–Senate To Resume Voting Tuesday On Amendments To Reg Reform Bill
–Senate To Deal With Status of Fed, Derivatives, Fannie and Freddie
–House Subcommittee To Discuss May 6 Stock Market Plunge
–Hill Dems To Continue To Discuss FY2011 Budget Resolution

By John Shaw

WASHINGTON (MNI) – The Senate is gearing up to tackle some of the
most contentious issues related to financial regulatory reform this
week, with critical votes looming on regulation of over-the-counter
derivatives, the future Fannie Mae and Freddie Mac and beefed up
auditing of the Federal Reserve Board.

The Senate will resume debating the regulatory reform bill Monday,
but no votes are expected until Tuesday.

Senate Majority Leader Harry Reid has said he wants to complete
action on the regulatory reform bill by the end of the week, but almost
180 amendments have been filed to the bill.

The underlying bill establishes a new independent Consumer
Protection Bureau at the Federal Reserve Board, creates a process to
liquidate failed financial firms, sets up a council of regulators to
oversee systemic risk in the economy, establishes a regulatory structure
for over-the-counter derivatives, requires hedge funds that manage over
$100 million to register with the SEC and creates a new office within
Treasury to monitor the insurance industry.

The bill, largely drafted by Senate Banking Committee Chairman
Chris Dodd, has been merged with a package that was approved by the
Senate Agriculture Committee which requires OTC markets to adopt aspects
of the regulated markets such as mandatory clearing through derivatives
clearing organizations and trading on exchanges or exchange-like
facilities.

It has a narrow exemption for commercial “end users” who use
derivatives to hedge against economic contingencies such as fluctuations
in fuel prices, currency and interest rates.

The most controversial features of the package is a provision that
requires a bank that qualifies as a “swap dealer” or a “major swap
participant” to either divest its swap desk or forego access to federal
credit assistance such as the Federal Reserve Board’s discount window of
FDIC deposit insurance.

This provision is certain to be challenged on the Senate floor this
week.

Senate Republicans have said they favor more disclosure of
derivative swaps and are expected to offer amendments that remove the
language that prohibits depository institutions from trading
derivatives.

Dodd has said that senators are still “working” on the derivatives
language, but has not indicated where the talks are heading.

The Senate is also expected to vote as early as Tuesday on an
amendment by Sen. Bernie Sanders that would require a one time
“comprehensive” audit of the Fed’s emergency lending programs since
December of 2007.

Sanders modified an earlier amendment that would have required
regular, highly intrusive audits of the Fed by Government Accountability
Office.

The Senate is also expected to consider an amendment by Sen. John
McCain that would require government ownership of Fannie Mae and Freddie
Mac to end in two years. Under the McCain amendment, Fannie and Freddie
would be subject to new capital requirements and underwriting standards.

Democrats are likely to resist McCain’s amendment and urge Congress
to wait for the administration’s comprehensive housing overhaul next
year.

Republicans may also offer amendments that make “surgical” changes
to the proposed Consumer Protection Bureau after having failed to kill
it last week.

If the Senate passes its regulatory reform bill, it must be
reconciled with a competing version that was approved by the House in
December.

No final regulatory reform bill is expected until the late summer
at the earliest.

The Capital Markets subcommittee of the House Financial Services
Committee will hold a hearing Tuesday afternoon on the May 6 stock
market plunge. No witnesses have yet been scheduled.

The Senate Finance Committee will hold another hearing Tuesday
morning on the administration’s proposed bank fee. The panel will hear
from Edward DeMarco, acting director the Federal Housing Finance Agency,
and from think tank experts.

Finally, House and Senate Democratic leaders will resume their
discussions on whether they want to try to pass a five year budget
resolution, as budget law requires, or instead opt for passing a deeming
resolution that sets a ceiling on discretionary spending for the 2011
fiscal year.

The Senate Budget Committee approved a Democratic-drafted budget on
April 22, but there is little sign of movement in the House Budget
Committee.

** Market News International Washington Bureau: (202) 371-2121 **

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