On a barely bipartisan 59-to-39 vote, the Senate on Thursday approved the most sweeping overhaul of financial-industry oversight since the New Deal era. Next: negotiations with the House, final passage expected by July 4, and a reprise of the main themes of the debate in partisan ads for the fall midterm elections.
The Senate bill gives Washington broad new powers to shut down large, failing firms or require that businesses deemed at risk hold more capital. A new Consumer Financial Protection Bureau will be tasked to establish new rules for mortgages, auto loans, and credit-card lending, as well as other financial products. The bill extends government oversight to the vast $600 trillion financial derivatives market, including new limits on trading by Wall Street banks.
“The recession we’re emerging from was primarily caused by a lack of responsibility and accountability from Wall Street to Washington,” President Obama said in the White House Rose Garden after a key procedural vote on Thursday that all but ensured that the Senate bill would pass. Next to health-care reform, financial regulation is a top domestic priority for the administration.
“The reform I sign will not stifle the power of the free market – it will simply bring predictable, responsible, sensible rules into the marketplace. Unless your business model is based on bilking your customers and skirting the law, you should have nothing to fear from this legislation,” he added.
A more transparent process?
Unlike the health-care bill, the final version of which passed via “fixes” negotiated behind closed doors, talks to reconcile differences with the House version of the bill are expected to be relatively open. House negotiators are expected to push to ease Senate language on derivatives to allow banks to hedge their own financial risk and to take up calls to exempt auto dealers who provide loans to customers from the new regulations.
As the House and Senate work out a final version of the legislation, negotiations are expected to be fierce for exemptions or special deals for industry lobbyists.
“In this final stretch we hope lawmakers will resist Wall Street’s efforts to water down the bills’ strong provisions,” especially a robust consumer protection agency, said Michael Calhoun, president for the Center for Responsible Lending, in a statement. “We urge Congress to ensure these rules are applied to all lenders – including auto dealers – and to resist attempts to give firms 'veto power' over proposed rules before a full public debate.”
Business groups warn that the new rules could throttle the economic recovery. “If you want to drive capital out of the United States, this is your bill,” said Thomas Donohue, president and CEO of the US Chamber of Commerce, in a statement.
Why most Republicans object
Echoing this theme, Republicans say that a larger government role will stifle the economy and expose businesses and ordinary Americans not responsible for the Wall Street meltdown to new threats to privacy.
In the end, it’s not “self-congratulatory press releases” but the marketplace that will determine the impact of this legislation, said Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee.
The month-long debate included some 60 amendments from senators on both sides of the aisle. In the end, Senate majority leader Harry Reid ground out a victory by repeated procedural votes and wooing of a handful of Republican moderates. Sens. Charles Grassley of Iowa and Susan Collins and Olympia Snowe of Maine were the first to break with the GOP caucus on this bill. Freshman Sen. Scott Brown (R) of Massachusetts gave Democrats the critical 60th vote they needed to break a filibuster, after assurances from both Senator Reid and House leaders that his concerns over the impact of the new rules on Massachusetts insurance firms would be resolved in conference.
Two Democrats, Sens. Maria Cantwell of Washington and Russ Feingold of Wisconsin, voted against the bill, citing concerns that the legislation does not go far enough to prevent another financial crisis.
True bipartisanship derailed, Republicans charge
As in the health-care reform legislation, Republicans who worked with Democrats in shaping this bill in its early stages say the White House and party leaders derailed what could have been a genuine bipartisan process.
“Bipartisan used to be dropping 10 extremists on both sides by the wayside and have 80 votes,” says Sen. Bob Corker of Tennessee, a key GOP negotiator on the bill who in the end voted against it. “With greater balance this November, we’ll have to take each other a little more seriously, and I think that will be good for the country.”