–Senate Passes Amendment That Allows Fed To Retain Key Powers
–Senate Also Approves Amendment To End ‘No Doc’ Loans
–Senate Continues Debate on Reg Reform, Final Vote Expected Next Week

By John Shaw

WASHINGTON (MNI) – After several weeks of fierce, bipartisan
bashing of the Federal Reserve Board, the Senate voted Wednesday to
remove language from the financial regulatory bill that would have taken
away the central bank’s oversight of bank holding companies of less than
$50 billion in assets as well as its supervisory powers over more than
850 state-chartered banks.

The amendment to remove this provision — sponsored by Republican
senator Kay Bailey Hutchison and Democratic senator Amy Klobuchar —
was passed on a 90 to 10 vote.

Senate Banking Committee Chairman Chris Dodd opposed the amendment
but did not speak in opposition to it, apparently conceding its passage.

The Senate approved an amendment Tuesday that would charge the
Government Accountability Office with conducting a comprehensive, one
time audit of the Federal Reserve Board.

The amendment, which was approved 98 to 0, was sponsored by
Independent senator Bernie Sanders and requires the GAO to conduct an
audit of all of the Fed’s emergency lending activities since December,
2007.

The Sanders amendment explicitly bans the GAO from reviewing the
Fed’s monetary policy, as well as its transactions with other central
banks.

The Senate then rejected a much more expansive, ongoing audit of
the Fed that was offered by Republican senator David Vitter. It was
defeated 37 to 62.

The underlying Senate regulatory reform bill, largely drafted by
Dodd, 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 developed 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.

In other votes Wednesday, the Senate also approved an amendment by
Klobuchar and Democratic senator Jeff Merkley that would prevent
mortgage brokers or originators from receiving fees that are based on
the terms of the loans they negotiate. The amendment would also require
lenders to verify a borrower’s income, effectively banning “no doc’
loans.

The Senate rejected an amendment by Republican senator Bob Corker
that would have instructed bank regulators to write rules that would
require a 5% downpayment, require mortgages with a loan-to-value ratio
of more than 80% to have mortgage insurance, and require credit and
employment histories for borrowers. It would also strip a provision that
big banks that securitize mortgage-backed securities retain 5% of the
package to ensure they conduct due diligence on their products.

The Senate has resumed its debate on the financial reform bill.
Democratic leaders have begun to hint more broadly that they expect the
final vote to occur next week.

Bipartisan negotiations continue on the derivatives section of the
bill.

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

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