Bank bill would trim bankers' say at Fed banks
June 18, 2010 The compromise between House and Senate negotiators diluted a
Senate plan that would have made the Fed far more independent of
the banking industry.
Separately, House members sought to soften a Senate requirement
that would have toughened standards on how much money banks should
hold in reserve to guard against losses.
Senators on the negotiating panel accepted House demands that
bankers be allowed to still serve on regional bank boards of
directors and appoint other nonbank directors. Bankers, however,
would lose their say in the selection of regional presidents.
How Fed banks are governed is important because regional bank
presidents sit on the Fed's monetary policy committee, whose
decisions setting interest rates affect the pocketbooks of every
American.
Thursday's agreement was part of a wide-ranging negotiation on a
broad restructuring of Wall Street regulations. Major issues still
remained unresolved, including how much capital banks should hold
in reserve and how to police markets dealing in complex, largely
unregulated securities known as derivatives.
Rep. Barney Frank, D-Mass., the chairman of the negotiating
panel, and Senate Banking Committee Chairman Chris Dodd, D-Conn.,
want to complete the bill so that the House and Senate can vote
before July 4.
On capital standards, the House offered to amend a Senate
provision that would require large banks to increase their reserve
funds and to no longer count as capital certain hybrid securities.
Banks have argued that eliminating those assets - known as trust
preferred securities - from bank reserves would cost banks about
$130 billion in lost capital.
The House version would let all banks retain the securities they
already have as capital, but they could not use new trust preferred
securities as capital. Dodd countered late Thursday, offering to
only let banks with assets under $10 billion to benefit from such a
grandfather clause. Bigger banks would have five years to phase in
to the new standards.
The Obama administration prefers no specific capital standards,
hoping to have a freer hand to negotiate international standards
with the largest foreign economies.
Dodd is eager to keep the capital provision as close to the
original Senate bill because it was championed by Sen. Susan
Collins of Maine, one of only four Republicans to vote for the
final bill. With 60 votes needed in the Senate to overcome blocks
on contentious legislation, Dodd can't afford to lose any support.
Still in limbo was a derivatives provision that would force
banks to spin off all their derivatives business into subsidiaries.
The provision was inserted into the Senate bill by Sen. Blanche
Lincoln, D-Ark., with the support of consumer groups and labor
organizations. Her surprise primary election victory this month
strengthened her hand and won the backing of Dodd, who had
previously withheld his support.
But members of the House New York delegation were circulating a
letter Thursday among lawmakers opposing the Lincoln language.
"We are deeply concerned by the very real possibility that, as
a result of the Senate derivatives provision, America's largest
financial institutions will move their $600 trillion derivatives
businesses overseas, at the expense of both the U.S. economy, as
well as the economy of New York State and New York City," said the
letter from Democratic Reps. Michael McMahon and Gary Ackerman.
The letter follows a similar one to lawmakers from New York
Mayor Michael Bloomberg.
The Senate is not expected to take up the provision until next
week. Lincoln has vowed to fight for it, but has already clarified
that banks would have two years to transfer the business to
subsidiaries.
Thursday's House-Senate agreement also eliminated a Senate plan
that would require the president of the United States to appoint
and the Senate to approve the president of the New York Federal
Reserve Bank. The New York bank had been singled out because it
supervises the nation's biggest banks and because the New York
regional bank president has a permanent seat on the Fed's monetary
policy committee.
The Senate plan also would have prohibited bankers from serving
on the regional boards of directors.