Yesterday, Senate Majority Leader Harry Reid (D-NV) attempted to invoke cloture on Sen. Chris Dodd’s (D-CT) financial regulatory reform bill. However, due to the absence of Sen. Arlen Specter (D-PA), Sen. Scott Brown (R-MA) changing his vote, and Sens. Maria Cantwell (D-WA) and Russ Feingold (D-WI) refusing to end debate without consideration of provisions that would strengthen the bill, cloture was defeated 57-42, setting up another try today. (Sens. Susan Collins (R-ME) and Olympia Snowe (R-ME) voted in favor of cloture.)
One of the issues that Cantwell has with the bill is a loophole in the proposed derivatives regulations, first identified by Zach Carter, which allows derivatives traders to circumvent new regulations without penalty. One of the key parts of derivatives reform is the institutionalizing of central clearinghouses, which ensure that both parties have adequate collateral backing their trade. As Carter explained, “under the current bill, there is no penalty for anybody who fails to centrally clear their trades — even though the bill labels this activity illegal. What’s more, even though this behavior is illegal, the trade itself is still valid.”
Essentially, the law as written gives banks the choice of whether or not to follow the new rules, which is obviously problematic. Cantwell, along with Sen. Blanche Lincoln (D-AR), who authored the derivatives reform portion of the bill, have an amendment clarifying the language to remove this hole. But they can’t bring it up for a vote, fueling Cantwell’s opposition to the bill, because Republicans won’t let it come to the floor:
To underscore the Democrats’ point that Republicans were the ones blocking the bill, Mr. Dodd returned to the Senate floor asked for unanimous consent of the Senate to allow a vote on Ms. Cantwell’s derivatives amendment. Senator Richard C. Shelby of Alabama, the senior Republican on the banking committee, objected.
Ever since regulatory reform seemed inexorably headed for the finish line, Republicans have been objecting to consent to move any amendments that would strengthen the bill. They objected to Sens. Carl Levin (D-MI) and Jeff Merkley’s (D-OR) amendment institutionalizing the Volcker rule, as well as Sen. Byron Dorgan’s (D-ND) amendment banning naked credit default swaps.
Already, Brown has said that he will likely flip back and support cloture today, and Specter has returned to town, which should be enough to ensure a successful cloture vote. But the problem that Cantwell wants addressed is a key one and there’s no reason for Shelby to be standing in the way, unless he thinks the new laws that the Senate is considering should remain unenforceable.