Differences House and Senate Must Resolve for Wall St Reform
Things are expected to come to a head this Thursday when congressmen are expected to start merging two different versions of the Wall Street reform behemoth into one final bill that would bring sweeping changes to the United States financial system. Since the separate pieces of legislation passed in both the House and Senate, discussion has been raging over the key issues that lawmakers must resolve. Democrats hope that a final vote in the House and Senate will occur before the 4th of July.
U.S. Senate Majority Leader Harry Reid, (D - Nev.) said that he hopes to wrap up work on the final negotiated product before the end of June. Congressional aides have stated their goal to finish reconciling the bills in time for President Obama to have progress to report at the G-20 meeting that will be held in Canada on June 25. "The bills both the House and Senate passed will enforce the toughest protections ever against Wall Street greed," Reid said. "(They) will guarantee taxpayers they will never become too big to fail."
The bills do share remarkable similarities in many respects, but congress must resolve such issues as whether to limit banks' trading activities and how to limit the risky bets that recently got important companies such as AIG into financial straits. The Senate passed its version of the bill in late May, following the House version which passed in December of last year. Back when the Senate bill passed, top Obama administration officials made it clear that both bills met the president's call of "strong, comprehensive reform," but they were careful not to promise that President Obama would sign the final product into law. Referring to the upcoming negotiations, deputy director of the White House National Economic Council Diana Farrell said, "It stands to reason that the likely outcome of this is a bill that meets the true test of reform as the president has laid out."
During the lead-up to this process, congressional staffers from both chambers of congress have been meeting to identify all the differences in the two bills that must be addressed so that congressmen can negotiate more quickly and reach a final bill sooner. The biggest issues to work out involve proprietary trading, derivatives, spinning off swaps desks, debit card fees, auto dealers, and bank capital requirements. The following are the basic differences between the two bills on these key issues.
- Senate bill has "Volcker rule" which directs regulators to limit the size and scope of banks' investment activities, forcing them to create rules that would stop banks from owning hedge funds and trading for their own accounts.
- House bill lacking such rule.
- Senate bill is tougher than its counterpart regarding ensuring that complex financial contracts are more transparent, pushing them onto clearinghouses and exchanges that can pinpoint the value of the securities.
- House bill allows more wiggle-room for financial firms to avoid exchanges, and posting collateral on such contracts, with particular leeway being given for those whoa re not considered big derivatives dealers.
Spinning of swaps desks
- Senate bill bans banks from making derivative trades by forcing them to spin off their swaps desks.
- House bill lacking such ban.
- Note: The White House and House Financial Services Chairman Barney Frank have both indicated that they may push to drop that provision during negotiations this month.
Debit card fees
- Senate bill cracks down on swipe fees that retailers pay when customers use debit cards. Directs the Federal Reserve to make debit card fees "reasonable and proportional" to costs. Allows retailers to give price reductions to customers who pay with debit cards that carry lower transaction fees.
- Senate bill keeps auto dealers subject to the consumer regulator.
- House bill exempted auto dealers from increased oversight from a consumer financial protection regulator.
- Note: The White House opposes exemptions for auto dealers.
Bank capital requirements
- Both bills require regulators to crack down on the amount of capital that banks will have to keep as a cushion against losses.
- Senate bill is tougher than the House bill. Includes a provision guiding regulators to develop new capital rules that are stricter on bank holding companies engaged in derivatives and securitized products.
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