Senate passes financial regulation bill (USA NEWS)

Senate passes financial regulation bill (USA NEWS)

The Senate approved new far-reaching financial rules on Thursday aimed at preventing the risky behavior and regulatory failures that brought the economy to the brink of collapse two years ago and cost millions of Americans their jobs and savings.

The bill passed by a vote of 59 to 39, with four Republicans joining a majority of Democrats in supporting it.

The 1,500-page measure, shepherded through the Senate by Christopher J. Dodd (D-Conn.), chairman of the banking committee, seeks to reshape both Washington and Wall Street.

In providing for the most profound remaking of financial regulations since the Great Depression, the legislation would create a new consumer protection watchdog housed at the Federal Reserve to prevent abuse in mortgage, auto and credit card lending. It also would give the government power to wind down large, failing financial firms and set up a council of federal overseers to police the financial landscape for risks to the global economy. Moreover, the legislation would establish oversight of the vast market in financial instruments known as derivatives, impose new restrictions on credit rating agencies and give shareholders more of a voice in corporate affairs.

Passage of the legislation marks a milestone in President Obama's efforts to tackle the financial abuse and excess that contributed to the crisis and to prevent another meltdown.

The vote gives Obama his second major legislative victory of the year, following the March passage of his landmark health-care bill. He hailed the Senate's action Thursday as a major step forward. "Our goal is not to punish the banks," he said in the White House Rose Garden hours before the final vote, "but to protect the larger economy and the American people from the kind of upheavals that we've seen in the past few years."

The bill now appears headed to a House-Senate conference committee, where a handful of lawmakers will work to resolve the remaining differences between the two chambers. House Financial Services Chairman Barney Frank (D-Mass.) said he expects conference members to be named soon and work to be finished next month.

"I think the president will sign this bill before the Fourth of July," he said.

Thursday's vote hinged in large part on Democrats' ability to win Republican votes.

They successfully courted Republican Sens. Olympia J. Snowe and Susan Collins, both of Maine, in part by including in the final bill provisions that each wanted. Sen. Charles E. Grassley (R-Iowa) also backed the bill. Equally critical was the last-minute push to win over Scott Brown (R), the Senate's newest member.

Oddly enough, Brown's vote was secured with the help of Frank, his Massachusetts colleague. In an interview, Frank said Brown called him Wednesday evening as Frank was on an elliptical machine in the House gym. Brown wanted assurances that Frank would fight in conference to preserve provisions in the House bill that protect large and solvent Massachusetts institutions, such as State Street and Fidelity, from "unnecessary intrusion" by government regulators. Over the next 24 hours, Frank sent Senate leaders two letters stating his position, and Brown indicated that "on that basis, he could vote for cloture," Frank said.

Dodd's bill, like the one Frank guided through the House last year, largely mirrors the blueprint the Obama administration laid out last June. But it didn't always.

Dodd's initial draft, introduced in November, differed in significant ways from Frank's legislation and the administration's original vision. But after administration officials, industry lobbyists and fellow lawmakers attacked portions of Dodd's proposal, he spent months crafting a more modest draft and trying to win Republican support. Eventually, the bill sailed through the banking committee in 20 minutes on a party-line vote, and was sent to the Senate floor virtually untouched.

Despite conventional wisdom that the bill would get watered down as it progressed through the Senate, the opposite happened.

For instance, Sen. Blanche Lincoln (D-Ark.), chairman of the Senate agriculture committee, proposed dramatic restrictions on trading in derivatives, including a provision that could force big banks to spin off the lucrative business altogether. Her language was added to Dodd's bill and endured, despite efforts by the administration, regulators, lobbyists and Dodd himself to temper it.

Meantime, other senators added tough amendments that, for example, would place new restrictions on credit rating agencies, force big banks to meet higher capital requirements and limit the fees that merchants have to pay banks each time a customer uses a credit or debit card.

On Thursday afternoon, the Democrats won a close vote to end debate and vote on the bill.

A potential roadblock loomed in the evening: two controversial amendments that had yet to get a vote during three weeks of Senate debate.

The first, sponsored by Sen. Sam Brownback (R-Kan.), would exempt auto dealers from oversight by the new consumer financial protection bureau, and a second measure pushed by Sens. Carl M. Levin (D-Mich.) and Jeff Merkley (D-Ore.) would ban banks from making speculative investments using their own capital, known as proprietary trading, and from owning hedge funds or private-equity funds.

Late Thursday, a deal emerged that helped pave the way for a final vote on the package. There would be no vote on Brownback's amendment, and hence no vote on the Levin and Merkley's provision, either. But the Senate would plan to hold a procedural vote Monday to instruct members of the House-Senate conference to consider exempting auto dealers in the final measure.

Even with passage assured, Republicans continued to take shots at the legislation. They have argued that it would not prevent future government bailouts, that the new rules would harm small businesses and that the overall effort would result in unnecessary red tape.

"I know the president has to be very happy," Sen. Bob Corker (R-Tenn.) said on the Senate floor. "In my opinion, it's an overreach. I feel like we could have done better."

GOP members railed about the fact that Dodd's bill would not address the problems at government-backed mortgage giants Fannie Mae and Freddie Mac. Other issues remained unresolved heading into the conference process, such as Lincoln's derivatives provision. Frank said he expects to abandon a House provision that would require the financial industry to pay into a fund that could be used to liquidate failing firms, an issue that became a political lightning rod in the Senate. And he said he expects the Senate to back off its proposal to house an independent consumer protection agency within the Federal Reserve, a plan Frank called "a mistake," saying it would a level of responsibility that the Fed would not have.