Early this morning, the conference committee reconciling the House and Senate versions of financial regulatory reform approved final language for the legislation after a marathon 20 hour negotiating session. The House conferees approved the reconciled legislation on a 20-11 vote and the Senate approved it 7-5. Both votes were party line. The bill now moves to one more vote in each chamber next week, where it can’t be amended further.
A flurry of changes were made to the legislation last night, including the addition of an exemption to the Volcker rule — a ban on banks trading for their own benefit with federally insured dollars — and a weakening of Sen. Blanche Lincoln’s (D-AR) provision requiring banks to spin-off their derivatives trading desks. However, the final bill seems to have retained Lincoln’s language requiring exchanges and clearinghouses for derivatives, as well as a provision from Sen. Susan Collins (R-ME) that compels banks to hold more capital against losses.
Below is a comparison of the House and Senate versions of the bill, as well as what ultimately ended up in the conference report. This is by no means an exhaustive comparison, but hits the major portions of the bill:
|Provision||Senate Bill||House Bill||Reconciled Bill|
|Derivatives Exchanges and Clearing||Forced almost all derivatives trading onto exchanges and through clearinghouses, with narrow exemptions for non-financial end users.||Forced derivatives trading onto exchanges and through clearinghouses, but with wide exemptions for end-users, including financial companies.||Senate version|
|Derivatives Spin-Off||Forced banks to spin-off their derivatives trading desks into a separately capitalized entity.||Did not include a spin-off provision.||Forces banks to spin-off some derivatives trading activity (commodities, energy, metals, agriculture, equities and below-investment-grade credit default swaps) but keep trading related to interest rate swaps, foreign exchange swaps, credit, gold and silver, investment-grade credit default swaps and “any transaction used to hedge risk.”|
|Volcker Rule||Directed regulators to study and then implement a ban on proprietary trading.||Allowed regulators to ban proprietary trading at systemically risky firms.||Implements a stronger ban proposed by Sens. Carl Levin (D-MI) and Jeff Merkley (D-OR), but with an exemption sought by Sen. Scott Brown (R-MA) that allows banks to invest up to three percent of their Tier 1 capital in risky hedge funds and private equity firms.|
|Consumer Protection Agency||Included a Consumer Financial Protection Bureau, housed within the Federal Reserve, with an independent director and rule-writing authority. It could be overruled by a majority vote of the Financial Stability Oversight Council, which is composed of bank regulators.||Included a stand-alone Consumer Financial Protection Agency with an independent director and rule-writing authority.||Senate version|
|Auto Dealer Exemption||Did not exempt auto dealers from oversight by the new consumer regulator, but the Senate did pass a “motion to instruct” encouraging conferees to approve the House language.||Exempted auto dealers from oversight by the new consumer regulator.||House version|
|Resolution Fund||Included resolution authority funded by an after-the-fact assessment on large financial institutions. Any extra money needed to unwind a firm can be fronted by the Treasury Departent.||Included resolution authority pre-funded by an assessment on institutions with more than $10 billion assets. The fund could grow no larger than $150 billion.||Senate version|
“This is going to be a very strong bill, and stronger than almost everybody predicted that it could be and that I, frankly, thought it would be,” said House Financial Services Chairman Barney Frank (D-MA). The legislation was renamed the Dodd-Frank bill after Frank and Senate Banking Committee Chairman Chris Dodd (D-CT).