Last week, an amendment to Sen. Chris Dodd’s (D-CT) financial regulatory reform bill proposed by Sen. Susan Collins (R-ME) was quietly adopted by unanimous consent. It’s safe to say that the amendment has gotten nowhere near the amount of attention heaped upon more high-profile amendments, like Sen. Sam Brownback’s (R-KS) auto dealer exemption or Sen. Carl Levin (D-MI) and Jeff Merkley’s (D-OR) proposal to institutionalize the Volcker rule.

The main goal of the amendment is ensuring that bigger banks with riskier profiles are subjected to higher capital requirements (meaning they have to hold more capital on hand, to cover themselves in the event that their risky activities don’t pay off). While it doesn’t set absolute standards, it does set a floor for regulators to work from. However, both the Treasury Department and the Federal Reserve have been working behind the scenes to get the amendment tossed aside:

Officials from the Treasury Department, Federal Reserve and Wall Street are working to kill an amendment to the Senate’s financial regulations bill that was adopted unanimously last week and that could force big U.S. banks to hold billions of dollars in additional capital. This could also potentially complicate international negotiations on banking rules. The amendment, written by Sen. Susan Collins (R,. Maine) with backing from Federal Deposit Insurance Corp. Chairman Sheila Bair, would force banks with more than $250 billion in assets to meet higher capital requirements.

In the run-up to the financial crisis, one of the big problems was that systemically risky financial firms were very overleveraged, with nowhere near enough capital on hand to cover their losses if they went bust. While not directly laying out new capital requirements, Collins’ amendment sets a minimum, ensuring that there is some statutory requirement that regulators can’t be talked into dismissing.

As Kevin Drum put it, “there’s no way to get around the fact that regulators need a fair amount of discretion no matter what kind of rules you set up…But we can set reasonable floors, and when both Treasury and the banks are fighting those floors tooth and nail it doesn’t bode well for how seriously they take this stuff.” Mike Konczal explained further:

No more capital loopholes! No more playing BS games where a firm creates a trust and does financial engineering alchemy to pretend that debt is equity. Serious, quality capital is required for our largest and most systemically risky banks. This is probably the real fight. When it comes to increasing capital under the Dodd Bill you can practically hear the banks say: “Yes we’ll hold more capital as long as massive amount of risky debt turned into ‘safe’ equity through the shenanigans of our financial engineers can count as that capital.” Do we need to do that all over again?

Ensuring that banks have enough capital on-hand to weather the bad times, and to incentivize them to take fewer risks, is a key part of creating a safer, stabler financial system. Collins’ amendment gets right to the heart of the matter and should be preserved.

Earlier this month, Gov. Tim Pawlenty (R-MN) vetoed a tax increase on the wealthiest Minnesotans that had been passed by the state legislature, preferring to push thorough a budget that was balanced only due to accounting gimmicks and significant cuts to education and health service programs. On the same day, Gov. Mark Sanford (R-SC) vetoed a bill raising the state’s lowest-in-the-nation cigarette tax. (Fortunately, the state senate overrode his veto.)

These two governors, even when their states were staring at deficits in the wake of the Great Recession, refused to accept common sense tax increases that would at least mitigate the debilitating effects of budget cuts. And today, they have a new member of their team — Gov. Chris Christie (R-NJ), who has promised to veto the state legislature’s attempt to implement a new tax bracket for those making more than $1 million. The legislature plans to approve the increase today.

New Jersey is facing a $10.7 billion budget deficit, and has the second highest average personal income in the country, yet Christie derided the tax as a “cute idea” that “doesn’t work.” For a household making $1.2 million annually, the tax would amount to an additional $11,598, according to projections from the the state’s nonpartisan Office of Legislative Services.

That’s not an insignificant amount of money, by any stretch, but raising taxes on the wealthy is one of the only options for states facing huge budget holes, and it’s better than slashing social services and education funding to bits. As the Center on Budget Policy and Priorities pointed out, tax increases on the very wealthy “can yield a significant amount of money from small rate increases that involve a relatively low number of taxpayers — those that are best able to afford the cost”:

This is because wealth in the United States has become concentrated among the nation’s richest households to an extent not seen since the late 1920s…If every state with an income tax increased its rates by 1 percentage point on incomes above $500,000, it would raise about $8 billion nationwide — funds that could be used as an alternative to some of the deep cuts in education, health care, and other important services being made in many states and considered in others.

Since 2008, 18 states have increased income taxes on their wealthiest residents, including New York, North Carolina, Oregon, and Connecticut. Proponents of an income tax increase in Washington state are currently gathering signatures, hoping to put the issue on the ballot in November.

“Progressive taxation is a state’s most effective antirecessionary tool. It gets money moving through the economy again, jump-starting the economic recovery that is the principal engine of state fiscal health,” explained Karen Kraut, director of the Tax Fairness Organizing Collaborative. But Christie and Pawlenty prefer to push the brunt of the recession onto their state’s most vulnerable residents.

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.