Amendments piling up for Wall St. reform

Over the next two weeks, the Senate will consider possibly hundreds of amendments to the Wall Street overhaul package.

Whether the changes strike hundreds of pages from the bill or only a word or two here and there, the proposed amendments could dramatically alter financial regulation for years and are being aggressively lobbied by a variety of interests.

{mosads}Consumer advocates and financial lobbyists have turned all their attention to the Senate floor, after bipartisan negotiations conducted behind closed doors broke down on many of the most critical provisions.

Below is a look at some of the major areas of debate:

Concerns about big banks

A wide array of senators wants to cut down on the size of big banks and rein in their trading practices through a series of measures with populist appeal.

Sens. Sherrod Brown (D-Ohio) and Ted Kaufman (D-Del.) are leading an effort to statutorily limit the size of banks. The financial industry, Republicans and even some Democrats such as Sen. Mark Warner (Va.) say there is nothing inherent in the size of a bank that makes it a greater risk to the economy.

Sen. Byron Dorgan (D-N.D.) introduced a separate amendment Tuesday that would require the council of financial regulators to identify firms that are “too big to fail.” The council would require changes to those firms.

Meanwhile, Sens. Jeff Merkley (D-Ore.) and Carl Levin (D-Mich.) want to ban proprietary trading, which would fall heavily on Wall Street banks. Sens. John McCain (R-Ariz.) and Maria Cantwell (D-Wash.) have talked of an amendment to impose provisions similar to the 1933 Glass-Steagall Act that set up a wall between commercial and investment banking.

Derivatives

The highest-profile debate in the bill has turned on whether Congress should require banks to “spin off” their derivatives desks.

The provision was a latecomer to the bill when Senate Agriculture Committee Chairwoman Blanche Lincoln (D-Ark.) first offered it in April. Ever since, banks have lobbied heavily against the measure.

The Federal Deposit Insurance Corporation raised concerns about the provision shifting derivatives trading into less regulated markets. Industry sources and consumer advocates say they expect to see changes in the measure, but no senator has offered a way forward on the thorny issue.

Meanwhile, energy groups and others continue to push for a broader exemption for “end users” of derivatives.

Consumer protections

The financial industry and lawmakers are clashing on the specifics of a new office to oversee consumer financial protection. Sen. Jack Reed (D-R.I.) will offer an amendment making the consumer office completely standalone, instead of housing it at the Federal Reserve.

A yearlong debate has raged over the creation of the new office, but a great deal of the attention on the Senate floor will turn to the details of the office, including its power to set and enforce rules.

The financial industry, White House and lawmakers are fighting over whether the federal government should have power to pre-empt regulations in states.

{mosads}The issue has been a long-running battle, with consumer advocates, the White House and many Democrats in favor of allowing state officials to go beyond federal regulations. The financial industry and some Democrats and Republicans say that without federal pre-emption, there will be a patchwork quilt of state regulations that could restrict credit for borrowers.

Meanwhile, Sen. Kay Hagan (D-N.C.) is looking to restrict payday lenders and Sen. Sam Brownback (R-Kan.) is leading an effort to exempt auto dealers from the consumer regulator’s power.

Hedge funds, broker-dealers

After federal regulators charged Goldman Sachs with defrauding investors, senators looked more closely at new restrictions on firms when they give investment advice.

Sens. Robert Menendez (D-N.J.) and Daniel Akaka (D-Hawaii) want to require that broker-dealers have a fiduciary duty to act in the best interest of their clients when they give advice.

Reed plans to introduce an amendment requiring hedge funds, private equity companies and other investment funds with at least $30 million to register as investment advisers with the Securities and Exchange Commission. The amendment is strongly backed by consumer advocates and labor unions.

Single-issue

Senate Majority Whip Dick Durbin (D-Ill.) is planning to introduce three amendments clamping down on interchange fees between credit card issuers and retailers, merchants and others. Many merchant groups support the changes, while banks and credit unions are overwhelmingly opposed.

Sen. Bernie Sanders (I-Vt.) will offer a closely watched amendment to allow for more government audits of the Federal Reserve. The legislation is similar to a measure backed by Rep. Ron Paul (R-Texas) and that passed the House in December.

The Federal Reserve strongly opposes the legislation, arguing that additional audits would compromise the private market’s confidence in the bank’s ability to set monetary policy free of political meddling.