Democrats Eye July Fourth Finish Line As Financial Reform Moves to Conference

Congressional Democrats vowed May 21 that they will move swiftly to resolve differences between the House and Senate financial regulatory reform bills (H.R. 4173, S. 3217) and predicted that final legislation would be enacted by the July Fourth recess. The timetable gives lawmakers little time to work through major differences on issues such as derivatives regulation, proprietary trading, consumer protection, and a new resolution regime for institutions whose failure would endanger the larger financial system.

Market Turmoil in Backdrop

Karen Shaw Petrou, managing partner of Federal Financial Analytics Inc., noted that House and Senate lawmakers will be attempting a complete an overhaul of U.S. financial regulations at a time when European and global financial markets are in turmoil. As the United States moves to end future government bailouts of financial institutions, the European Union has been forced by the crisis in Greece to take an opposite tack, approving a nearly $1 trillion aid package that buttresses its largest banks, she noted. “At the least, this means that the next few weeks will be rough,” Petrou said in a research note to clients. She predicted that Congress will finalize a new resolution regime that will make it virtually impossible for the Federal Reserve to provide non-liquidity support or any backstops to U.S. financial institutions facing trouble. She also said the FDIC will have sharply limited powers to come up with “creative solutions” like the 2008 Temporary Liquidity Guarantee Program. Some of the other big differences between the bills is a provision in the House version that establishes a $150 billion fund, financed by fees on large banks, that would be at the disposal of the FDIC as it winds down failing financial firms. “We’ll see what the final resolution regime looks like out of conference, but our guess is that it will largely track the Senate approach, not the more flexible one enacted late last year by the House,” she said.

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