Financial overhaul bill gets bipartisan push in Senate

By Brady Dennis and Shailagh Murray
Washington Post Staff Writer
Thursday, May 6, 2010; A14

In a rare show of bipartisanship, the Senate on Wednesday overwhelmingly approved an amendment to the financial regulatory bill aimed at ensuring that taxpayers never again be on the hook for bailing out collapsed banks and investment firms.

The 93 to 5 vote brought together senators as diverse as ultra-liberal Bernard Sanders (I-Vt.) and Richard C. Shelby (R-Ala.), the conservative who co-wrote the amendment with Christopher J. Dodd (D-Conn.), chairman of the Senate banking committee.

The vote came as Democrats on Wednesday also sought to undercut key GOP objections to the bill, a strategy aimed at securing much-needed Republican support for the sweeping legislation in the days ahead.

Lawmakers began voting on proposed amendments to the 1,400-page bill a week after the Senate opened formal debate on the legislation. The first two amendments Democrats allowed to reach the Senate floor had an unambiguous purpose: To put an end to GOP attacks that the far-reaching bill would perpetuate taxpayer-funded bailouts.

Sen. Barbara Boxer (D-Calif.) secured nearly unanimous support for her three-paragraph amendment clarifying that taxpayers would not bear any losses from the liquidation of bankrupt firms, a goal widely shared by both parties and reflected in a 96 to 1 vote.

Perhaps more significant was the Dodd-Shelby amendment that followed.

Their deal -- hammered out late Tuesday night and into Wednesday -- centered on a portion of the bill aimed at giving the government power to wind down large, troubled firms without putting taxpayer money at risk. The heart of the agreement was Dodd's willingness to drop a proposed $50 billion fund, which would be filled upfront by the financial industry, that would cover the cost of closing down failing firms.

Republicans had criticized the provision as a "bailout fund" that could encourage financial firms to act recklessly, knowing the fund was in place. Dodd said Wednesday that neither he nor the Obama administration had proposed the fund. It was a GOP suggestion, he said.

Under the Dodd-Shelby deal, the Federal Deposit Insurance Corp. would liquidate faltering firms by borrowing money from Treasury to cover initial costs. The government would recover the costs by selling off the firm's assets, with creditors and shareholders incurring losses. Other large banks could be assessed to pay for additional costs as a last resort.

Also, creditors of a failing firm would be forced to pay back the government any money they received above what they would have gotten under a bankruptcy proceeding. Any seizure of a large, failing firm would require court approval to ensure that the government not shut down a company inappropriately. In addition, Congress would have to approve the use of federal debt guarantees, and regulators also would be able to ban management and directors of failed firms from working in the financial sector for a minimum of two years.

'A good first step'

Both parties praised the deal Wednesday, though from different perspectives.

Minority Leader Mitch McConnell (R-Ky.) said in a statement that "while some said the Dodd bill did not allow for bailouts, this bipartisan agreement improves the bill by limiting loopholes and seeks to make sure investors, not taxpayers, are on the hook when a Wall Street bank fails." He called it "a good first step."

Dodd and other Democrats said the amendment addressed one of the primary complaints that so far has kept Republicans united against the legislation. "With this agreement," Dodd said, "there can be no doubt that this Senate is unified in its commitment to end taxpayer-funded bailouts."

After voting on the Dodd-Shelby changes, lawmakers quickly approved two amendments put forward by Sen. Olympia J. Snowe (R-Maine), aimed at preserving the ability of small-business owners to use their homes as collateral and lightening regulatory burdens on small banks.

Democrats have been eager to please Snowe because they view her as one of the Republicans most likely to lend support for the bill.

In another effort to acquire Republican backing -- and to satisfy thousands of community bankers, who comprise a powerful lobbying force -- Democrats moved to an amendment from Sen. Jon Tester (D-Mont.) and Sen. Kay Bailey Hutchison (R-Tex.) that, as Tester said, "would force the big banks to pay their fair share of assessments" into the FDIC's deposit insurance program. The bill instructs the FDIC to set the premiums that banks pay based on how risky they are. Dodd said he expects wide support for the amendment.

Next up: More debate

Despite the harmonious votes Wednesday, thorny issues lie ahead.

Republicans made a renewed push to put their own stamp on the wide-ranging bill, offering alternative visions for a proposed regulator of consumer financial products, as well as oversight of the vast derivatives market and legislation to overhaul government-backed mortgage giants Fannie Mae and Freddie Mac.

GOP members argued for placing a consumer protection division within the FDIC, with the authority to make rules that would be approved by the agency's board. The proposal also would keep in place the doctrine of preempting states, which has allowed big banks to answer solely to federal regulators. Dodd's bill currently would create a more autonomous consumer watchdog housed at the Federal Reserve.

Administration officials disparaged the Republican proposal Wednesday, with White House spokeswoman Amy Brundage calling it "nothing more than a lobbyist-influenced defense of the status quo."

As of Wednesday, nearly 100 proposed amendments had been filed to the legislation. It remained unclear how many would get a hearing on the Senate floor in the coming days.

© 2010 The Washington Post Company