise in forcing the largest banks to actually hold as much if not more capital than smaller less risky firms.

Because even better than a strict 15-to-1 cap is a graduated leverage requirement, and Collins’ amendment gets closer to there. Press release: “Neither current law nor the Senate Banking Committee bill requires regulators to adjust capital standards for risk factors as financial institutions grow in size or engage in risky practices”, and it directly alludes to the regulatory arbitrage: “It does not make sense that under current law, the nation’s largest banks and bank holding companies are not required to meet the same capital standards imposed on smaller depository banks, when the failure of larger institutions is much more likely to have a broad economic impact.”

Interchange

Durbin has an amendment, being voted on today, about interchange fees, which is a hobbyhorse of mine. (Resources: here’s an interview, my coverage of the latest GAO report, comments on a PBS documentary, and a two part list of other points.) I’ve been told over and over again that interchange is an impossibility to move, and here there is movement.

Here is a press release, here is an information sheet. Note a few things: It impacts debit card fees for regulation, and not credit card fees. This is the right approach – credit cards are an unsecured revolving line of credit and thus the business can do whatever, but debit cards represent your money, and having to pay a giant institution 2%, and increasing, rate to move your money from point A to point B through a mechanism that is the new standard for money interaction needs to change.

This amendment also gives merchants the ability to charge different prices for different types of cards. It’s amazing how much a little bit of transparency and a little bit of choice can jumpstart a market and diffuse the problems of duopoly we have been seeing here. And this amendments gives both.

Also note, because you’ll hear it a lot, “The Durbin amendment would not enable merchants to discriminate against debit cards issued by small banks and credit unions. Visa and MasterCard contractually require merchants to accept all cards within their networks, and the amendment does not change that requirement.”

All Amendments

Senator Franken has an amendment to regulate the ratings agencies, which he discussed with Ezra Klein here.

Edmund Andrews talks about state consumer pre-emption here, must read for the topic.

Ezra has the list of amendments:

Here’s what the Senate is considering adding to the financial-regulation bill:

* Collins amendment to mandate minimum leverage and risk-based capital requirements for insured depository institutions, depository institution holding companies, and nonbank financial companies that the Council identifies for Board of Governors supervision and as subject to prudential standards. (#3879)

* Brownback amendment to provide for an exclusion from the authority of the Bureau of Consumer Financial Protection for certain automobile manufacturers, and for other purposes. (#3789, as modified)

* Snowe-Pryor amendment to ensure small business fairness and regulatory transparency. (#3883)

* Specter amendment to amend section 20 of the Securities and Exchange Act of 1934 to allow for a private civil action against a person that provides substantial assistance in violation of such Act (#3776, as modified)

* Leahy amendment to restore the application of the Federal antitrust laws to the business of health insurance to protect competition and consumers. (#3823)

* Sessions amendment to provide an orderly and transparent bankruptcy process for non-bank financial institutions and prohibit bailout authority. (#3832)

* Durbin amendment to ensure that the fees that small businesses and other entities are charged for accepting debit cards are reasonable and proportional to the costs incurred, and to limit payment card networks from imposing anti-competitive restrictions on small businesses and other entities that accept payment cards. (#3989)

* Franken amendment to instruct the Securities and Exchange Commission to establish a self-regulatory organization to assign credit rating agencies to provide initial credit ratings. (#3991)

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One Response to Upcoming Today in Financial Reform, 5/13

  1. Aroy says:

    Mike

    Great post today

    My question, what is the difference between “Gensler style” reform that you and others
    speak highly off and the Lincoln “nuclear” bill that has really upset the establishment?

    Is it just the spin-off of the derivatives practices that BHCs have to implement?

    Gensler would have everything go through an exchange, but still allow the banks to be dealers?

    Also, does the Dodd bill (Sans Lincoln) have full Gensler style requirements of the exchange?

    Thanks for the great analysis

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