Senators appointed to hammer out differences with House on financial overhaul

By Brady Dennis
Washington Post Staff Writer
Wednesday, May 26, 2010

Senate leaders on Tuesday appointed seven Democrats and five Republicans to meet with counterparts from the House in coming weeks to hammer out differences between new financial rules approved by each chamber.

The appointees consist of lawmakers from the banking and agriculture committees.

Sen. Christopher J. Dodd (Conn.), chairman of the banking committee, and Sen. Blanche Lincoln (Ark.), agriculture chairman, will be joined by fellow Democrats Tim Johnson (S.D.), Charles E. Schumer (N.Y.), Tom Harkin (Iowa), Patrick J. Leahy (Vt.) and Jack Reed (R.I.).

The Republicans, each of whom opposed the bill passed last week by the Senate, are Richard C. Shelby (Ala.), Judd Gregg (N.H.), Bob Corker (Tenn.), Saxby Chambliss (Ga.) and Michael D. Crapo (Idaho).

The House passed its version of the financial overhaul legislation in December, and congressional aides said they expect House Speaker Nancy Pelosi (D-Calif.) will name conferees after the Memorial Day break. The effort will be headed by Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, who said he hopes to deliver a final bill to President Obama by July 4.

In a memo Tuesday to fellow members of his committee, Frank recommended eight House Democrats to Pelosi for the conference committee, in contrast to five Republicans. Frank's recommendations include subcommittee chairmen Paul E. Kanjorski (Pa.), Luis V. Gutierrez (Ill.), Maxine Waters (Calif.), Melvin Watt (N.C.), Gregory W. Meeks (N.Y.) and Dennis Moore (Kan.), as well as Joint Economic Committee Chairman Carolyn B. Maloney (N.Y.).

Those choices would include some of the more liberal members of Frank's committee, and each supported the House version of the bill.

Frank also said he had asked staff to prepare a list of the differences between the House and Senate bills by Wednesday. He said he plans to hold caucuses of the financial services committee in coming weeks "to get a sense of all of the members on the issues that are before us."

But he warned that his influence on the final outcome will have limits.

"We have an administration that feels strongly about this," Frank wrote, "and I expect that the House leadership will be engaged more than they were last year when health care took up much of their time." He added, "There is also the fact that the need to keep sixty votes in the Senate will be something of a constraint, and so, I believe, that we who are the conferees will be more the agents of collective decision-making than autonomous dealers."

At present, the House and Senate bills share broad similarities and largely reflect the administration's original blueprint unveiled last year, but a series of issues remains unresolved.

The biggest struggle is likely to revolve around rules governing the vast market in financial derivatives -- complex contracts that allow traders to bet on the direction of prices of stocks, commodities and other assets. In particular, the Senate bill contains a controversial measure by Lincoln that could force the nation's biggest banks to spin off their profitable derivatives trading desks. Administration officials, regulators and some lawmakers -- including Frank and Dodd -- hope to see the Lincoln language softened or dropped, but she has vowed to fight any effort to weaken the provision. Frank said in a speech Tuesday that he thinks Lincoln's proposal goes too far.

The two bodies also must resolve whether banks should be allowed to trade on their own accounts, a practice known as proprietary trading. The Senate bill includes a version of the "Volcker Rule," named after former Federal Reserve chairman Paul Volcker, who has raised concerns about such investment activities. It also mandates a study of the effects a ban would have on firms, then gives regulators leeway to tweak or nullify the provision.

The House bill, meanwhile, would allow regulators to impose more rigorous standards at companies where proprietary trading "poses an existing or foreseeable threat to the safety and soundness of such company or to the financial stability of the United States."

Financial industry officials argue that the Volcker rule would unnecessarily limit some safe forms of trading and that proprietary trading did not cause the current crisis.

Meanwhile, the House legislation would establish a $150 billion fund, paid by the financial industry, that could be used to seize and dismantle large, failing firms. Similar language was stripped from the Senate bill after the GOP members complained that such a fund would leave open the possibility of bailouts.

The fund is likely to disappear during the coming conference because the administration opposes it and Frank has said he is not likely to defend it.

Frank also has said he expects the Senate conferees to agree to create a free-standing consumer financial protection agency. The consumer watchdog would be housed within the Federal Reserve under the Senate bill. But Frank has described the proposal as a vestige of a political deal that Dodd cut months ago with Corker before bipartisan negotiations broke down.

Among other issues, auto dealers hope to preserve an exemption in the House bill -- opposed by the administration -- that would carve them out of oversight by the new consumer watchdog. And bankers hope to strip out a Senate amendment that would limit the fees that banks can charge retailers when customers swipe their credit or debit cards.

© 2010 The Washington Post Company