Opening a new front in the fight over Wall Street regulations, Senate Republicans want to reduce the power of a proposed consumer protection bureau by making its rules subject to approval by a top banking regulator.
The GOP plan ciruclating Wednesday would create a division of consumer protection within the Federal Deposit Insurance Corp. to oversee nonbank mortgage companies and write consumer regulations. The FDIC would have to sign off on those rules.
A Democratic plan backed by the Obama administration would create an independent bureau within the Federal Reserve to police lending and other customer financial service transactions. It would have a freer hand to enforce its regulations.
In another departure from the pending Democratic bill, the Republican plan also would continue the practice of having federal laws override state laws. Under the Democratic proposal, states would be allowed to write and enforce tougher laws, a provision opposed by the financial industry.
Creating a new consumer financial protection entity within the government is a central piece of the Obama administration's regulatory package. Obama has said he would veto legislation that contained consumer protections he deems too weak.
Republicans have complained that the Senate Democratic proposal, which is not as ambitious as the administration's, would be too sweeping and create a patchwork of state rules.
The consumer measure is one on an array of hurdles facing the legislation. The Senate was expected to hold its first set of votes on amendments later Wednesday. But while debate was well on its way, the endgame for the bill was far from clear.
"The Republicans have stopped us from doing anything on this bill," Senate Majority Leader Harry Reid, D-Nev., said Wednesday. Reid has said he wants to complete the bill by the end of next week.
Republican Leader Mitch McConnell of Kentucky said the legislation should take longer to debate to permit votes on numerous amendments. "I must tell you, I don't think this is a couple-of-weeks bill," he said Tuesday. "It's not that we don't want to pass it, but we do want to cover the subject."
Democrats and Republicans did reach one agreement — they planned to vote as early as Wednesday to eliminate a $50 billion fund to liquidate large, failing firms. In agreeing to drop the fund, Senate Democrats abandoned a provision that Republicans attacked repeatedly as a perpetual Wall Street bailout-in-waiting. The Obama administration also did not support the fund, which would have been financed by an assessment on large financial institutions.
Without the fund, the Federal Deposit Insurance Corp. would have to borrow from the Treasury to cover the initial costs of liquidating a large, interconnected firm that is collapsing. That means taxpayers would essentially front the money.
But in their deal, Senate Banking Committee Chairman Christopher Dodd, D-Conn., and the committee's top Republican, Sen. Richard Shelby of Alabama, would require the FDIC to recoup those costs from the sale of a failing firm's assets, forcing losses on shareholders and creditors, including counterparties to the firm's financial contracts. Additional costs could be paid by assessing a fee on large banks, but only as a last resort.
Disputes over consumer protections, Federal Reserve oversight and regulation of complex securities are for the moment beyond compromise. Democrats and Republicans were preparing to fight those issues out on the Senate floor.
Republicans intend to seek expanded exceptions in the regulation of complex securities.
But Democrats have their own contentious proposals. Several aim to make the bill tougher on banks, calling for limits on bank size or restrictions on their ability to trade on their own accounts.
Sen. Bernie Sanders, a Vermont independent, had obtained bipartisan support for an amendment that would require an extensive audit of the Federal Reserve. Administration and Fed officials were opposing the measure, saying it would interfere with the Fed's independence in setting monetary policy.
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