–Senate Retains Consumer Protection Bureau As Dems Defeat GOP Amendment
–Senate Appears Set To Approve Watered-Down Fed Audit Amendment
–Key Senate Votes Loom Next Week On OTC Derivatives Regulation
–Senate Banking Chief Dodd Says 141 Amendments Are Pending

By John Shaw

WASHINGTON (MNI) – The Senate made modest progress this week in
advancing a sweeping financial regulatory reform bill, but critical
votes loom next week on regulating over-the-counter derivatives and
expanding audits of the Federal Reserve Board.

In perhaps the week’s most important vote, Senate Democrats, with
the help of two Republicans, defeated a bid by Sen. Richard Shelby, the
ranking Republican on the Banking Committee, to sharply limit the powers
and scope of the proposed consumer financial protection bureau.

Shelby’s amendment was defeated on a 38 to 61 vote. The amendment
would have created a new consumer protection entity that is based in the
FDIC. Current banking regulators would retain their enforcement and
supervisory authority.

Republican senator Bob Corker said Republicans will make “surgical”
attempts to modify the proposed consumer bureau next week when the
Senate resumes votes on amendments.

Senate Banking Committee Chairman Chris Dodd has said that more
than 140 amendments have been filed. He said he will work with Shelby to
pare down the list of amendments that will be voted on.

Senate Majority Leader Harry Reid has said repeatedly this week
that he wants the Senate to complete work on the financial regulatory
reform bill next week.

One amendment that was the subject of intense negotiations and
fierce rhetoric this week pertains to an effort to expand audits of the
Federal Reserve Board.

Dodd said Thursday there is now an agreement on a modified
amendment that would require the Government Accountability Office to
conduct a detailed audit of the Fed.

The Fed audit amendment was originally drafted by independent
senator Bernie Sanders, but has been modified at the request of the
White House, Dodd and others.

The amendment would allow the GAO to conduct an audit of all of the
Fed’s emergency lending activities since December, 2007. It would
require the Fed to put on its website all of the recipients of emergency
assistance.

The Fed would have to disclose how much money went to borrowers,
the dates the assistance was offered, the terms of repayment and the
“specific rationale” for the creation of the lending programs.

The amendment explicitly retains a ban on the GAO from reviewing
the Fed’s monetary policy, as well as its transactions with other
central banks.

Dodd said he supports the modified amendment, adding that he’s
convinced it would have no negative affect on the Fed’s independence.

The accord on the amendment was reached Thursday after a day of
withering criticism of the Fed from senators of both parties, from the
left wing Sanders of Vermont to the deeply conservative Republican
senator from Iowa, Chuck Grassley.

It also came after a day of stern warnings from Federal Reserve
Chairman Ben Bernanke, former Fed chairman Paul Volcker and Deputy
Treasury Secretary Neal Wolin about the need for the independence of the
Fed.

The Senate voted 98 to 0 Thursday to approve a bipartisan amendment
that would change the FDIC’s assessment system that determines bank
premiums from one based on domestic deposits to one based on total
assets. The authors of the amendment, Republican senator Kay Bailey
Hutchison and Democratic senator Jon Tester, would benefit smaller banks
at the expense of the much maligned larger banks.

The underlying Senate bill was largely drafted by Dodd. It
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.

Dodd’s bill 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.

Dodd said Thursday on the Senate floor that senators are continuing
to “work on” language related to derivatives, suggesting the current
provisions are likely to be amended.

Corker, speaking on the Senate floor Friday, said that the final
bill must revise its language on derivatives regulation.

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

[TOPICS: M$U$$$,MFU$$$,MCU$$$,M$$CR$,MGU$$$]