Compromising Continues in Congress' Conference Committee

The conference committee for Congress' financial regulation bill continued their effort on Thursday. The magnitude of lively debate this week casts doubt on the aggressive goal of completing conference next week, but some progress was made. Discussion began on a number of significant issues, and a few decisions finalized. Here are some highlights:

Federal Reserve Audit

One of the most significant agreements came on the Fed audit. The Senate agreed to broaden the examinations to include interest rate policy (open market operations) and emergency lending (discount window). These audits will also occur on an ongoing basis. The Senate provision that the President would choose the New York Bank Fed chief was also dropped.

Although this isn't the full audit of the central bank that the House initially passed, Fed critics must feel some satisfaction in making progress. This is significantly broader than the Senate's original provision, which would have only allowed a one-time review of measures taken during the financial crisis. This agreement pretty much embodies compromise, which is all you can really hope for in a political battle like this.

Resolution Authority

The non-bank resolution authority was a major topic discussed Thursday, but it wasn't entirely. . . wait for it. . . resolved. This is another major sticking point between the House and Senate bills.

Initially, the Senate bill included a $50 billion pre-funded account paid for by big banks to cover the costs of resolution. Senators, led by Republicans, overwhelmingly agreed this could lead to future bailouts, so the fund was removed.

The House bill passed with a similar mechanism, but with much larger $150 billion fund. The House's conference proposal asserted that this fund should be in the final bill. The Senate rejected the change, however, so now its new offer goes back to the House. Next week we'll learn whether the House feels this provision is worth fighting for, but it seems the Senate won't budge.

Lobbyists for Government-Owned Firms

An amendment was considered that would have forbid firms that the government owns at least a 5% ownership stake in (AIG, GM, Chrysler, AIG, Fannie, and Freddie) from lobbying. It was offered by House Oversight and Government Reform committee Ranking Member Darrell Issa (R-CA). It failed 9 to 13 on mostly party lines, with one Democrat joining the Republicans voting for the ban. Consequently, these firms will be able to continue to lobby just like companies that are fully owned by the private market.

Leverage Limit

Although it wasn't actually voted on yet, Thursday's House offer included something of a surprise: the chamber intends to fight for its 15 to 1 leverage limit on financial firms. The Senate bill contained no constraint on leverage. If it is included, it would be one of the most significant provisions to date for financial reform.

But according to a Senate source, the tentative counteroffer that Banking Committee Chair Chris Dodd (D-CT) has circulated does not include the leverage ratio. So it's fairly likely the House will lose this battle as well.

The conference committee will not meet on Friday, but will pick back up next week.

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