The much-awaited debate on the finance bill, which proposes a sweeping regulatory overhaul of Wall Street, has begun after being voted down by the Republican Party, which strongly opposed certain provisions of the bill.
The two parties reached a compromise after Republican leader in the Senate, Mitch McConnell, agreed to begin the debate. Republicans will, however, continue to ratchet up pressure on Democrats and try their best to incorporate as many GOP amendments in the bill as they can. The Democrats have agreed to rewrite certain parts of the bill but they will proceed cautiously as Republicans have the power to filibuster amendments as well as the final vote on the bill.
Democrats have agreed to incorporate a change demanded by Republicans to remove the $50 billion liquidation fund that will be offered to prop up collapsing financial institutions. Democrats have also decided to remove exemptions for certain end-users of derivatives, including farmers, dairy producers and companies that use derivatives as an essential part of their business and are unlikely to indulge in manipulations and high-risk speculation.
In the past week, two provisions in the bill have been criticized by the Republicans. The first is the bill’s provision on derivatives, which requires financial institutions dealing in derivatives to set aside large sums of money as collateral to minimize their customers’ risks and protect their investments.
The second provision that Republicans are critical of is the consumer protection proposal, calling for the creation of a regulatory body called the Consumer Financial Protection Bureau which will have regulatory control over financial institutions and ensure transparency and accountability.
The Republicans have proposed that the consumer protection bureau must consist of the chairman of the FDIC, the comptroller of the currency and three “independent consumer protection experts”. The Democratic proposal would create such an agency within the Fed, but with the President appointing a director.
There are a few other disagreements about the bill between the two parties. The Republicans have said that home mortgages must have a minimum underwriting, while Democrats feel that the issue of underwriting can be taken care of by regulators. Republicans have also asked the Obama administration to discontinue cash flow to Fannie Mae and Freddy Mac, which have been taken over by the government. Democrats, however, have made no mention of Fannie Mae and Freddy Mac in the bill.