Senate GOP draft alternate Wall Street bill

Senate Republicans are drafting an alternate financial overhaul bill that differs in major ways from the Democratic bill pending in the Senate.

According to a 20-page draft summary of the bill, Republicans have significantly different ways of dissolving failing financial firms, bolstering consumer protections and restricting the Federal Reserve. Republicans are terming the bill the, "Financial Regulatory Improvement and Taxpayer Protection Act," according to a summary dated April 26.

"The legislation is still in the drafting stages," said a Republican aide. "Whether and when it is introduced remains to be seen. We remain willing to work to reach a bipartisan compromise."

Among the key provisions:

1. Republicans would create a system to dissolve failing financial firms that requires the Federal Deposit Insurance Corporation (FDIC) to liquidate a firm and would give the FDIC power to recoup money from the firm's creditors that is in excess of what they would have gotten in bankruptcy. The FDIC, with the consent of the Treasury Secretary, would be allowed to issue guarantees, purchase assets and advance funds to creditors. Republicans do not include any sort of industry-supported fund to cover the costs of winding down a firm. The Democratic bill includes a $50 billion fund supported by the industry. 

2. Republicans want to create a Council for Consumer Protection that would have rulewriting and restricted enforcement power. The council would be made up of Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency. The council would have primary supervision of large financial institutions, large non-bank mortgage originators, and "other financial services providers who have violated the consumer protection statutes." The council would have backup enforcement power over regional banks and credit unions, while supervision and enforcement of small banks would remain with existing regulators.

Democrats include an independent bureau of consumer protection at the Federal Reserve that would have broader rulewriting and enforcement power and an autonomous budget.

3. Senate Republicans are planning on preserving federal preemption of state laws on consumer protections. Consumer advocates and Democrats have pushed for states to be able to pursue stronger regulations than the federal government.

4. On derivatives, Republicans would give the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC) and Federal Reserve power to set clearing requirements. Republicans appear to have a much broader "end user" exemption for derivatives users. "End users who are not contributing to potential system failure but rather utilize swaps to reduce or offset risk inherent to their business will not be required to clear their transactions, thereby avoiding the additional costs of clearing," according to the summary.

5. Republicans are looking to cut off federal support for Fannie Mae and Freddie Mac, the mortgage finance giants taken over by the government. Democrats have said they will pursue an overhaul of Fannie and Freddie in separate legislation.