Senate committee approves derivatives oversight bill

By Brady Dennis and Paul Kane
Washington Post Staff Writer
Wednesday, April 21, 2010; 1:01 PM

Members of the Senate Agriculture Committee on Wednesday swiftly approved a bill that would establish oversight of the vast financial derivatives market, putting in place one of the key remaining pieces in a wide-ranging package of new financial regulations currently headed to the Senate floor.

After two hours of debate, committee members voted 13 to 8 in favor of a bill put forth by Chairman Blanche Lincoln (D-Ark.). The vote included support from a lone Republican, Sen. Charles E. Grassley (Iowa).

Grassley's vote represents a significant bipartisan overture, particularly after his lead role in failed bipartisan negotiations on the health-care bill last summer. A farmer, Grassley spent months holed up with Sen. Max Baucus (D-Mont.), the Finance Committee chairman, trying to strike a bipartisan deal on health care, only to walk away amid partisan acrimony.

Grassley, at the time, accused Obama of rushing along negotiations, famously using his Twitter account to call the president a "hammer" over the August recess. "I'm no NAIL," Grassley tweeted then.

Wednesday's committee vote places Grassley in support of one of the most significant portions of the financial overhaul effort. The derivatives bill is likely to become part of broader legislation to revamp the financial regulatory, an effort spearheaded by Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.). That bill could reach the Senate floor in a matter of days but has yet to garner any Republican support.

Lincoln's legislation calls for banning big Wall Street firms acting as brokers for commercial companies and financial speculators who want to trade derivatives. It also would require nearly all derivative contracts to be traded in public on exchanges and approved by a separate body called a clearinghouse.

Those dealing in derivatives would have to raise money to cover unexpected losses, in case one party to the contract defaults. Lincoln also said swap dealers will have a fiduciary duty, just like investment advisers, to act in the best interest of their clients. The draft of her bill provides a relatively wide exception for agricultural and other commercial companies but still requires them to raise money for derivative trades.

Some officials view the legislation as too friendly to the commercial firms who have sophisticated derivatives trading desks, while overly punishing financial firms. If allowed to stand, they have said, the market would simply shift its activities away from Wall Street to the commercial firms, critics argue, but become no less dangerous to the financial system.

"Despite our differences, we must move forward," Lincoln said Wednesday in urging colleagues to move quickly. "This is no time for small fixes or tweaking around the edges." She noted the bipartisan agreement on the need to bring transparency to the massive and largely opaque derivatives market and said that "to contemplate inaction is unacceptable."

Lincoln said Wednesday that she had made last-minute changes to a discussion draft released last week in an effort to bridge some of the differences that remain between lawmakers on her committee.

The committee's ranking Republican, Saxby Chambliss of Georgia, said he and Lincoln "probably generally agree on 90 percent of the specifics." An amendment Chambliss introduced Wednesday to alter certain elements of the bill was defeated along a party-line vote.

Staff writer David Cho contributed to this report.

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