WASHINGTON — Senators will face a crucial test vote today that could clear the way for debate on far-reaching legislation to overhaul the nation’s financial regulatory system — or end in a partisan standoff.
Elsewhere on Capitol Hill, lawmakers will be preparing to condemn the alleged sins of Wall Street’s past and also will be wrestling over how to prevent such excesses. Top executives from Goldman Sachs, beset by charges that the bank misled clients, will face questions Tuesday about how the firm profited from betting against the U.S. housing market.
Senate Republicans said Sunday they plan to block efforts to move forward with an overhaul bill unless Democrats alter central elements of the legislation. Meanwhile, Democrats and Obama administration officials spent much of the day finalizing strict new rules to rein in the huge derivatives trade.
Despite optimism on both sides that a bipartisan compromise will emerge, the lack of a deal has increased chances of at least a temporary showdown between the parties.
Democrats need support from at least one Republican to reach the 60 votes required to overcome a filibuster and proceed with formal debate on the bill. Republicans angling for changes do not appear ready to relinquish that bargaining chip.
“It’s my expectation that we will not go forward with this partisan bill tomorrow,” Senate Minority Leader Mitch McConnell, R-Ky., said on “Fox News Sunday.” “It’s not ready yet.”
The lead GOP negotiator on the bill carried that same message to NBC’s “Meet the Press.”
“I think that nothing happens between now and tomorrow, that the Democrats will not get cloture,” Sen. Richard Shelby, R-Ala., said alongside Sen. Chris Dodd, D-Conn., chairman of the banking committee.
Prospects are promising
Republican and Democratic aides said they expect the vote today to fail unless at least one GOP senator supports the measure. Not that either side would mind: Dems could say the GOP is standing in the way of reform, and Republicans could say the flaws in Dodd’s bill would cause the economy more harm than good.
Still, the measure’s long-term prospects seem promising. Aides on both sides said they expect it to remain in limbo until Shelby and Dodd strike a deal or end talks. Senate Majority Leader Harry Reid, D-Nev., could then move to revive the bill, possibly within days, although negotiations could extend longer.
Dodd’s bill would, among other things, create a bureau housed within the Federal Reserve to protect consumers against abuses in mortgages and other loans. It also would set up a council of regulators to monitor for risks to the financial system, establish oversight of the vast derivatives market and give the government power to wind down large, troubled financial firms.
Republicans have recently focused most of their criticism on a proposed $50 billion “resolution fund” that would help cover the costs of dealing with a major financial firm’s failure. The financial industry would pay for the fund, but Republicans argue that it would allow regulators to treat creditors of failing firms unevenly and could allow for bailouts.
The two parties must find common ground over the “Volcker rule,” which would ban Wall Street banks from engaging in certain investment activities, such as owning hedge funds. They also have lingering disagreements about the details of the proposed consumer regulator.
Republicans also have objected to measures that would roll back the doctrine of pre-emption, which allows big banks to answer solely to federal regulators. Dodd and the Obama administration want states to have the authority, arguing that preemption has prevented state regulators from quelling obvious abuses.
The Senate banking and agricultural committees have passed legislation that would impose new rules on the market for financial derivatives — contracts that allow financial traders to bet on the direction of stocks, commodities and other assets.
Staff members of both committees worked with administration officials through the weekend to harmonize the two bills, and people familiar with the talks said the larger overhaul package would include most provisions put forth by the agriculture committee and its chairman, Sen. Blanche Lincoln, D-Ark.
“Basically, it will be the base language” for derivatives oversight in Dodd’s bill, a source familiar with the negotiations said Sunday, adding that the legislation would include “the majority” of the provisions passed by the agriculture committee.
That is significant because Lincoln’s bill could dramatically reshape several critical markets and deprive large financial firms of revenue from derivatives. Democrats view the effort to bring transparency and accountability to the $600 trillion derivatives market as an area in which they might gain Republican votes for the overall legislation.
