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June 29, 2010 Tuesday 7:29 PM EST
SECTION: NEWS & COMMENTARY; Economy and Politics
LENGTH: 639 words
HEADLINE: Finance reform bill amended to change funding
BYLINE: Rex Nutting, MarketWatch mailto:email@example.com.
Rex Nutting is Washington bureau chief of MarketWatch.
WASHINGTON (MarketWatch) — The sweeping Dodd-Frank bank reform bill was amended Tuesday by a joint House-Senate conference committee to change the way the bill is funded, in order to address the objections of several key Republican senators.
Under the proposal by Connecticut Sen. Chris Dodd, the projected $19 billion cost of re-regulating the financial system and paying for the possible liquidation of a large bank would be paid with unspent funds in the Troubled Asset Relief Program and by an extra premium charged to large banks by the Federal Deposit Insurance Corp.
The amended bill will now go House and Senate for their approval. Democratic congressional leaders hope the bill can be passed this week.
Republicans on the conference committee denounced the new funding method as “fraudulent,” “smoke and mirrors” and an “affront to the American people.” They said the TARP funds are obligated to deficit reduction, and the FDIC funds are obligated to pay depositors of failed banks.
“How do you spend the money twice?” asked Sen. Judd Gregg, a New Hampshire Republican.
The sweeping bill would impose new regulations and restrictions on the U.S. financial system in an attempt to avoid or mitigate the impact of another financial panic. It would create a new council to look for systemic risks, and establish an agency to protect consumers from predatory lenders. It would also create a method to liquidate a large financial company if its sudden demise would threaten the economy, and would regulate the trading of financial derivatives.
The emergency session of the conference committee was called after key Republican support for the bill was lost over how the costs would be paid. Initially, the bill would have required a special assessment on about 100 large companies to fund the $19 billion needed.
In a letter to the Democratic leaders of the banking committees, Republican Sen. Scott Brown of Massachusetts said he could no longer support the bill if it included the bank tax. Two other key Republican senators also questioned the tax.
“I am asking that the conference committee find a way to offset the cost of the bill by cutting unnecessary federal spending,” Brown wrote to Dodd and Rep. Barney Frank. “This tax will be paid by consumers who will have to pay higher fees and the small businesses that won’t get the funding they need to invest and create jobs.”
Proponents of the bank tax said the biggest and most complex companies should pay for any spending caused by their risk-taking. Smaller banks are already insured by the FDIC.
Brown voted in favor of the bill originally. Two other crucial Republicans who voted for the original bill — Maine Sens. Susan Collins and Olympia Snowe — also balked at the big-bank tax.
Iowa Republican Sen. Charles Grassley also voted in favor of the bill last month.
Democratic leaders are scrambling to maintain the 60 votes they’d need to pass the bill. Two Democrats — Sens. Russ Feingold of Wisconsin and Maria Cantwell of Washington — voted against the bill originally, saying it didn’t do enough to regulate risky behavior at the banks. Neither Feingold nor Cantwell have changed their mind.
The death of West Virginia Democratic Sen. Robert Byrd further complicates the math for the Democrats. Democratic Gov. Joe Manchin has not said when he’ll appoint Byrd’s successor.
With the vacancy in West Virginia, the Democrats now have 56 senators, plus two independents who usually vote with them. With the defection of Feingold and Cantwell, the Democrats would need four Republicans to back the bill. Senate rules require 60 affirmative votes to end debate on most bills.
The House was tentatively scheduled to vote on the compromise bill on Wednesday.
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