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Legislative Updates: July 2010


Capitol Call

During the televised Conference Committee on the financial regulatory reform legislation, which began on June 10, Senate Banking Chairman Chris Dodd (D-CT) quipped that the debate was getting so dry and technical that "I think even C-SPAN turned us off." Those watching may have agreed.

For the most part the Conference was a battle of attrition between those who wanted to amend the bill and those who wanted it kept as-is. The House and Senate exchanged formal offers, rejected each other's offers, and then counter-offered so often that even the Conferees had difficulty keeping up with who was offering what to whom. As the hours wore on during the six days of debate, the 31 House and 12 Senate Conferees struggled through the legislation, finally compromising on certain issues and becoming more flexible on what they could accept from the other body.

The controversial pieces of the legislation were, of course, saved for the end. It was after midnight on Thursday, following a battle of wills, that House Agriculture Chairman Collin Peterson (D-Minnesota) offered a compromise on Section 716, the very contentious section that would have banned most financial entities, including clearinghouses, from accessing the Federal Reserve discount window. Discussion on this section had started at 9 AM, and it took that long to convince Senator Blanche Lincoln (D-Arkansas), who had fought to include her tough (some would say damaging) language in the bill, to accept a compromise.

Debate continued, however, until just after sunrise on Friday morning, June 25, when the Conference Report was agreed to on a party-line vote, with no Republicans voting to approve it. It was an impressive sight to see the Conferees, some of whom are in their 60s, put in a 20-hour workday while putting their staffers through their paces in a race to finish up the Conference Report by the end of the month. The fact that no Republicans voted for the Conference Report was not surprising. Even though they actively participated in the amendment process, they had serious concerns that efforts to reform Fannie Mae and Freddie Mac, which many see as a major cause of the 2008 economic crisis, were not included in the legislation.

The measure includes several provisions of importance to OCC and options exchanges, including language on portfolio margining, swaps collateral, changes to SIPA and a mechanism to develop a system for the SEC and CFTC to follow when determining which agency has jurisdiction over a proposed derivative product. Title VIII of the Conference Report would give the Federal Reserve the authority to grant clearinghouses access to the Discount Window during an "emergency". The legislation also includes a study on secured creditor haircuts, which is much preferable to the House version, which would have required a substantial secured creditor haircut that could have negatively affected OCC and its member exchanges.

The House passed the Conference Report, which is not subject to amendment by either body, on June 30 by a vote of 237-192. This was a 14-vote wider margin than the original bill passed last December. The Senate then took up the Conference Report and, after two days of debate, passed it on July 15 by a vote of 60-39. Three Republicans voted for the bill and one Democrat, Russ Feingold (D-WI), voted against it because he felt that it didn't go far enough. President Obama signed the measure into law on July 21.

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