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POGO's Guide to the FinReg Debate

May 4, 2010 

 

The Senate is casting its first votes today on amendments to the sweeping financial regulatory reform bill introduced by Senate Banking Committee Chair Christopher Dodd (D-CT).

Here are some of the key amendments POGO be following in the days and weeks ahead:

 

  • Audit the Fed: As we wrote yesterday, Sen. Bernie Sanders (I-VT) has introduced an amendment that would broaden the GAO’s authority to audit the Federal Reserve, and require the Fed to disclose key information about the firms that accessed over $2 trillion in emergency loans during the financial crisis. The Sanders amendment—which is based on legislation introduced by Reps. Ron Paul (R-TX) and Alan Grayson (D-FL) that passed the House in December—has over a dozen co-sponsors from both sides of the aisle, and is being supported by POGO and other groups from across the political spectrum. But don’t expect the amendment to pass without a fight, as administration and Fed officials try to make the case that GAO auditing will interfere with the Fed’s ability to set monetary policy free of political influence, among other things.
  • No taxpayer-funded bailouts: Sen. Dodd’s bill would give the Federal Deposit Insurance Corporation (FDIC) the liquidation authority to unwind a failing nonbank financial company or bank holding company, an authority that was sorely lacking during the financial crisis. Sen. Barbara Boxer (D-CA) has introduced an amendment that would force the government to liquidate the companies it puts into receivership, and prohibit taxpayer funds from being used to bail out a company in order to prevent liquidation.
  • Ending the government’s conservatorship of Fannie Mae and Freddie Mac: Sen. John McCain (R-AZ) has introduced an amendment that would impose a deadline for ending the government’s conservatorship of Fannie Mae and Freddie Mac. If the conservatorship isn’t terminated, it could cost the government nearly $200 billion, according to recent estimates by the Congressional Budget Office (CBO). Many Republicans and outside experts have argued that the Dodd bill doesn’t do enough in general to address the future of the government’s federal housing policy.
  • Fiduciary standard for broker-dealers: Sens. Robert Menendez (D-NJ) and Daniel Akaka (D-HI) will introduce a proposal to strengthen the fiduciary standard for broker-dealers (i.e., the legal duty for investment banks to act in the best interest of their clients), a reform that has gained momentum following last week’s Goldman Sachs hearing. Meanwhile, Sen. Susan Collins (R-ME) is trying to come up with her own language to ensure that the fiduciary duty would only apply to the intended targets.
  • No more “too big to fail”: Sens. Ted Kaufman (D-DE) and Sherrod Brown (D-OH) have introduced an amendment that would place limits on the size, leveraging, and capital requirements of banks, in an effort to prevent banks from becoming “too big to fail.” On the other hand, Sen. Bob Corker (R-TN) and others are arguing that what really matters isn’t the size of the banks, but rather the implicit guarantee that banks will be bailed out by the federal government.
  • Return to Glass-Steagall: Sens. John McCain (R-AZ) and Maria Cantwell (D-WA) have proposed legislation that would effectively reinstate the 1933 Glass-Steagall Act, which separated commercial and investment banking.

 

POGO is also looking forward to an intense debate over the proposal by Sens. Dodd and Blanche Lincoln (D-AR), Chair of the Senate Agriculture Committee, to reform the regulation of over-the-counter (OTC) derivatives. In general, this legislation would make OTC derivatives more transparent by pushing the trades onto clearinghouses and exchanges. But POGO and others have raised concerns about a loophole in the bill that would allow for trading to continue on a less transparent platform known as a “swap execution facility.” And Bloomberg reported last week that a one-word deletion in the Senate bill could mean that swaps will continue to be traded with minimum transparency via phone transactions. In addition, FDIC Chair Sheila Bair has been sounding the alarm about a provision in the bill that would require banks to spin off their derivatives operations.

Watch the financial regulatory debate live throughout the week on C-SPAN2.


Founded in 1981, the Project On Government Oversight (POGO) is a nonpartisan independent watchdog that champions good government reforms. POGO's investigations into corruption, misconduct, and conflicts of interest achieve a more effective, accountable, open, and ethical federal government.

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