New battle lines are drawn on financial overhaul as derivatives, trading issues must be reconcile

Rep. Barney Frank (D-Mass.), left, and Sen. Christopher J. Dodd (D-Conn.) leave the West Wing after meeting with President Obama.
Rep. Barney Frank (D-Mass.), left, and Sen. Christopher J. Dodd (D-Conn.) leave the West Wing after meeting with President Obama. (Alex Wong/getty Images)
By Lori Montgomery and Renae Merle
Washington Post Staff Writer
Saturday, May 22, 2010

Nearly a year after President Obama laid out an 85-page wish list for reining in risk-taking on Wall Street, both chambers of Congress have delivered bills that hew closely to his outline. Key Democrats vowed Friday to protect the measures' core provisions against a final offensive by financial industry lobbyists.

Crucial differences between the two bills must be resolved in a House-Senate conference committee, which is expected to begin meeting soon after the Memorial Day recess.

The financial industry is gearing up for a major battle over provisions in the Senate bill that would force some of the nation's largest banks to give up a multibillion-dollar business in derivatives trading and could restrict the trades they make with their own funds.

Democratic leaders declined Friday to forecast the fate of those provisions. But whether they are weakened or removed, lawmakers said public revulsion over the excesses of Wall Street had forged a powerful consensus for Obama's vision for reform, prodding the usually balky Senate late Thursday to approve a bill that offers far greater protection against a future banking crisis than many Democrats had hoped.

"Once public opinion got engaged, it blew away the lobbyists, the money, campaign contributions. Public opinion drove that bill," said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, who steered the bill through the House. "And that will make an easier conference."

Frank and Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee and the chief architect of the Senate bill, met with Obama at the White House Friday. The president congratulated Dodd on a hard-fought campaign to push one of the administration's top domestic priorities through the Senate with bipartisan support. Although two Democrats voted against the measure, four Republicans voted for it, handing Obama a significant legislative victory. Frank and Dodd vowed to deliver a final bill to Obama's desk by July 4.

"This is one of the rare occasions when the two bills really are very close to each other. There's not a great deal of difference," Dodd told reporters.

The first step in that process will occur Monday, when Senate leaders plan to appoint seven Democrats and five Republicans to lead talks with the House. Aides to House Speaker Nancy Pelosi (D-Calif.) said she is likely to name House conferees after the Memorial Day break.

Dealing with derivatives

The biggest battle will be to reconcile regulation of the market of financial instruments known as derivatives -- complex contracts that allow traders to bet on the direction of prices of stocks, commodities and other assets.

The House and Senate voted to regulate derivatives, requiring them to be traded through public exchanges and clearinghouses. But the Senate bill also has a provision by Sen. Blanche Lincoln (D-Ark.) that would force the nation's biggest banks to spin off their highly profitable derivatives desks.

Some Democrats and administration officials want to see the Lincoln language softened. "I think the derivatives language gets yanked out," said Paul Miller, an analyst with FBR Capital Markets.

But an aide to Lincoln, who is likely to sit on the conference committee, said she will fight any effort to gut the provision. Its opponents are worried, noting that the measure survived an 11th-hour attempt by Dodd to postpone action for two years.

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