For anyone who has begun to find the health care battle in Congress tiresome, another interesting legislative push is beginning to heat up: financial regulation. Since late October I have been commenting on the two proposals out of the House and Senate. Today, the New York Times has a really fascinating article about what's going on behind the scenes, particularly in the Senate Banking Committee. While revealing, I don't know that I find the underlying theme too surprising.
The Times article explains that Senator Christopher Dodd's (D-CT) bill is having a great deal of trouble. The initial draft had zero Republican support and even some Democrats on the Senate Banking Committee against it. It may have faced a quick, sudden death -- even before being seriously considered. As a result, Dodd decided he needed to take swift action try to save the bill, so he broke it up into sections and assigned those sections to various bipartisan committee members groups to revise and compromise.
Meanwhile, Barney Frank's (D-MA) House bill is doing quite well. They've completed the markup process, adding a number of amendments that addressed some of the bill's weaknesses. Frank expects the House Financial Services Committee to vote on the bill as early as today, and broader House debate to begin this month. He even thinks the House could pass the legislation before the winter recess.
Really, this result is not shocking. First of all, as I asserted after reviewing both proposals, Dodd's bill is far more ambitious. Some of the regulatory measures he suggests go further than Frank's version. Dodd also crams more into his bill than Frank.
The Senate's version running into more trouble might also be expected because, well, it's the Senate's version. If you've been following other legislative battles this year, then you know that it's a lot harder to pass legislation in the Senate than the House. The Senate is what's holding up the health care bill, for example. There are a fair number of relatively moderate Democrats in the Senate who will have trouble with some financial regulatory proposals.
I think that Dodd's struggles even within his own party in the Senate underscore the difficulty that lies ahead for financial regulation. Even though Dodd's proposal was more ambitious than Frank's, they weren't vastly different. Many of the suggestions were nearly identical, and the underlying themes were certainly the same. Yet, Dodd's bill was almost dead-on-arrival in committee.
This makes me wonder if even the milder House version can pass in the Senate. I think it will get through the House smoothly enough, but that's the easy part. To get the Senate on board, I worry that Frank might have to water down even his less ambitious bill to the point that many worthwhile provisions are weakened or eliminated.
I don't think there's much chance that the legislation will fail altogether. There's broad public support for some financial regulation in response to last year's crisis. I just worry that whatever ends up passing won't prevent the kind of problems that caused the crisis and resulted in the bailouts.
What's likely to survive? Certainly some systemic risk regulatory authority -- probably given to the Fed. I hope that the non-bank resolution authority makes it into whatever legislation passes. But I suspect some of the bank regulator consolidation could get kicked out. It wouldn't surprise me if the proposed Consumer Financial Protection Agency was also pushed aside. I really worry that break-up authority for firms that cannot be neatly resolved if bankrupt will also be too controversial for the Senate.
Whatever passes both houses certainly will not do so this year. It could be nearly spring by the time the President signs the bill. That will make real reform even more challenging: time is the enemy as the financial crisis becomes more and more distant in Congress' rear-view mirror.
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