WASHINGTON — Long-awaited Senate legislation that would direct the broadest overhaul of financial regulation since the Great Depression will be introduced on Monday without any Republican support, despite weeks of bipartisan negotiations.
Sen. Christopher Dodd, D-Conn., the chairman of the Senate Banking Committee, decided that it's time to introduce the bill and work out its final details as the complex legislation makes its way through the Senate.
Sen. Bob Corker of Tennessee, the Republican who negotiated with Dodd for weeks, said it's "very disappointing" that Dodd decided to proceed before getting a final agreement, which he said had been close.
Corker was careful to stress, however, that talks hadn't fallen apart and would continue over the weekend. "What happened was you were on the five yard line and the lights go out. There was no breakdown," he said.
It's been 18 months since the U.S. and global financial system nearly melted down, prompting the federal government to authorize up to $700 billion to rescue banks and other financial institutions. The House of Representatives finished its revamp of financial regulation in December, but negotiations in the Senate have been painfully slow.
Dodd hopes to get the legislation passed by his committee before the spring recess — and has one eye on the calendar, as November's midterm elections fast approach.
"What I'm facing mostly is the 101st senator — the clock. In an election year, that becomes a particularly demanding marker," said Dodd, who's not running for re-election.
Senate Majority Leader Harry Reid, D-Nev., on Thursday set a Memorial Day deadline for floor passage of the sweeping measure. Then it and the House bill would have to be merged over the summer for final congressional passage before the August recess — just ahead of the election sprint that follows.
In separate news conferences, Dodd and Corker each said that they were in agreement on most of what's to be in the bill — a massive 1,200-plus pages and 13 sections.
Among key points they'd agreed upon:
- The Federal Reserve would be tasked as the principal watchdog for the health of the broad financial system. Dodd originally had hoped to strip the Fed of many of its powers.
- A proposed Consumer Finance Protection Agency, designed to set standards for consumer credit products ranging from mortgages to credit cards to payday loans, wouldn't be a stand-alone agency.
Dodd stressed, however, that there was no final agreement on how to protect consumers — the most controversial issue in the negotiations. Most Democrats favor creating an independent agency to protect consumers' financial interests, but banks mounted a stiff lobbying campaign to oppose it, arguing that it would impede regulators' ability to ensure banks' safety and soundness.
Regarding how to structure consumer protection, Dodd said: "We're not there yet on that either, but we're getting there."
However, Corker said that the two lawmakers had agreed that the consumer-protection panel would be housed within the Fed, but its leader would be nominated by the president and confirmed by the Senate. This agency would write consumer-protection rules that other agencies would enforce, much as the Fed wrote rules that separate bank regulators were supposed to enforce but often didn't.
"We don't want consumer involvement in enforcement," Corker said, summarizing the Republican position. "We don't want rulemaking and enforcement combined."
House Speaker Nancy Pelosi, D-Calif., favors an independent agency to protect consumers, as would be mandated under the separate House financial-overhaul legislation. However, Pelosi said Wednesday that she might be able to accept housing it within the Fed if it's got enough independent powers.
"I have to take a look at how it could be independent within the Federal Reserve," she said. But if it has its own staff and budget, "then it can go wherever it goes."
The Fed is widely viewed as having been late to recommend curbs on predatory of deceptive mortgage lending, and failed give sufficient attention to consumer protection.
Corker hinted that the Fed may lose some regulatory powers over smaller banks and financial institutions.
"The Fed no doubt will have its wings clipped," Corker said. He added that there was bipartisan agreement to fold the supervision of savings and loan institutions into the Office of the Comptroller of the Currency, the main regulator of almost 1,500 nationally chartered banks.
The two sides didn't appear far apart on so-called resolution authority powers that would allow the government to step in and dissolve large, globally interconnected financial institutions whose failure would pose a risk to the entire U.S. financial system.
These banks, dubbed "too big to fail," were given $700 billion in taxpayer support in 2008, and Dodd said that his chief legislative goal was to ensure that it never can happen again.
"I determined (that) before this Congress ends, we're going to close that door," he told reporters.
Corker's news conference was punctuated with a graciousness rare in contemporary Washington, as he complimented Dodd for the lengthy bipartisan negotiations.
Corker expects the bill presented on Monday to be to the political left of what was negotiated to win support from Democrats on the Banking Committee. He said he hopes that more moderate views will carry the day as the complex legislation is amended in committee and on the Senate floor.
Some Democrats are expected to introduce amendments that seek to impose taxes on financial transactions or other measures to punish banks for the practices that led to the worst financial crisis since the 1930s.
Corker also promised that greater scrutiny awaits the credit-rating agencies who blessed as safe the complex securities that Wall Street issued, which were backed by bad home loans.
"You know, the House basically wrote them out of the code, and I'm not opposed to that," Corker said, suggesting that liability for bad ratings could hurt the ratings providers. He added that during the bipartisan negotiations "we had a pretty big liability burden placed on the credit-rating agencies that I think will cause them to pay a lot more attention to what they're doing."
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