House drops proposal for fund to aid in winding down failing firms
Thursday, June 24, 2010
House negotiators, seeking to reach agreement with their Senate counterparts over new far-reaching financial rules, dropped their proposal Wednesday for a $150 billion fund, paid for by industry, that would have been used to cover the costs of winding down large, failing firms.
The upfront fund had drawn repeated criticism from Republicans, who had dubbed a similar $50 billion measure in the Senate bill a "bailout fund." Senate Democrats had agreed to eliminate the fund as the legislation headed to the Senate floor weeks ago, in hopes of winning support from key Republicans such as Sen. Olympia J. Snowe (R-Maine.)
The House concession was a relatively minor one on a day when action on major issues facing the House-Senate conference committee were put off for another day, despite a marathon debate on topics ranging from capital rules for banks to new restrictions on the mortgage lending industry.
Despite the lack of visible progress, Democratic leaders worked feverishly behind the scenes, trying to hammer out a series of compromises in order to hold onto critical votes needed to propel the massive financial overhaul package across the finish line.
The most divisive issues in the legislation remained unresolved, even as House Financial Services Committee Chairman Barney Frank (D-Mass.) and Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) vowed to wrap up work by Thursday, in hopes of sending a bill to the president by July 4.
"We started in our own end zone and we're now on the opposition's 10 [yard line]," Frank said. "This is going to be a very strong bill. . . . There's no question this will be a bill that makes everything it touches better."
Throughout Wednesday, a handful of potential deals , albeit slowly and tentatively, that could nail down the votes necessary to ensure final passage began to take shape. Senate Majority Leader Harry M. Reid (D-Nev.) and House Speaker Nancy Pelosi (D-Calif.) huddled earlier in the day with Frank, Dodd and other key lawmakers to talk through the remaining hurdles, pausing only briefly to watch the final moments in Wednesday's dazzling U.S. victory in the World Cup, aides said.
Democrats worked, for instance, to secure the support of Sen. Scott Brown (Mass.), one of only four Republicans to vote for the Senate bill. Brown, whose state is a hub of the asset-management industry, wants the bill to allow banks to invest at least a small amount of capital in hedge funds and private equity investments.
Dodd met with Brown on Wednesday morning, according to an aide, and the two agreed to a change that would let banks invest a small percentage of their capital in hedge funds and private equity. During the Senate debate, Brown proposed letting banks invest up to 5 percent of their capital in such activities.
Brown's concerns fell under the broader -- and still unresolved -- debate over the "Volcker rule," named after former Federal Reserve chairman Paul Volcker, who has raised concerns about whether banks should be allowed to trade with money in their own accounts, a practice known as proprietary trading.
Senate Democrats on Wednesday floated a proposal that largely mirrored a provision previously offered by Sens. Carl M. Levin (D-Mich.) and Jeff Merkley (D-Ore.) that would ban certain forms of proprietary trading and forbid firms from betting against securities they sell to clients. The Merkley-Levin measure never got a vote on the Senate floor.
Currently, the Senate bill contains a version of the Volcker rule but gives regulators power to tweak or nullify the provision depending on the outcome of a government study. The House bill, meanwhile, would have let regulators impose tougher standards at companies where proprietary trading threatens "the safety and soundness" of the company or the United States.