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Legislative Updates: June 2011


Capitol Call

May is generally a pleasant month in Washington. The hordes of tourists who turn up for the cherry blossoms depart, the weather is usually tolerable, and with election days still far off partisan fights are uncommon.

This May, however, ended with a record-breaking heat wave and passionate partisan battles in both houses of Congress. The Senate couldn't agree on any of the four different budget blueprint alternatives, which set off sniping between the parties over spending priorities that is normally reserved for election years.

The House, meanwhile, voted against raising the federal debt limit. This sets the stage for a fierce summer-long battle between the House-led Republicans and the Senate-led Democrats over which spending reductions and policy changes must be included in any legislation that will prevent our government from defaulting on its debt obligations.

The partisan disagreements made their way to the committee rooms as well, with the mark-up of H.R. 1573, a bill that would delay implementation of most of Title VII, the derivatives section of Dodd-Frank, until late 2012.

The majority Republicans on both the House Financial Services and Agriculture Committees argued that the rush to implement the Dodd-Frank rules is jeopardizing the rules themselves. Their impetus for the bill is the agencies' need for time to properly implement the rules. The sheer volume of the rules has made it difficult for stakeholders to participate.

Democrats argue that Congress gave the agencies a mandate to reform Wall Street and that the timeline under Dodd-Frank is appropriate. They believe that the agencies are working diligently toward meeting their Congressional mandate and that they should not be required to delay implementing any rules until late 2012, which they contend would occur under H.R. 1573.

As mentioned in last month's update, the House Agriculture Committee marked up H.R. 1573 by a straight party-line vote. Later in the month, the House Financial Services Committee followed suit, marking up a slightly modified version of the bill, also by a straight party-line vote. The two versions of the measure will have to be reconciled by the House Rules Committee prior to consideration by the full House, which is expected to occur within the next few weeks. The measure is expected to pass the House, but its future after that is much more uncertain. Since H.R. 1573 ended up being a partisan issue, action by the Democratic-controlled Senate Banking Committee is highly unlikely. Senate Banking Committee Chairman Tim Johnson (D-South Dakota) has not shown any interest in the measure and seems to have other priorities.

Chairman Johnson and Securities Subcommittee Chairman Jack Reed (D-Rhode Island), tipped their hands on a few of the Committee's priorities last month, holding oversight hearings on, among other topics, the Financial Stability Oversight Council and derivatives clearinghouses. The clearinghouse hearing, held by Securities Subcommittee Chairman Reed, focused mostly on the now-familiar topics of whether clearing will benefit end-users, conflicts of interest in corporate governance and membership standards for clearinghouses.

In regulatory news, the CFTC in May took the unusual step of re-opening the comment periods on many proposed Dodd-Frank implementation rules. The Commission also requested comment on the order in which it should consider final rulemakings made under Dodd-Frank. The purpose of re-opening the comment period was "to provide the public with an additional opportunity to comment on the proposed new regulatory framework for swaps, either in part or as a whole." The Commission was also seeking information and comments on the costs and benefits of the proposed rules.

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