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Obama's terms for financial overhaul remain mostly intact

By Brady Dennis
Washington Post Staff Writer
Monday, May 17, 2010; A03

The Senate this week could hand President Obama his second major legislative victory of the year, both on administration priorities that seemed in doubt not long ago.

Passage of a 1,400-page bill to overhaul the nation's financial regulations would come just two months after Obama signed a landmark health-care overhaul. But in the case of financial regulation, much more so than with health care, the Senate bill largely reflects the administration's initial blueprint, despite the fervent efforts of lobbyists and lawmakers of all stripes to alter it.

Democratic leaders and administration officials have been careful not to boast about their success in keeping the legislation mostly intact, with some provisions growing even tougher during the Senate debate.

"I'm hesitant to talk about it being done, because it's not," Sen. Christopher J. Dodd (D-Conn.), who has shepherded the bill through the Senate, said in an interview from Connecticut over the weekend. But, he allowed, "we are on the cusp of doing something pretty significant."

Republicans acknowledge that passage seems certain and that a handful of GOP members likely will join Democrats, which would surpass the 60-vote threshold needed to overcome a filibuster.

From the administration's viewpoint, "this bill has got to be an out-of-the-park home run," said Sen. Bob Corker (R-Tenn.), who had negotiated with Dodd but doesn't support the current Senate bill, saying it unnecessarily expands government power and does not address the core causes of the crisis. "I realize this bill is going to pass. Just policy-wise, it ended up in a different place than I had hoped."

The bill would, among other things, create an independent consumer watchdog aimed at protecting borrowers from lending abuses, establish oversight of the vast derivatives market and enable the government to wind down large, failing firms.

It has its share of critics -- those who think it goes too far, and those who say it doesn't go far enough. But several senior administration officials said they are surprised at how many of their demands have survived.

Administration officials, along with Dodd, who chairs the Senate banking committee, and House Financial Services Committee Chairman Barney Frank (D-Mass.), have walked a fine line: fending off most conservative efforts to scale back core elements of the legislation while resisting most liberal attempts at harsher regulations, including strict caps on the size of big banks. Senate Democrats also have courted key Republicans, including Susan Collins and Olympia J. Snowe of Maine, by accepting some of their recommendations, including adding rules tying capital requirements to risk and clarifying which businesses would be covered by the new consumer agency.

Despite some heated rhetoric, the process has proven far more amiable than the bitter battle over health care. Republicans have added amendments to Dodd's bill and partnered with Democrats on others.

That reflects the fact that the two parties share similar goals in revamping financial rules. But the country's anti-Wall Street fervor also played a clear role, fueled recently by fraud charges against Goldman Sachs and the flash stock market plunge.

Passage of the legislation hasn't always been so certain.

Frank was forced to accept compromises when he was guiding his bill through the House, such as exempting auto dealers and real-estate brokers from direct oversight by the new consumer agency. Some lawmakers and financial analysts predicted doom for many of the administration's core efforts in the more fickle Senate, where negotiations between Dodd and his committee's ranking Republican, Richard C. Shelby (Ala.), broke down repeatedly.

Dodd himself proposed dismantling the bank supervisory responsibilities of the Federal Reserve, for instance. But months later, the current draft not only preserves nearly all of the Fed's regulatory powers, it also places the new consumer bureau under the Fed's umbrella and enhances the central bank's powers to oversee risks to the financial system.

The proposed consumer watchdog also drew constant criticism from industry lobbyists and Republicans, who labeled it an unnecessary government overreach that would burden small businesses and constrict access to credit. But all signs indicate that the administration will get the powerful new regulator it wanted.

"They've got to be just giving each other high-fives at the way the consumer protection agency has evolved," said Corker, who said he thinks the regulator "over time will be problematic."

In January, commentators also wrote off the administration's "Volcker Rule" as dead on arrival. The provision calls for curbing the activities of big Wall Street banks, including a ban on owning hedge funds. The Volcker language now seems likely to survive, and it could grow more stringent in the days ahead.

Still, uncertainties remain. Big banks continue to lobby hard to weaken the Volcker Rule. Also in flux are new rules governing the $600 trillion derivatives market, particularly a controversial provision that could force banks to spin off their derivatives operations.

More votes are scheduled on amendments, including provisions on the auto dealer exemptions and ones to reinstitute the Depression-era Glass-Steagall Act, which separated commercial banking from investment banking. Dodd has fretted over the proposed changes, saying that if too many amendments reach the Senate floor, "we run the risk of losing this bill. . . . I have been here for 30 years, and I have watched what can happen."

Dodd said he plans to offer a hefty "manager's amendment" to address remaining issues and try to reach a "tipping point where the bill would be acceptable to a majority of the Senate." Even then, significant changes could emerge when the House and Senate meet in conference to reconcile their bills.

But soon enough, Dodd and Frank could be back in the front row at the White House, where they sat when Obama announced his initial plan almost a year ago. And this time, it could be for a signing ceremony.

Staff writer David Cho contributed to this report.

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