Banking/Financial Institutions

Senate Democrats neared a deal Sunday on legislation regulating the multitrillion-dollar derivatives market as part of the financial overhaul bill headed to a vote this week.

A Democratic aide close to the negotiations said the broad financial bill will likely include derivatives legislation that closely mirrors a bill crafted by Senate Agriculture Chairwoman Blanche Lincoln (D-Ark.).

The Senate Agriculture and Senate Banking committees worked through the weekend on derivatives legislation. The two committees share jurisdiction over the market, which many blame for exacerbating the financial crisis in 2008.

Lincoln earlier in April pushed a tougher-than-expected bill on derivatives that will have major impacts on Wall Street and the biggest banks that dominate the market.

The aide said Sunday the central provisions in Lincoln's bill likely will remain, including a requirement that banks spin off their desks that trade swaps and derivatives. That would mean big changes on Wall Street, where derivatives are a key source of revenue for banks, such as JPMorgan Chase & Co. and Goldman Sachs.

The provision is designed to restrict derivatives dealers from receiving federal assistance, from the Federal Reserve or Federal Deposit Insurance Corporation (FDIC).

Consumer advocacy groups, labor unions and liberal Democrats have pushed for strong new regulations on derivatives. Many financial, energy and agriculture interests, meanwhile, had lobbied Lincoln's committee to include a broad exemption for derivatives users.

The Democratic aide said there will be some technical changes to a provision on the regulation of foreign exchange currency derivatives. They will be covered under the new regulations, unless the Treasury Secretary deems otherwise, the aide said.

The Lincoln bill passed the Agriculture committee on a 13-8 vote, with Sen. Charles Grassley (R-Iowa), the lone Republican in support.

Senate Majority Leader Harry Reid (D-Nev.) is looking to hold a vote Monday to open debate on the financial measure, but Republicans appear unanimously opposed. Senate Banking Committee Chairman Chris Dodd (D-Conn.) and Sen. Richard Shelby (R-Ala.), ranking member on the panel, continue to discuss a possible compromise that could garner bipartisan support.

The cost of the financial bailout could wind up as low as $87 billion or 1 percent of gross domestic product, meaning a lower federal debt and deficit.

Treasury Secretary Tim Geithner made the estimate in a letter Friday to Congressional leaders. 

"Democrats took the necessary action to ensure taxpayers are paid back the TARP money after Congressional Republicans and the Bush administration drove our country into an economic ditch, while siding with Wall Street and big banks," said Nadeam Elshami, a senior aide for Speaker Nancy Pelosi (D-Calif.).

Geithner said the administration is trying to wind down the Troubled Asset Relief Program. The Treasury has collected $185 billion in TARP investments and generated more than $19 billion for taxpayers, according to the letter. 

As recently as a year ago, officials had estimated that the $700 billion could cost as much as $500 billion or 3.5 percent of GDP. But companies have been gradually repaying the loans. 

Fannie Mae and Freddie Mac, the government-controlled mortgage companies, are expected to have the biggest negative effect on the bottom line. 

Rep. Darrell Issa (R-Calif.) sent a letter to the inspector general David Kotz earlier Friday questioning the timing of the civil charges.

Republican arguments that proposed financial regulatory overhaul legislation would perpetuate bailouts is "triply phony," a House lawmaker said Friday. 

House Financial Services Chairman Barney Frank (D-Mass.) called the claim "the phoniest issue I've seen in a very long time" because the money to wind down firms would come from financial institutions not taxpayers and wouldn't be used until a firm is dead, not to save it from failure. 

AIG was bailed out with public money and "we make that impossible," Frank said today during an interview on MSNBC. "None of the money involved here is either going to be taxpayer money."

In a continued effort to push for Wall Street reform, Vice President Joe Biden and Treasury Secretary Tim Geithner will head to Milwaukee, Wis. on Tuesday.

As the Senate's financial regulatory reform bill hits the floor next week, Biden and Geithner will hold a Middle Class Task Force meeting at the University of Wisconsin-Milwaukee's Sheldon B. Lubar School of Business, the White House announced Friday. 

The Senate is scheduled to take its first vote Monday on a reform plan designed to provide greater protections for taxpayers when companies fail, end bailouts and the too-big-to-fail mentality while limiting the risk-taking of banks. 

The Senate Banking and Housing and Urban Development Committee staff is expected to work through the weekend on a bipartisan compromise on the legislation. 

The Federal Reserve Board will hold hearings to examine whether changes need to be made in a regulation that requires mortgage lenders to provide detailed reports of activity to regulators and the public. 

The Board will evaluate whether 2002 revisions to the Regulation C, requiring lenders to report mortgage pricing dates and information about the mortgage market. The hearings also will examine information to help the Board determine the need for more data and improvements and identify emerging issues in the mortgage market that may warrant more research, the Board announced on Friday. 

The Fed will hold four hearings beginning in July on revisions to Regulation C, which implements the Home Mortgage Disclosure Act. The act requires mortgage lenders to provide annual reports on their mortgage lending activity. 

The hearings will take place at the Federal Reserve Banks in several cities: July 15 in Atlanta, Aug. 5 in San Francisco, Sept. 16 in Chicago and Sept. 24 in Washington, D.C. 

Consumer advocates, seniors and investors are urging the Senate to toughen restrictions on brokers and insurance agents as part of financial overhaul legislation.

The groups want Congress to require the Securities and Exchange Commission (SEC) to adopt rules mandating that broker dealers and insurance agents act in the interest of their clients when they give financial advice. They are supporting an amendment from Democratic Sens. Daniel Akaka (Hawaii) and Robert Menendez (N.J.).

The groups say they are pushing for the same standard that investment advisers have under current law. The pending Senate legislation requires the SEC to study new regulations, but not adopt new rules.

The groups include the AARP, Consumer Federation of America, National Association of Secretaries of State and North American Securities Administrators Association.

"The language in the current bill may be no better than the status quo, and will not serve to protect investors from biased investment advice," the groups wrote. "It wastes SEC time and resources studying issues that have been studied extensively, and does not provide the agency any authority to address a known disparity in the protections that apply when brokers give investment advice, delaying indefinitely any actions to address this pressing concern."

We reported on Wednesday that 18 House Democrats are calling for a criminal investigation of Goldman Sachs. As of today, that number has more than doubled, reaching 44 lawmakers.

You can see the full list of signing members at the website of the Progressive Change Campaign Committee (PCCC), which is organizing a grassroots campaign to get more lawmaker support.

The SEC has of course filed a civil action against Goldman for allegedly selling investmant pacakges that were designed to fail. The SEC does not have authority to launch a criminal investigation, however, so the letter-signers are urging the Department of Justice to open their own probe.

The effort was spearheaded by Rep. Marcy Kaptur (D-Ohio).

Dodd says reforms are a legitimate issue but will have to wait for another bill.

Senate Banking Chairman Chris Dodd (D-Conn.) remained optimistic on the prospects of moving forward on financial regulatory reform bill that has been the subject of intense negotiations this week. 

With negotiations likely to continue through the weekend, ranking member Richard Shelby (R-Ala.) said his main goal is "to do it right" and that he shares similar goals with Dodd.  

"I think we can make some progress, some real progress toward a common goal to have a strong financial system that's well regulated," Shelby said. 

Dodd and Shelby urged the continuation of talks on the measure that would end bailouts, better protect consumers, limit the risk-taking of financial institutions and ensure that no bank is too big to fail. 

"I remain optimistic that we'll get the job done," Dodd said. 

A cloture vote on the bill is set for 5:15 p.m. Monday. 

Dodd tried to ensure his colleagues in both parties that the bill can be improved but debate needs to begin. 

"Let's get to the debate, the American people can't tolerate doing nothing," he said. "We need to have the votes on Monday."