WASHINGTON — The Senate's debate on historic legislation to overhaul regulation of the financial world is unlike anything Congress has done in years — filled with quick bipartisan deals to defuse controversies and overwhelming bipartisan votes to change how the government oversees banks big and small.
The debate, which continues next week, has been influenced by a series of political and economic trends that came together at once:
- The stock market's wild ride.
"This is a subject that has wide, wide, wide popularity — people want us to do something about Wall Street," said Sen. Claire McCaskill, D-Mo.
Especially after this week's stock market's gyrations.
"We saw a living, breathing real-time example of the potential catastrophe that could take place if we do not have the ability to adequately use the technology," said Sen. Mark Warner, D-Va., "and have safeguards, and realize how some of these firms are using this technology to get an advantage over the everyday Main Street investor."
Still to come are debates over derivatives, the exotic financial instruments that helped cause the economic crisis of 2008, and whether to authorize an audit of the Federal Reserve Board. However, no bitter battles are expected — a sharp contrast to Congress' recent behavior. Its yearlong health care debate sharply divided Democrats from Republicans. So did the 2009 economic stimulus plan.
Any chance that the financial regulatory overhaul would follow that path faded quickly this week after Senate Banking Committee Chairman Christopher Dodd, D-Conn., and Sen. Richard Shelby of Alabama, the panel's top Republican, crafted a compromise spelling out how the government would break up ailing financial institutions. It passed with 93 votes in the 100-member Senate.
"Improvements are being made to this financial regulatory bill in the right direction," declared Senate Minority Leader Mitch McConnell, R-Ky., usually a harsh critic of Democrats.
The biggest remaining controversy had been expected to be over a Democrat-authored plan to create a strong consumer-finance agency to protect against abusive credit practices. Republicans warned that the agency would inhibit small businesses' ability to attract capital.
The fight was expected to drag on for days, but instead it ended quickly on Thursday, with two Republicans, Maine's Olympia Snowe and Iowa's Charles Grassley, joining Democrats to easily defeat the GOP alternative.
The two sides also came together to pass unanimously a plan to have smaller banks pay less than larger ones into the Federal Deposit Insurance Corporation's fund to help depositors at failed banks.
The Senate also quietly adopted an important amendment drafted by Sen. Maria Cantwell, D-Wash., that will make it easier to punish Wall Street misbehavior. It would lower the threshold for a finding of market manipulation by the Commodity Futures Trading Commission, which regulates the trading of contracts for future delivery of oil, grains and other commodities.
Because of the high current threshold, in 35 years the CFTC has prosecuted only a single manipulation case successfully. Instead, the agency typically enters into settlements with bad actors; fines have often been simply a cost of doing business for traders gaming the commodities markets.
Why the sudden burst of bipartisan Senate comity? First, there's little debate that government must update regulation of financial institutions.
"You know, many of these members witnessed the appearance of Goldman Sachs leaders before (Michigan Sen.) Carl Levin's committee last week," said Senate Majority Whip Richard Durbin, D-Ill., "and they didn't want to be associated with some of the practices that came out in that hearing."
It also helps that Dodd and Shelby lead the push.
"The two people managing this bill are longtime legislators," said Senate Majority Leader Harry Reid, D-Nev. "They've handled many, many bills on the Senate floor."
Hurdles still lie ahead. Getting agreement on derivatives could be difficult. The bill includes a tough plan, written largely by Democrats, that would require most banks to spin off their derivative trading into a separate entity. Not only bank and business lobbies want to change that — so does the Obama administration, fearing it would push derivative trading further from regulators' reach.
Even on that issue, however, Reid saw prospects for common ground. "The derivatives part of this bill is, by some standards, a little more complicated," he said. "But I think the issues even there are fairly clear."
(Kevin G. Hall of the Washington Bureau contributed.)
ON THE WEB
Sen. Shelby on consumer protection
Summary of financial regulatory overhaul bill
Senate Banking Committee report on financial overhaul bill
Senate Agriculture Committee report on derivatives bill
MORE FROM MCCLATCHY:
Sens. Dodd, Shelby strike compromise on finance bill
Senate scores big bipartisan votes for bank bill's terms
GOP's Grassley joins Dems in passing limits on derivatives
Goldman's offshore deals deepened financial crisis
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