Senate Democrats to battle over strength of Wall Street reform legislation

Senate Democrats to battle over strength of Wall Street reform legislation

Democratic senators will battle among themselves this week over whether to strengthen a Wall Street reform bill that has already met stiff resistance from Republicans and industry lobbyists.

Liberal Democrats will make a last-ditch effort to push the bill leftward by strengthening regulation of derivatives and banks that speculate with their own money instead of on behalf of clients.

The leftward push will underscore tensions in the party that flared last week between Sen. Byron Dorgan (D-N.D.) and Senate Banking Committee Chairman Chris Dodd (D-Conn.).

Dorgan, who has been a persistent critic of derivatives for more than a decade, is pushing hard for a vote on his amendment to ban so-called "naked" credit default swaps. Those are derivatives that are tied to the potential for an asset to default, but in which traders don't have an actual stake in the underlying asset.

Dodd grumbled last week that Dorgan was threatening to jumble the carefully orchestrated sequence of votes by pushing his swaps measure.

“I will be very candid with my friend from North Dakota: It complicates my job,” Dodd said. Dorgan has vowed to keep pushing his amendment despite the resistance. And his efforts could result in a vote on the issue this week.

The bigger fight, however, will take place over an amendment offered by Sens. Jeff MerkleyJeffrey (Jeff) Alan MerkleySenate blocks dueling coronavirus relief plans Senators push for changes to small business aid Overnight Energy: Oil giants meet with Trump at White House | Interior extends tenure of controversial land management chief | Oil prices tick up on hopes of Russia-Saudi deal MORE (D-Ore.) and Carl LevinCarl Milton LevinSenator Tom Coburn's government oversight legacy The Trumpification of the federal courts Global health is the last bastion of bipartisan foreign policy MORE (D-Mich.) to place stronger restrictions on proprietary trading.

The amendment would ban proprietary trading at banks and require the Federal Reserve to impose tougher capital requirements on large non-banks that engage in the same type of trading. Senate aides said the amendment would likely come up for a vote, but they did not say when.

A large coalition of liberal and labor groups have lined up behind the amendment, as have at least 28 Democratic senators, according to Public Citizen.

Wall Street banks oppose the measure, which could cut into their profits significantly.

"Proprietary trading is a useful management tool. Banning it will — ironically — increase the risk to the system," said Scott Talbott, senior vice president at the Financial Services Roundtable.

The Merkley-Levin proposal would target major Wall Street banks, such as Goldman Sachs and Morgan Stanley, which became bank holding companies in 2008 at the height of the financial crisis.

Industry lobbyists and congressional aides have suggested, however, that Goldman Sachs and Morgan Stanley could shed their bank holding companies and in the future escape the outright ban. They would still be subject to potentially higher capital requirements set by the Fed.

The reform is designed to tamp down on highly leveraged firms that did not have enough capital to weather the financial crisis.

“It is a very important amendment,” said Heather McGhee, director of the Washington office of Demos, a liberal-leaning advocacy group. “It is a crucially important amendment to safeguard our economy from reckless gambling that does not benefit the vast majority of businesses.”

The pending bill would leave it up to a council of regulators to restrict proprietary trading.

According to Public Citizen, 28 Democrats have voiced support for the Merkley-Levin amendment, four have said they are leaning in favor and 10 have said they are leaning against.

Lisa Lindsley, director of capital strategies at AFSCME, said the Dorgan proposal is an important complement to the Merkley-Levin amendment.

“The most important thing is to pass the Merkley/Levin amendment to keep banks from having their casino-like practices bring down the whole economy, and we see the issue of naked credit default swaps as part of it,” Lindsley said.