US Rules Revamp Gains as Frank Sets Vote, Senate Bill Readied
Nov. 4 (Bloomberg) -- The Obama administration’s push foroverhauling financial regulation gained ground as FinancialServices Committee Chairman Barney Frank said the U.S. Housewill vote on legislation by December and a long-awaited Senatemeasure was readied.
The administration recently has been briefed on the Senatemeasure, crafted by Banking Committee Chairman Christopher Dodd,an official told reporters yesterday. While the officialwouldn’t reveal what’s in the measure, he praised the bill’soutline and said it would give the government the powers itneeds to prevent future market crises.
The developments move President Barack Obama closer to hisgoal of signing a law in the coming months. Still, severalminefields could delay or scuttle the effort, includingdifferences among Democrats and a lack of Republican support inthe Senate where individual lawmakers hold more sway than in theHouse.
“We are almost finished,” Frank, a MassachusettsDemocrat, told reporters yesterday. “We’re going to bepreventing a lot of this bad stuff from happening.”
Obama is pressing Congress to enact the most sweepingchanges in Wall Street oversight in 75 years, arguing thatexcessive risk-taking by banks and lax enforcement by regulatorshelped cause the credit crisis and brought the financial systemto the edge of collapse. While Frank’s panel is set to finishvoting on a series of bills laying out the changes this month,Dodd’s legislation would be the first action in the Senate.
The administration issued its regulatory overhaul plan inJune. Among measures approved in Frank’s committee islegislation creating a Consumer Financial Protection Agency topolice mortgages and credit cards marketed to consumers.Yesterday, Frank backed Elizabeth Warren, a Harvard Universitylaw professor who now heads up a congressional panel overseeingthe $700 billion bank bailout fund, to lead the agency.
House Debate
The committee also adopted measures to tighten rules forderivatives and require federal oversight of hedge funds.
Frank said his panel will begin debate today on legislationto give the government powers to seize and dissolve the biggestfinancial companies and to set up a council of regulators tomonitor firms deemed too big to fail.
Dodd probably will propose creating a consumer financialagency similar to the one endorsed by Frank’s committee and theadministration. The Senate bill also will limit the powers ofthe Federal Reserve in part by setting up a council ofregulators to monitor risk in the financial system.
Dodd’s spokeswoman, Kirstin Brost, said yesterday thelegislation could be introduced as soon as next week.
“The committee has spent the last year studying the issuesthat led to the financial crisis and weighing the best optionsto prevent this from happening again,” she said. “Dodd isgoing to push for the strongest bill he can to protect consumersand prevent another financial collapse.”
Bank Supervisors
Unlike the House and Obama plans, Dodd is likely to callfor the merger of bank supervision powers, now spread over fouragencies, into one body. The administration and Frank haveproposed combining two agencies, the Office of the Comptrollerof the Currency and the Office of Thrift Supervision.
The government official said yesterday that theadministration is open to further consolidating the bankagencies.
Dodd’s draft measure so far lacks support from thecommittee’s ranking Republican. An aide to Senator RichardShelby said this week he wants to delay legislation until he andDodd reach agreement on several issues.
The administration official, however, indicated thatDemocrats weren’t willing to wait. In addition, the aide saidShelby doesn’t support creating an agency to police consumercredit products -- a top priority for Dodd and Obama.
Democratic Control
With Democrats controlling Congress and the White House,the official said, and Republicans likely to stand firm againstthe consumer protection agency, the administration doesn’t wantto scale back the legislation to win Republican votes.
Still, there are differences among Democrats on a number ofissues, and the official predicted that many details of theoversight plan could change in the coming weeks.
Frank, for example, has reversed course from parts of adeal he struck last week with the Treasury Department over howto pay for winding down failing companies, saying he wants bigfirms to pay into a fund in advance of any collapse. Theadministration wants to assess financial companies after a firmis shut down.
Paying after a failure “means that you have to have theTreasury advance the money to be paid back by an assessment,”Frank said yesterday. “People are skeptical of that. We willadopt an amendment that will establish the fund” beforehand.
Treasury Role
If the fund runs dry, the Treasury Department will coverany costs and be repaid through assessments on the bankingindustry “with significant congressional involvement,” Franksaid. The size of the fund hasn’t been determined, he said.
The official said that a prepaid fund could lead to moralhazard, in which banks believe they can assume greater riskbecause the government will prop them up.
Yesterday, Frank shifted on another part of the legislationhe hammered out with the Treasury, agreeing to publicly name thefirms that the government deems too big to fail.
“The way an institution will be publicly identified assystemically important is the day it is hit with severe,stricter constraints,” Frank said. Restraints may includehigher capital requirements and limits on size or actions, headded.
To contact the reporters on this story:Robert Schmidt in Washington at rschmidt5@bloomberg.net;Alison Vekshin in Washington at avekshin@bloomberg.net.
Last Updated: November 4, 2009 00:01 ESTSource: Bloomberg
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