Last week, House and Senate conferees dealt with some relatively minor provisions to the reform bill, saving most of the heavy lifting for this week. One notable exception was agreement by the Senate to strengthen the Fed audit by broadening the Senate provision to include "transactions involving the Fed’s discount window and open market operations."
The tough stuff on the docket for this week, which for conferees starts tomorrow:
- "Interchange fees": The conference is slated Tuesday to consider whether the Federal Reserve should have the authority to set "reasonable and proportional" fees paid by merchants and retailers to banks and credit unions that issue debit cards. Senate Majority Whip Dick Durbin (D-Ill.), the main backer of the provision, is pushing hard to keep it in the final legislation. The House bill did not include the provision. Small banks and credit unions are lobbying aggressively against it, while merchants and retailers are pushing for it to remain.
- Derivatives "push out": Big banks are lobbying hardest on a provision in the Senate bill that would require banks to push out their derivatives trading desks. Senate Agriculture Committee Chairwoman Blanche Lincoln (D-Ark.), the main champion of the provision, sits on the conference committee and is loudly calling on lawmakers to retain it. Federal regulators and banks argue it would shift the multitrillion-dollar derivatives market to less regulated firms.....
- "Volcker rule": Banks are also lobbying against a provision that would ban proprietary trading at banks and limit their ability to sponsor or co-invest with hedge funds and other alternative funds. Democratic Sens. Carl Levin (Mich.) and Jeff Merkley (Ore.) want to strengthen the rule by making it more explicit in the legislation. They expressed confidence Thursday that lawmakers were generally headed in their direction.
- Auto dealer exemption: Auto dealers have lobbied for more than a year for an exemption from a new consumer financial protection regulator. They won their case in the House in December, but the Senate bill did not include the exemption. A group of 62 House Democrats called on conferees to include the exemption. The carve-out is opposed strongly by the White House, Defense Department and Treasury Department.
There was out-of-conference agreement today on the first issue--so-called swap fees.
The deal, struck between Sen. Dick Durbin (D-Ill.) and key House negotiators, leaves out some elements that consumer advocates had been fighting for. It allows fees charged to reloadable, prepaid debit cards -- generally used by the poor -- to remain unregulated. And it allows an exemption for states that use debit cards to dole out benefits. But, for the first time, banks and credit card companies will face restrictions on the fees they can charge merchants for the privilege of accepting credit and debit cards.
Which means retailers beat Wall Street, and that should benefit consumers in the long run, since the higher costs for merchants in swipe fees are passed on to the consumer in the former of higher prices.
On the derivatives issue, reformers are trying to push back the effort by the New York delegation, led by Gary Ackerman, and the so-called New Dems to significantly weaken the derivatives language at the behest of the bankers. When it comes to Wall Street vs. Main Street, these "moderates" have picked the side of the big, bad guys.
On the Volcker Rule, Scott Brown is attempting to be King, aided again by the big banks.
To secure the support needed for their bill, Senate negotiators are leaning toward creating a series of exemptions to the Volcker Rule that would allow banks to continue to operate these businesses as investment funds that hold only client money, according to several Congressional aides, industry officials and lawyers.
The three main changes under consideration would be a carve-out to exclude asset management and insurance companies outright, an exemption that would allow banks to continue to invest in hedge funds and private equity firms, and a long delay that would give banks up to seven years to enact the changes.
In particular, the provisions, sought by Senator Scott Brown, Republican of Massachusetts, and several other lawmakers, would benefit Boston-based money management giants like Fidelity Investments and State Street Corporation.
Tim Fernholz smartly argues that Senate negotiators should be looking elsewhere for the key sing Senate votes on the final bill.
Irksome as it is, the real question is why all the focus on Scott Brown? Assuming that the Senate voting coalition on the financial reform conference report will be similar to that of the original Senate bill, two Democratic Senators -- Russ Feingold and Maria Cantwell -- could be courted to support the bill in return for strengthening it. Perhaps there is some concern that the two Maine Senators who voted for cloture, Oympia Snowe and Susan Collins, will bolt without a third Republican, but that's all the more reason to keep Collins' amendment to increase capital requirements for banks.
Now would be a good time for both Feingold and Cantwell to hang tough on withholding their votes in return for stronger reform.