U.S. Senate begins voting on Wall Street reform

Posted on Reuters.com.  Click here to view original article.

By Kevin Drawbaugh
Tue May 4, 2010 6:03pm BST


 WASHINGTON, May 4 (Reuters) - The U.S. Senate will cast its first votes on Tuesday on a sweeping Wall Street reform bill, but a proposal that would force banks out of the risky swap-trading business appeared to be losing steam as it failed to win backing from the Obama administration.

As Congress moved closer to the biggest overhaul of financial regulation since the Great Depression, senators were expected to approve a handful of noncontroversial amendments, before taking on more contentious measures later this week.

The first amendment to be voted on will be one from Democratic Senator Barbara Boxer to add language saying that no taxpayer funds could be used again to bail out financial institutions. It is likely to gain wide support.

Final approval of the reform bill was expected in two to four weeks, given a surge in political momentum for it from the Goldman Sachs fraud case and coming elections in November.

Senate Democratic Leader Harry Reid said on the floor he hoped the Senate would finish its work as soon as next week.

The swap-trading proposal, drafted by Senate Agriculture Committee Chairman Blanche Lincoln, is opposed by banks that get substantial profits from the unpoliced, $450 trillion market for over-the-counter derivatives, including swaps.

Swaps are used to bet on the direction of instruments such as interest rates, foreign currencies or the likelihood of a borrower defaulting on debt.

Obama administration officials have declined to publicly endorse the Lincoln provision, which would require banks to spin off their swap-trading desks.

Treasury Secretary Timothy Geithner said in congressional testimony on Tuesday that his department has not taken a position on the matter.

In a White House blog post on Tuesday, the provision was conspicuously absent from a list of issues that the Obama administration said bank lobbyists were focused on.


GEITHNER BACKS BANK TAX

Geithner also on Tuesday urged Congress to support an administration proposal to charge financial institutions a tax to pay for bailouts if they get in trouble in the future.

"We anticipate that our fee would raise about $90 billion over 10 years and believe that it should stay in place longer, if necessary" to ensure that the cost of the bailouts undertaken in 2008 by the Bush administration is fully recouped, he told the Senate Finance Committee.

Committee Chairman Max Baucus said the bank tax proposal would likely pass Congress eventually, but he said it would not likely be added to the wider reform bill before the Senate.

Debate over the Lincoln provision and the bank tax came as the Senate moved toward its first votes on amendments to a 1,600-page reform bill under development for months since the 2008-2009 financial crisis and a deep recession.

Overhauling financial regulation is a top priority for President Barack Obama, who said on Tuesday that proposed reforms were "in no way designed to hamstring businesses."

While the economy was still deep in recession in December, the House of Representatives approved a bill that embraced many of the Obama administration's ideas for tougher oversight and stricter limits on banks and capital markets. The European Union is pursuing its own agenda for reform as well.

Whatever the Senate produces will have to be merged with the House bill. Analysts said a final piece of legislation could be on Obama's desk to be signed into law by mid-year.

The Senate was expected to approve a handful of noncontroversial amendments on Tuesday afternoon.


DODD-SHELBY DEAL SEEN

Other early amendments to the bill will reflect the latest bipartisan deal between Senate Banking Committee Chairman Christopher Dodd, and Senator Richard Shelby, the top Republican on the committee.

Analysts said Dodd has agreed, at the Republicans' insistence, to drop a proposal to create a $50 billion fund, paid into by large financial firms, that would help pay for liquidating any if they were to get in trouble.

Dodd himself has not confirmed that agreement, however. Nor did he have any comment on Monday about the Lincoln provision.

Lincoln, a Democrat, wants banks to choose between traditional banking, which provides them with the safety of government deposit insurance and Federal Reserve discount window access, and making bets in the risky swaps market.

But her proposal took a hit over the weekend when Federal Deposit Insurance Corp. Chairman Sheila Bair said it would drive swaps into less-regulated and more-leveraged venues.

Taking Bair's views into account, analysts and sources close to discussions among lawmakers said the Lincoln provision will likely be dropped from the wider reform bill.

Democratic leaders had not yet determined as of early on Tuesday whether amendments will need 50 or 60 votes to pass.

Reid said he wants 50 vote margins, not 60.