Lawmakers to tackle toughest issues remaining on Wall Street reform

Lawmakers finalizing Wall Street overhaul legislation are set this
week to take up the hardest issues remaining in the 2,000-page bill.

The 43-member House-Senate conference committee last week worked
through some differences between the two chambers’ bills, but
lawmakers put off several of the toughest issues. They will focus
closely on new consumer protection regulations and new powers over the
$600 trillion market for financial derivatives.

{mosads}Four issues will headline the coming talks:

– “Interchange fees”: The conference is slated Tuesday to consider
whether the Federal Reserve should have the authority to set
“reasonable and proportional” fees paid by merchants and retailers to
banks and credit unions that issue debit cards. Senate Majority Whip
Dick Durbin (D-Ill.), the main backer of the provision, is pushing
hard to keep it in the final legislation. The House bill did not
include the provision. Small banks and credit unions are lobbying
aggressively against it, while merchants and retailers are pushing for
it to remain.

– Derivatives “push out”: Big banks are lobbying hardest on a
provision in the Senate bill that would require banks to push out
their derivatives trading desks. Senate Agriculture Committee
Chairwoman Blanche Lincoln (D-Ark.), the main champion of the
provision, sits on the conference committee and is loudly calling on
lawmakers to retain it. Federal regulators and banks argue it would
shift the multitrillion-dollar derivatives market to less regulated
firms.

A group of 43 centrist House Democrats called this week to remove the
provision. Members of the New York congressional delegation and New
York City Mayor Michael Bloomberg are also urging Congress to oppose
Lincoln’s effort.

Lincoln argues the provision would allow umbrella bank holding
companies to own derivatives desks, but only outside of their
traditional banking units. The aim is to prevent federal taxpayer
assistance to derivatives dealers.

– “Volcker rule”: Banks are also lobbying against a provision that
would ban proprietary trading at banks and limit their ability to
sponsor or co-invest with hedge funds and other alternative funds.
Democratic Sens. Carl Levin (Mich.) and Jeff Merkley (Ore.) want to
strengthen the rule by making it more explicit in the legislation.
They expressed confidence Thursday that lawmakers were generally
headed in their direction.

– Auto dealer exemption: Auto dealers have lobbied for more than a
year for an exemption from a new consumer financial protection
regulator. They won their case in the House in December, but the
Senate bill did not include the exemption. A group of 62 House
Democrats called on conferees to include the exemption. The carve-out
is opposed strongly by the White House, Defense Department and
Treasury Department.

The conference committee last week took up a few issues they were
unable to resolve fully. Among them:

– “Proxy access”: The Senate pushed to significantly alter a provision
granting shareholders stronger power to name directors on corporate
boards. The provision is a longtime goal of shareholders and
institutional investors. The Senate proposal limits proxy access to
shareholders who collectively own at least 5 percent of outstanding
shares. The threshold was in neither House nor Senate provision, and
sparked an outcry from investors groups.

The Council of Institutional Investors said the 5 percent ownership
requirement undermines the goal of the provision. The group is pushing
back hard on the last-minute change. The Business Roundtable and U.S.
Chamber of Commerce have lobbied against the proxy access provision.

– “Fiduciary duty”: The House and Senate are split on whether
broker-dealers and insurance agents should have the same fiduciary
duty to their clients as financial planners. The House bill extended
the fiduciary duty, while the Senate bill included a mandate for a
Securities and Exchange Commission (SEC) study on the issue.

– State insurance regulations: The House and Senate are divided on the
power of a new federal insurance office to negotiate international
insurance agreements and then pre-empt state regulations. The Senate
bill provides more scope for federal pre-emption, which is supported by
some large insurers. Consumer advocacy groups and insurers that
traditionally favor state-based insurance regulations favor the
narrower definition in the House bill.