Banking/Financial Institutions

Two Republicans joined Democrats today in defeating an amendment to create a consumer protection agency by a 38-61 vote. 

Republican Sens. Olympia Snowe (Maine) and Chuck Grassley (Iowa) voted against the proposal offered by their colleagues that would have established a Division of Consumer Financial Protection within the Federal Deposit Insurance Corporation, designed to replace the Consumer Financial Protection Bureau that Democrats want created at the Federal Reserve. 

The amendment, authored by Senate Banking ranking member Richard Shelby (R-Ala.) and Senate Minority Leader Mitch McConnell (R-Ky.), created some heated debate on the Senate floor Thursday.

Democrats and Republicans haven't been able to reach an agreement yet on the structure of consumer protections for the financial regulatory reform legislation. 

More Republican amendments on the issue are likely unless lawmakers can come to an accord on the thorny issue. 

Republicans say a Democratic proposal is too sweeping and would wrap small business under unnecessary regulations whereas leading Democrats argue the alternative proposal won't create the necessary consumer protections. 

Earlier today, President Barack Obama said the amendment would've have weakened consumer protections and looked like it had been written by opponents of Wall Street reform. 

Federal Reserve Chairman Ben Bernanke warned in a letter to senators that proposed audit powers over the central bank would "seriously threaten" the independence of monetary policy.

The central bank has repeatedly urged caution about a Senate amendment backed by a wide range of liberal Democrats and conservative Republicans that would give the Government Accountability Office (GAO) additional powers to audit the Fed. A similar bill passed the House in December.

Sen. Bernie Sanders (I-Vt.) is the main backer of a Senate amendment allowing for additional audits and calling for greater transparency of the Fed's actions during the financial crisis.

"Such amendments, if enacted, would seriously threaten monetary policy independence, increase inflation fears and market interest rates, and damage economic stability and job creation," Bernanke said in a letter.

A veto threat is premature on the financial regulatory reform bill if it includes provisions calling for an audit of the Federal Reserve and a Senate Republican consumer protection agency proposal, White House officials said today. 

Deputy Treasury Secretary Neal Wolin said a veto threat isn't yet on the table if an amendment by Sen. Bernie Sanders (I-Vt.), makes it into the bill. Sanders proposal, which has garnered bipartisan support, calls for the General Accounting Office to perform an independent audit of more than $2 trillion in mortgage-backed assets acquired by the Fed in the past 18 months. 

Wolin also wouldn't commit to a veto threat if an amendment authored by leading Republican Sens. Mitch McConnell (R-Ky.) and Richard Shelby (R-Ala.) to create a consumer protection agency within the Federal Deposit Insurance Corporation is approved by the Senate. 

The White House is saying that the GOP amendment was written by Wall Street because it reflects the work of lobbyists who are against the measure. 

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Nearly all executives polled by accounting firm KPMG are concerned that financial reform will be a drag on their business, but over half (52 percent) of the executives who work in finance think it could be a "net positive" for their firm.  

The rift widened today on the role of a consumer protection agency, a major sticking point on the financial reform bill, as Senate Democrats and Republicans blasted each other's plans during floor debate. 

Senate Banking Chairman Chris Dodd (D-Conn.) denounced a Republican alternative, saying it won't protect consumers, Republicans insisted Dodd's plan is too broad in scope and would take decision-making out of the hands of consumers. 

"This substitute is worse than the status quo, it's a major step back," Dodd said today on the floor. 

"It's a stimulus package for scam artists."

The proposed amendment by Senate Banking ranking member Richard Shelby (R-Ala.) and Senate Minority Leader Mitch McConnell (R-Ky.) would establish a Division of Consumer Financial Protection within the Federal Deposit Insurance Corporation, replacing the Consumer Financial Protection Bureau that Democrats want to establish at the Federal Reserve. 

The stage is set for a battle between Senate Republicans and Democrats on a proposed consumer protection agency in the financial regulatory reform legislation. 

Sen. Chris Dodd (D-Conn.) insisted Thursday the bill doesn't reach into Main Street, while Republicans are saying the agency is too sweeping and would hit any small business that uses credit. 

"Nothing could be further from the truth," Dodd said today on the floor. "We're not reaching into it all."

While Dodd said he's willing to accept ideas that strengthen the bill, he soundly denounced accusations that it affects small businesses. 

"We spent a lot of time going through this," he said. "It was worked, by the way, on a bipartisan basis so we could have this feature of the bill."

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Sen. Lisa Murkowski (R-Alaska) is backing legislation that would exempt banks and credit unions with less than $5 billion in assets from the reach of a new consumer regulator.

The financial overhaul bill under debate in the Senate aims largely at big banks and Wall Street financial firms. A centerpiece of the bill is a new consumer protection regulator with broad power to set and enforce rules over financial products, such as home loans and credit cards.

House and Senate lawmakers have looked for ways to create a strong regulator without overly burdening smaller institutions. 

The consumer regulator would have broad power to write rules, conduct examinations and enforce statues. Senate Banking Committee Chairman Chris Dodd (D-Conn.) wants the regulator to have all those powers for financial firms with $10 billion in assets. For those with less than $10 billion in assets, the consumer regulator would have power to write rules, but examinations and enforcement would be left to other regulators.

Murkowski submitted an amendment that would eliminate the consumer regulator's rulemaking, examination and enforcement reach for banks and credit unions with less than $5 billion in assets. 

Credit unions and small banks have argued they had nothing to do with the financial crisis.

Treasury secretary tells inquiry commission that regulators didn't have oversight over non-bank financial players.

The Senate will debate a Republican amendment today that would tighten the scope of a proposed consumer protection agency. 

Amendment sponsor Sen. Richard Shelby (R-Ala.), has argued that the current language for the consumer agency is too sweeping and would include almost any business that deals in credit, including dentists and orthodontists who want to allow their patients to pay a bill over time. 

Once Shelby's amendment is completed, lawmakers will turn to another proposal that would require an audit of the Federal Reserve's balance sheet. 

The amendment, sponsored by Sen. Bernie Sanders (I-Vt.), which has bipartisan support, calls for the General Accounting Office to look at more than $2 trillion in mortgage-backed securities the Fed has purchased to ease the housing crisis. Sanders amendment calls for information to be released on which financial firms received the funds, how much and under what terms. 

Fed Chairman Ben Bernanke has refused to turn over the information and is appealing two federal court rulings requiring release of documents connected to the assets. 

The Senate approved four amendments Wednesday and Senate Banking Chairman Chris Dodd (D-Conn.) said while that was a "pretty good beginning" he has received 95 amendments and he asked Senators to be disciplined on how much time they require for amendments. He thought there were several amendments that he could easily accept and would discuss those with this Banking panel counterpart Shelby to speed up the floor process. 

Another pending amendment by Sens. Jon Tester (D-Mont.) and Kay Bailey Hutchison (R-Texas) would redefine the Federal Deposit Insurance Corporation's assessment base that aims to shift the burden to big banks and away from small, community banks.

Treasury Secretary Timothy Geithner said Thursday "more work remains" to ensure the government has tough regulations over money market funds.

In testimony before a panel looking into the causes of the financial crisis, Geithner said the government needs to work to ensure that funds are less susceptible to runs. Investors pulled massive amounts of money from the funds during the financial crisis as the funds' investments in debt from companies, including Lehman Brothers, rapidly deteriorated.

The funds are a major buyer of short-term debt, which is used as a source of financing by a wide range of financial and other companies.

Geithner said the President's Working Group on Financial Markets is preparing a report on the funds and ways to reduce their risks.

"More work remains to be done in this area," Geithner said.