–House-Senate Conference Panel Expected To Convene Next Week
–Hill Leaders, White House Want Deal By July 4th Recess
–Derivatives, Consumer Agency, Type of Fed Audit Are Under Debate

By John Shaw

WASHINGTON (MNI) – When Congress returns from its Memorial Day
recess next week, the central item on the legislative agenda will be the
attempt by the House and Senate to craft a compromise financial
regulatory reform bill.

The House passed its regulatory reform bill in December of 2009
while the Senate approved its bill several weeks ago.

The House-Senate conference committee will work to reconcile the
House and Senate regulatory reform bills. Any compromise must then be
approved by the full House and Senate.

Senate Banking Committee Chairman Chris Dodd and House Financial
Services Committee Chairman Barney Frank will formally preside over the
conference committee when it convenes next week.

House leaders are not expected to name their conferees until early
next week.

Senate leaders have appointed seven Democrats and five Republicans
to the conference committee. The Democrats are Sens. Dodd, Jack Reed,
Tim Johnson, Chuck Schumer, Patrick Leahy, Tom Harkin, and Blanche
Lincoln. The Republicans are Sens. Richard Shelby, Judd Gregg, Bob
Corker, Mike Crapo, and Saxby Chamblis.

With Congress in recess this week, the staffs of Dodd and Frank
have been meeting to carefully review the two versions of the bill,
identifying areas of similarity between the two packages and issues in
which the bills differ.

Both Dodd and Frank have said they have been struck on how similar
the two bills are, adding that it should not be that difficult to draft
a compromise.

“This is one of the rare occasions when the two bills really are
very close to each other,” Dodd said two weeks ago after he and Frank
met with President Obama.

Both Dodd and Frank said they would like a final bill to be
approved by Congress and sent to Obama by July 4th.

One of the central issues to be resolved will be how to regulate
the over-the-counter derivatives market. Both the House and Senate bill
require most derivatives to be traded through third parties, but the
Senate bill has fewer exemptions for end-users. Additionally, the Senate
version would force banks to spin off their derivatives units.

Administration officials and key congressional Democrats have
indicated that they are uncomfortable with the Senate’s derivatives
language.

Sen. Jack Reed, a Democrat who will be on the conference committee,
has said that the provisions preventing banks from buying and selling
securities solely for the firm’s profit would be a more effective tool
to control risk than preventing banks from trading derivatives.

There is a widespread belief that the Senate’s more restrictive
language regarding derivatives will be eventually be removed.

The House and Senate bills require expanded audits of the Federal
Reserve Board, but the House version is both more expansive and
intrusive and would include a review of some monetary decisions made by
the Fed.

The two bills also differ on the precise powers of a new consumer
protection entity; the House bill creates a stand-alone agency while the
Senate bill places it within the Fed.

The House-Senate negotiations are expected to occur on two levels.

Dodd and Frank are expected to take the lead role in closed door
negotiations over a final bill, with key guidance from House Speaker
Nancy Pelosi, Senate Majority Leader Harry Reid, Treasury Secretary Tim
Geithner, White House Chief of Staff Rahm Emanuel–and even President
Obama.

Frank has said that any decisions made in these private
negotiations will be presented to the public sessions of the
House-Senate conference committee for a final decision. Frank has said
he wants these sessions to be televised on C-SPAN.

It remains unclear what role congressional Republicans will play in
these negotiations.

Even if all Senate Democrats and the two independents vote on a
final compromise, it seems likely that the final bill will need at least
one Republican vote to pass the Senate.

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

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