–House Financial Services Chief Says Bill Has ‘Most’ of Volcker Rule
–Bill Does ‘Great Deal More’ Than Many Expected
–Would Be ‘Healthy’ If Banks Return To Lending Focus
–Housing Finance Reform ‘On Track’ After Bill Passes

By John Shaw

WASHINGTON (MNI) – House Financial Services Committee Chairman
Barney Frank said Friday that he expects the conference committee
agreement on regulatory reform that was reached in the morning to pass
Congress next week.

In an interview on Bloomberg TV, Frank said the bill was developed
with a keen focus on both substantive needs and political realities.

Frank said the bill was “diluted” in several areas to make it more
politically acceptable in the Senate where he assumes 60 votes will be
needed to pass the bill.

Frank said the final agreement is a “tougher bill” than he first
believed he could assemble, adding it’s also a “great deal more than
many thought we could” find agreement for.

Frank said the bill was designed neither to protect or punish
banks, but added it would be a “healthy thing” if banks were more
focused on their traditional role of issuing loans.

“Lending (for banks) has become too little important,” Frank said.

Frank said the final bill has strong provisions regarding the
regulation of over-the-counter derivatives, adding that Senate
Agriculture Committee Chairman Blanche Lincoln is “perfectly satisfied”
with the final compromise.

Frank also said that he is very pleased with the bill’s inclusion
of “most of the Volcker rule” which curtails proprietary trading.

Finally, Frank dismissed Republican criticisms that the bill should
also have included Government-Sponsored Enterprises reform.

Republicans, he said, demonstrated only a mild interest in GSE
reform when they controlled Congress from 1994 to 2006.

Frank said that he supports “restructuring housing (finance) in
general,” adding that he is “on track” to develop major reforms soon.

A key issue, he said, is “what replaces Fannie Mae and Freddie
Mac?”

The House-Senate conference committee approved early Friday
legislation which would make the most sweeping changes to the U.S.
regulatory system since the Great Depression.

The legislation creates a council of regulators to monitor to
economy against systemic threats. It institutes new regulations on hedge
funds and over-the-counter derivatives. The bill 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.

The package 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 Over-the-counter 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.

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

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