Last year's Dodd-Frank financial reform bill didn't directly fix the too-big-to-fail problem that necessitated the 2008 bailouts. Instead, it allowed the big banks to grow even bigger, but gave regulators new authority to require the big banks to report more information to the government and force them to follow stricter rules. It also gave regulators new guidelines to consider when deciding whether or not to allow bank mergers that could create new too-big-to-fail entities. Basically, the bill took a noncommittal approach to addressing issues of bank size and interconnectedness. Congress punted the big decisions off to regulators and made it possible for regulators to take drastic action, but gave them a lot of leeway to maintain the status quo if they so choose.
These provisions of the bill are about to get their first test. Capital One, currently the ninth largest bank-holding company in the U.S., has reached an agreement with the Ducth ING Groep to purchase their U.S. arm, ING Direct. They are planning to then turn around and leverage assets gained in that deal to purchase HSBC's subprime credit card division. The acquisitions would make Capital One the fifth largest bank in the U.S., right behind such infamous too-big-to-fail giants as Bank of America, Chase, Citigroup, and Wells Fargo. It would mean that financial assets and power in the U.S. would become even more concentrated in a small group of top corporations.Read Full Article
Back in 2009, one of the first things Congress did to actually start dealing with the causes of the economic crisis was to give the Justice Department more power to detect and prosecute fraud in the financial markets. As part of that bill, the "Fraud Enforcement and Recovery Act," they created a bipartisan commission "to examine the causes, domestic and global, of the current financial and economic crisis in the United States" and laid out 22 specific areas of financial activity for them to investigate. Today, more than 20 months after the bill was signed into law, the commission has released their report.Read Full Article
Incoming Financial Services Chairman Rep. Spencer Bachus [R, AL-6] is using the leverage he gained Tuesday night to try to weaken how regulators implement the already-weak derivatives reform provisions in the Dodd-Frank Act.Read Full Article
UPDATE: The bill has officially been passed. It now gets sent to President Obama, who is expected to sign it into law this afternoon. Original post below...
As expected, the Senate this afternoon voted 60-38 to end debate on the landmark Dodd-Frank Wall Street Reform and Consumer Protections Act. The vote on final passage of the bill, whiconly requires a simply majority of 51 "ayes," is expected later this afternoon.
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Included among the financial reforms that may soon become law is an attempt to restrict the Fed's ability to bail out failing companies by changing a small but important paragraph in the Federal Reserve Act: section 13.3. 13.3 gives the Federal Reserve significant latitude in making emergency loans and is, for instance, what made possible the $29 billion loan to JPMorgan Chase in 2008. The financial reform bills passed by the House and Senate both include a number of additions and modifications to the paragraph, and whatever bill is eventually signed would likely significantly reduce the freedom of the Board to make such loans.Read Full Article
If you think the Senate has a pro-Wall Street tilt right now, just wait until the current Majority Leader is defeated and the next in line takes over. The Washington Post is running a piece today on the many reasons why the Senate's current number-three Democrat, Sen. Chuck Schumer [D, NY], is the most likely candidate for the position after/if current Majority Leader Harry Reid [D, NV] is defeated in the November mid-terms, not the progressive number-two, Sen. Dick Durbin [D, IL].Read Full Article
The Senate last night voted on a financial reform amendment that, although probably never having a real shot at passing, gives us a unique chance to see in the stark relief the divisions in both parties on truly reining in the "too big to fail" banks.
The amendment, a version of the SAFE Banking Act sponsored by Sens. Sherrod Brown [D, OH] and Ted Kaufman [D, DE], would have placed strict size caps on banks and non-bank financial companies. In practical terms, it would have forced the breaking up of some of the Wall Street corporations. Instead of consolidating like they have been doing for the past 20 years, banks like Bank of America and Chase would have been forced to sell some of their branches off to smaller regional banks over a period of three years.Read Full Article
Remember last week when Senate Republicans filibustered beginning debate of the financial reform bill three times in three days over objections to a liquidation fund that they said would be used in the future for bailouts? Well, the fund was officially removed on Wednesday by a an overwhelming vote of 93-5. That makes everyone happy -- the Republicans who called it a bailout, the banks who didn't want to pay into it, and the Democrats who didn't really care much about it and would rather have Republican cooperation.Read Full Article
The first amendment the Senate will vote on tomorrow when they start voting on amendments to the financial reform bill will be one from Sen. Barbara Boxer [D, CA] that seeks to ensure that the government will liquidate failing financial firms rather than bailing them out with taxpayer money. If any amendment is going to get wide bipartisan support, it will be this one.Read Full Article
If the pre-funded "orderly liquidation fund" is dropped, the financial reform bill will increase the deficit, not reduce it. According to This morning's Congress Daily ($), Banking Committee Chairman Sen. Christopher Dodd [D, CT] and Ranking Member Sen. Richard Shelby [R, AL] are close to an agreement on dropping the fund, which Republicans have been attacking as a "sluch fund" that "guarantees" future bailouts. In reality, the fund would be used to pay for liquidating (a.k.a. killing) failing mega-banks, not bailing them out.Read Full Article
The Republicans' claims that the $50 billion "orderly liquidation fund" in the Restoring American Financial Security Act would "guarantee bailouts" have been pretty thoroughly debunked at this point, but I'm reading through the comments on the OpenCongress bill page and there still seems to be some confusion. For example, the highest rated comment right now is an attempt to fight back against the Republican bailout claim, but it still gets it a little wrong. "My understanding is there is a fund, funded by the banks themselves to bailout the large banks. So it doesn't impact taxes and it just means they have to bail themselves out not the government," the commenter writes.
That's not quite right. There is a fund in the bill (the "orderly liquidation fund") that would be funded by the big banks in order to keep taxpayers from being on the hook if they fail, but the fund would be used to put failing banks to death, not to bail them out. With bailouts, banks get rescued by the government and survive. Under this bill, failing banks would be executed by the government. The orderly liquidation fund would provide the working capitol the F.D.I.C. would need to carry out the complicated process of winding down big, failing banks.Read Full Article
Sen. Bernie Sanders [I, VT] yesterday forced a vote on an amendment on breaking up the big banks in the Budget Committee mark-up of the 2011 budget resolution. The amendment didn't pass, but it came closer than I think even Sanders expected. It was rejected on a 12-10, bipartisan vote, which Sanders in a press release called "a strong signal of the growing momentum behind proposals to dismantle financial institutions that dominate the U.S. economy."Read Full Article
There has been an ongoing partisan spat in the Senate recently over whether or not the financial reform bill as prepared by Sen. Chris Dodd [D, CT] would actually end bailouts. Politifact has shown that Minority Leader Sen. Mitch McConnell's [R, KY] statement that the bill "actually guarantees future bailouts of Wall Street banks" is false, but there is more ambiguity over whether the resolution authority provision in the bill is actually strong enough to guarantee that there will never again be bailouts of too-big-to-fail banks.
Sens. Sherrod Brown [D, OH], Ted Kaufman [D, DE], Bob Casey [D, PA] and Sen. Sheldon Whitehouse [D, RI] today announced that they are proposing legislation that I think everyone can agree would end once and for all the problem of having to bailout failing banks that are too big to fail.Read Full Article
The Democrats really do seem to have a new fire behind them as they are starting to take up financial reform. Yesterday, we heard that Sen. Blanche Lincoln [D, AR] of all people would be leading the Democrats on a tough derivatives reform bill. Today, Banking Committee Chairman Sen. Chris Dodd [D, CT] took to the Senate floor and unhesitatingly fought back at Minority Leader Sen. Mitch McConnell's [R, KY] false claims that the financial reform bill would lead to endless bank bailouts. Here's the video:Read Full Article