Lawmakers chart finance reform path

Congress will plow into several specific parts of financial regulatory restructuring this week as lawmakers begin to chart legislation to overhaul major parts of the industry.

The House Financial Services Committee is holding two hearings on derivatives and executive compensation that will delve into specifics of regulatory restructuring. Chairman Barney Frank (D-Mass.) said he hopes to roll them both into one bill and have his committee approve the legislation by July.

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On Tuesday, a subcommittee will hold a hearing on over-the-counter (OTC) derivatives legislation. The hearing comes on the heels of testimony that the head of the Commodity Futures Trading Commission (CFTC) gave on June 4 detailing a new administration proposal to regulate the market.

Gary Gensler, CFTC head, outlined an effort to bring all OTC derivatives under regulation, by overseeing the dealers of derivatives, as well as forcing standardized derivatives onto public exchanges. Still unclear is exactly what the proposal will mean for customized derivatives. Senate Agriculture Committee Chairman Tom Harkin (D-Iowa) said that he hoped the upper chamber could pass legislation on derivatives, but “probably not until the fall.”

The House Financial Services Committee on Thursday will also look into executive compensation rules and “systemic risk,” which will likely draw heavy interest from lawmakers and Wall Street. The Obama administration reportedly will announce plans to have a government official look into executive pay practices. Lobbyists and bankers have been unclear about new restrictions on executive pay ever since the Troubled Asset Relief Program (TARP) and subsequent bills included restrictions on bonus payments. The Joint Economic Committee will hold a hearing on Tuesday to oversee the $700 billion financial bailout.

Congress will also flex its oversight might this week when it looks at the restructuring of the auto industry. The Senate Banking Committee on Wednesday will hold a hearing on government efforts to support General Motors and Chrysler and the administration’s use of TARP money to help the carmakers.

Meanwhile, deliberations over the fiscal 2010 defense bills begin in earnest this week with the House defense authorization committee taking up various subcommittee markups.

As in previous years, missile defense is likely to be the most divisive issue between the Republicans and Democrats on the committee, with the GOP members trying to add money back to programs Democrats want to cut.

Other issues that could divide committee members are: whether the Army should regain control of some part of the Joint Cargo Aircraft program, which the Obama administration wants to scale back; how many more Boeing Super Hornets to buy; what the future holds for the modernization plans of the Army’s controversial Future Combat Systems; and a fight between the Virginia and Florida delegations over a home for a nuclear carrier.

It may be clearer on Thursday how big a speed bump the House Agriculture Committee will be to efforts to pass climate change legislation. The panel will review the bill at a hearing likely to be closely watched by supporters and critics given Chairman Collin Peterson’s (D-Minn.) threat to block the bill out of anger at how the administration proposes measuring the greenhouse gas emissions of ethanol.

The Environmental Protection Agency has proposed a rule that would include indirect land use changes in foreign countries in ethanol’s so-called “life-cycle” carbon footprint. The bottom line is the calculation could raise ethanol greenhouse gas emissions higher than those of conventional gasoline, which could hamper future ethanol production.

Peterson has said he will oppose the climate bill unless his concerns about ethanol are addressed.

Farmers aren’t the only ones who would like the climate bill tweaked. Some business groups feel they’ve been shortchanged in the formula devised by the committee to distribute allowances that cover their carbon dioxide emissions.

Under the cap-and-trade system created by the legislation, companies will buy and sell those allowances on an open market as needed. The allowances would essentially act as a type of currency.

To address fears that carbon caps will raise energy prices and drive jobs overseas to countries without similar constraints, the bill’s authors decided to give so-called energy-intensive industries 15 percent of the total allowances available under the bill to hedge against price spikes.

But Marty Durbin, the lead lobbyist for the American Chemistry Council, said a late change in the bill’s language puts energy-intensive industries on a different “allowance schedule” compared with other sectors like utilities.

That is, chemical, steel, paper and other large energy users lose their free allowances at a quicker rate compared to other business groups covered by the cap, “unfairly depriving energy-intensive manufacturers of receiving approximately 960 million allowances through 2035, at an estimated cost of more than $19 billion based on a $20 allowance price,” according to an e-mail from American Chemistry Council.

ACC is lobbying to fix the change, although Durbin said the group wasn’t ready to say that it would seek to block the bill if its efforts weren’t successful. The climate bill could also be a boon for chemical companies because they make the products that make buildings and homes more energy-efficient, an effort that would get a huge boost under the climate change bill. Still, $19 billion is a lot to leave on the table.

Roxana Tiron and Jim Snyder contributed to this article.