By Brady Dennis
Washington Post Staff Writer
Friday, June 25, 2010; A13
Lawmakers pressed deep into the night Thursday, trying to solidify a series of political deals in an effort to get a bill that would overhaul the nation's financial regulation to President Obama by July 4.
Despite vows of an open process, Democrats and administration officials spent much of the day negotiating behind closed doors over a pair of contentious issues -- bank trading and derivatives -- in a bid to secure crucial votes for the final legislation in both houses of Congress.
Moments before midnight, lawmakers resolved one of those outstanding issues, reaching a compromise on the "Volcker rule," named after former Federal Reserve chairman Paul Volcker. The measure would bar banks from trading with their own money, a practice known as proprietary trading.
But the most divisive topic remained a proposal by Sen. Blanche Lincoln (D-Ark.) that would force big banks to spin off their derivatives-dealing businesses. Her measure has been a thorny issue for Democrats for months.
Lincoln has stayed firm, saying that her provision is essential for protecting the financial system and preventing taxpayers from having to bail out banks again. Many liberals support the amendment, but it is opposed by the Obama administration and some regulators, as well as by an influential bloc of moderate Democrats and House Democrats from New York, where much of the derivatives industry is concentrated.
Administration officials and Democratic leaders fervently tried to bridge that divide throughout Thursday. Top Treasury officials, including Deputy Secretary Neal Wolin and Michael Barr, an assistant secretary, roamed the Dirksen office building, alongside White House economic adviser Diana Farrell, conferring with aides and key lawmakers. Gary Gensler, chairman of the Commodity Futures Trading Commission, worked the committee room for much of the day.
Lincoln came and went from the hearing room, meeting at times with members of the centrist New Democrat Coalition to try to find a final compromise on her provision. Inside the conference room, she huddled with Senate banking Chairman Christopher J. Dodd (D-Conn.), House financial services Chairman Barney Frank (D-Mass.) and other key lawmakers.
As the session continued into the early hours of Friday, over 15 hours after it began, no definitive compromise had emerged.
In reaching a deal on the Volcker rule, negotiators adopted a provision that mirrors language previously offered by Sens. Carl M. Levin (D-Mich.) and Jeff Merkley (D-Ore.), which 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.
"One goal of these limits is to reduce participation in high-risk activity that can cause significant losses at institutions which are central to the financial system," Dodd said. "A second goal is to end the use of low-cost funds, to which insured depositories have access, from subsidizing high-risk activity."
According to the proposal, firms would have up to two years to scale back their proprietary trading and investments in hedge funds and private equity funds.
Even as they worked to toughen the Volcker language, lawmakers agreed to an exemption at the behest of Sen. Scott Brown (R-Mass), one of only four Republicans to vote for the financial regulation bill when the Senate approved it last month. Brown, whose state is a hub of the asset-management industry, wanted the bill to allow banks to invest at least a small amount of capital in hedge funds and private equity investments. The measure would cap a bank's investment in private equity or hedge funds at 3 percent of the firm's tangible common equity.
Republicans criticized Democrats for their rush to finish a bill, saying the haste would leave scores of unintended consequences. Sen. Bob Corker (R-Tenn.) also complained that the effort to garner key votes had allowed a handful of senators to "hijack" the process over a few parochial issues.
As the night wore on, lawmakers began to yawn. Trash cans overflowed with coffee cups and sandwich wrappers. Aides who had worn down their BlackBerry batteries recharged them in the hall.
Lawmakers also deferred final resolution of other issues late into the evening. But they moved toward exempting the nation's 18,000 auto dealers from oversight by a new consumer financial protection watchdog, a striking legislative victory for one of the nation's most influential lobbying groups and blow to consumer advocates and Democratic leaders who had long opposed such a loophole.
"It is time for people like myself to concede that the votes are not there to give the consumer regulator any role in this," Frank said.
They also inched toward resolving remaining differences on other issues, such as giving shareholders more of a say on corporate governance, placing new restrictions on mortgage lending and approving an assessment on large firms to help pay for the bill, which the Congressional Budget Office had estimated would cost nearly $20 billion over the next decade.