Congressman Tom Price, M.D.

12/7/2009
House Likely to Move on Regulatory Reform by End of the Week

The Hill
Silla Brush
December 6, 2009

President Barack Obama this week will likely see Congress take a major step forward in accomplishing a sweeping financial regulatory overhaul.

The full House is expected to vote by Friday on a wide-ranging package to regulate risks across the financial system, impose new curbs on the multi-trillion dollar derivatives market and give the government tools to dissolve failing financial firms.

House Financial Services Committee Chairman Rep. Barney Frank (D-Mass.), who has spearheaded the effort, is ironing out final changes to the bill, titled the “Wall Street Reform and Consumer Protection Act of 2009.”

One of the most closely watched pieces of the measure is a new auditing requirement for the Federal Reserve pushed by Rep. Ron Paul (R-Texas.). Frank said this week not to expect changes on the floor to the audit provision.

Almost certain to be changed is an amendment that would give federal regulators power to impose a haircut on secured creditors to firms that are taken over. The amendment narrowly passed Frank’s panel and was sponsored by Reps. Brad Miller (D-N.C.) and Dennis Moore (D-Kans.).

The measure aims to give the Federal Deposit Insurance Corporation (FDIC) power to impose losses on secured creditors to help repay the government when it needs to step in to deal with a failing firm.

The Miller-Moore amendment came as a surprise to financial companies and several lobbyists quickly met with House members. Financial interests warned that it could hurt the massive markets for “repo” transactions that rely on agency and government debt. The amendment, analysts cautioned, could increase the cost of borrowing.

Miller’s office said the language would likely be changed to exempt treasuries and agency-backed debt from the 20 percent haircut. The language would also likely not apply to the Federal Home Loan Bank (FHLB) system.

Frank and House Energy & Commerce Committee Chairman Henry Waxman (D-Calif.) were also working out a deal on the leadership structure of the new Consumer Financial Protection Agency (CFPA). Frank favors having a single director, while Waxman wants a series of commissioners appointed to staggered terms.

Steve Adamske, Frank’s spokesman, told The Hill this week that the measure would likely set up a single director for an interim period, possibly two years, while the commission gets up and running.

Auto dealers are also working to maintain language in the bill that exempts them from the CFPA, while including auto loan financing.

Credit unions also are benefiting as the bill heads to the floor. The Credit Union National Association (CUNA) said this week that Frank is modifying the bill so that credit unions with less than $10 billion in assets would not face CFPA examinations and supervision.

Credit unions sought parity with an exemption won by community banks during the committee debate.

House Agriculture Committee Chairman Collin Peterson (D-Minn.) and Frank were also finalizing legislation to regulate the derivatives market. Lawmakers were looking to delegate power to the Securities and Exchange Commission and Commodity Futures Trading Commission to decide which derivatives are clearable and able to be traded on exchanges.

One issue that remains, sources said, is whether banks would be limited to owning a certain percentage of clearinghouses that serve as third parties in derivatives transactions.

Rep. Stephen Lynch (D-Mass.) wants to limit their ownership percentage to avoid conflicts of interest.

The Hill