Laying Out Some Key Differences Between The House And Senate Financial Reform Bills

Last night, the Senate approved Sen. Chris Dodd’s (D-CT) financial regulatory reform bill by a vote of 59-39. Four Republicans — Sens. Charles Grassley (R-IA), Susan Collins (R-ME), Olympia Snowe (R-ME) and Scott Brown (R-MA) — voted in favor of the legislation, while two Democrats — Sens. Maria Cantwell (D-WA) and Russ Feingold (D-WI) — voted against it. Sens. Arlen Specter (D-PA) and Robert Byrd (D-WV) did not vote.

Next, the bill moves to a conference committee, where it will be merged with the bill passed by the House of Representatives last December. Already, lobbyists for the financial services industry have their eye on the conference, hoping to weaken various provisions of the legislation. “We are going to have to try and clean up as much of this as we can,” said Ed Yingling, the American Bankers Association’s president.

Due to the fairly open amendment process on the Senate floor, and the considerably different point from which Dodd’s bill started, there are several key differences between the two pieces of legislation that will have to be ironed out in conference. This is by no means an exhaustive list, but here are some of the major ways in which the bills differ:

Provision Senate House
Consumer Protection Agency Creates a Bureau of Consumer Financial Protection, placed inside the Federal Reserve, with an independent director and budget. Its rules could be vetoed by a two-thirds vote of a council of bank regulators. Creates a new Consumer Financial Protection Agency (CFPA), with an independent director and budget. The CFPA has full rule-writing authority.
Derivatives Mandates exchange trading and clearing for most derivatives, with a limited end-user exemption. Forces federally insured banks to spin-off their swaps desks. Mandates exchange trading and clearing for most derivatives, with wide exemptions for end-users.
Volcker Rule Gives regulators discretion regarding whether to implement the Volcker rule, which is a ban on proprietary trading. Does not include a proprietary trading ban.
Auto Dealer Exemption Does not currently include a provision exempting auto dealers from new consumer protection rules. However, the Senate on Monday will vote on whether or not it wants to recommend to the conferees that such an exemption be added. Includes an exemption for auto dealers from the CFPA’s rules.
Resolution Fund The resolution authority for unwinding systemically risky financial institutions will be funded by an after-the-fact levy on the biggest financial firms. Any money necessary for the unwinding will be fronted by the Treasury Department. Raises a $150 billion resolution fund from the biggest financial firms, which would be tapped in order to unwind a failed institution.

There are plenty of smaller differences between the bills, including the way in which they address capital requirements, preemption of state consumer protection laws (the Senate allows more preemption leeway), and cracking down on interchange fees (which the Senate bill does, but the House does not). House Financial Services Chairman Barney Frank (D-MA) said today that he expects the bills to be fully reconciled and passed by the Fourth of July. “I’ve cleared my calendar for the month of June to get this done,” said Frank.