–House Prepares For Historic Vote In Afternoon on Regulatory Reform
–Regulatory Reform Bill Expected To Be Approved on Mostly Party Lines
–Senate Vote on Regulatory Reform Bill After July 4th Recess

By John Shaw

WASHINGTON (MNI) – The House is scheduled to vote Wednesday
afternoon on legislation that would provide for the most sweeping
changes in the U.S.’s financial regulatory system since the Great
Depression.

The bill, which has been developed over several years, is expected
to be approved in the House along party lines. As a conference committee
report it is not subject to amendment.

The Senate is expected to take up the bill after its July 4th
recess.

The underlying bill would create a council of regulators to monitor
the economy for systemic threats. It would institute new regulations on
hedge funds and over-the-counter derivatives and creates a Bureau of
Consumer Financial Protection that will oversee mortgage, credit cards
and other credit products.

The bill provides for expanded regular audits of the Federal
Reserve by the Government Accountability Act. It includes a variation of
the Volcker-rule, banning banks from proprietary trading and limiting
them from investing in or sponsoring hedge funds and private equity
funds.

It limits bank investments in private equity or hedge funds to 3%
of a fund’s capital. Total investment in private equity and hedge funds
can’t exceed 3% of a company’s tangible common equity.

The bill would push most OTC derivatives through third party
clearinghouses and onto exchanges or electronic trading systems. It
would force banks to push some of their swaps trading into subsidiaries.

Under the bill, banks will be allowed to keep their derivative
trading operations as long as they are used to hedge risk or trade
interest rates or foreign exchange swaps.

The bill will give federally insured banks up to two years to send
instruments such as uncleared credit default swaps off to a separately
capitalized subsidiary.

While it will only require a majority vote in the House and Senate
to pass, Senate supporters will have to secure 60 votes to cut off the
debate in the upper chamber.

To secure those Senate votes, Senate Banking Committee Chairman
Chris Dodd and House Financial Services Committee Barney Frank
reconvened the House-Senate conference Tuesday evening to craft a new
package of offsets to pay for the bill.

Dodd said it was necessary to change the funding package because
there was opposition by several Republicans to the offsets that were
approved Friday. These GOP votes are needed in the Senate to pass the
bill.

Initially, Dodd and Frank offered a $22 billion package of offsets
to pay for the cost of the bill over a decade as estimated by the
Congressional Budget Office.

Under their first plan, about $19 billion over five years would
have been raised through assessments on large financial institutions and
hedge funds. Firms with assets of $50 billion or more and hedge funds
managing assets over $10 billion would have had to pay into the fund.

This bank assessment was dropped. The bill is now paid for by
immediately ending TARP and requiring banks to pay more money into the
FDIC’s deposit insurance fund. The CBO said the provision ending TARP
would result in $11 billion in savings and the larger FDIC contributions
would generate $5.7 billion in revenue.

The bill still contains a provision that would permanently raise
FDIC insurance limits for customers to $250,000, resulting in $8.7
billion in savings.

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

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