House to vote this week on finance reform

The House is expected to vote this week on a financial regulatory overhaul, a priority of the Obama administration.

The legislation would regulate risk across the financial system, impose new curbs on the multitrillion-dollar derivatives market and give the government tools to dissolve failing financial firms. The effort has prompted a big lobbying push by banks and other financial interests.

House Financial Services Committee Chairman Barney Frank (D-Mass.), who has spearheaded the effort in Congress, is ironing out final changes to the bill, titled the Wall Street Reform and Consumer Protection Act of 2009.

One of the most closely watched pieces of the measure is a new auditing requirement for the Federal Reserve pushed by Rep. Ron Paul (R-Texas). Frank said this week not to expect changes on the floor to the audit provision.

Almost certain to be changed is an amendment that would give federal regulators power to impose a haircut on secured creditors to firms that are taken over.

The amendment narrowly passed Frank’s panel and was sponsored by Reps. Brad Miller (D-N.C.) and Dennis Moore (D-Kan.).

The measure aims to give the Federal Deposit Insurance Corporation (FDIC) power to impose losses on secured creditors to help repay the government when it needs to step in to deal with a failing firm.

Financial interests warned that it could hurt the massive markets for “repo” transactions that rely on agency and government debt. The amendment, analysts cautioned, could increase the cost of borrowing.

Miller’s office said the language would likely be changed to exempt treasuries and agency-backed debt from the 20 percent haircut. The language would also likely not apply to the Federal Home Loan Bank (FHLB) system.

House Agriculture Committee Chairman Collin Peterson (D-Minn.) and Frank were also finalizing legislation to regulate the derivatives market. Lawmakers were looking to delegate power to the Securities and Exchange Commission and Commodity Futures Trading Commission to decide which derivatives are clearable and able to be traded on exchanges.

One issue that remains, sources said, is whether banks would be limited to owning a certain percentage of clearinghouses that serve as third parties in derivatives transactions. Rep. Stephen Lynch (D-Mass.) wants to limit their ownership percentage to avoid conflicts of interest.

A lobbying battle is brewing over the Lynch amendment.

Lynch and Rep. Tim Walz (D-Minn.), along with seven other House members, are trying to drum up support for the provision, which they argue is an “important check on conflicts of interest.”

They circulated a letter among House colleagues in support of the measure.

Big banks, many of which have stakes in and provide capital for clearinghouses, oppose the provision. The Futures Industry Association (FIA) also is against the language and argues that it would lead to a less competitive marketplace between clearinghouses.


Activists depart for Copenhagen

Labor groups, energy-efficiency advocates and companies of various stripes have begun to decamp for Denmark in hopes of pushing negotiators toward an overarching global climate deal.

Advocates for climate legislation in particular want to squeeze as much as possible out of Copenhagen to rebuild momentum here for a cap-and-trade bill.

The nine labor and environmental groups that make up the Blue-Green Alliance will send 35 to 40 people to Copenhagen to monitor the proceeding and promote “green” jobs.

David Foster, executive director of the Blue-Green Alliance, said one particular focus for labor is that negotiators address trade alongside emissions reductions. Labor advocates remain worried about “carbon leakage,” which happen when companies move operations to countries without a carbon cap.

The group supports border adjustments, or a carbon tariff, on products produced in countries that don’t sign international global warming commitments.

That’s a central issue in Congress as well. Senators from industrial states are insisting on some type of trade protection, although free-trade advocates on Capitol Hill worry such provisions would trigger a trade war.

An international agreement on the issue could make the road to passage in Congress much easier, although it is a long shot for labor. China and India have spoken out against such tariffs, and an existing U.N. policy framework draft says trade restrictions should not be part of a climate deal.

Unions also want countries to prepare for the shift to a green economy, Foster said. The change will be a net positive, Foster believes, but workers in more traditional industries are bound to be displaced, and countries need to set aside sufficient resources to retrain them, he said.

“We’ll be doing a lot of work explaining our position to other people,” Foster said.

Stephen Eule, vice president of the U.S. Chamber of Commerce’s Institute for 21st Century Energy, said the business group wants to maintain a dialogue among international companies that started in earnest in September at an event the group sponsored in Washington.

He said companies often have felt left out of the negotiating process on climate issues, but can be important players in a final treaty.

“We have the expertise. We’ll be responsible for the financing, the next step in technological developments,” he said. “There are a number of issues that will have a direct impact on businesses. We can say, ‘This doesn’t work, but this might.’ ”

---