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Ten months to go before the next congressional elections. That’s plenty of time for passage of sweeping financial reforms, isn’t it?
Much has already been done on the package of financial-system changes first proposed by the Obama administration. In fact, a version of the package has already passed as a multiheaded legislative hydra in the House of Representatives. But as seen with health care reform in the Senate, progress is in the eye of the beholder. And as it was in 2009, the Senate will be the arbiter of priorities for federal lawmaking in 2010.
The financial reforms — including the establishment of a federal insurance office, systemic risk regulator, consumer protection agency and new derivatives regulations — are still in negotiation among senators in the Banking, Housing and Urban Affairs Committee. The reforms could represent some of the greatest changes to federal regulation of insurance in generations. Though many insurer trade groups had come out in favor of the House’s version of one of their most significant issues — the insurance office — there remains some trepidation about the more authoritative Senate version. Some in the insurance sector fear it could be a first step toward undermining the state-based regulatory system and set a foundation for an optional federal charter. And the insurers also fear the Senate may include their business under the authority of the consumer protection agency, unlike the House’s version.
As the senators scattered for their year-end holiday, the committee staff sent out a brief progress report, peppered with positive notes but without solid answers. “These talks have been extremely productive, with members providing great insight and demonstrating a desire to get this done and get this done right,” said the joint statement of Chairman Chris Dodd, D-Conn., and ranking Republican Richard Shelby, R-Ala.
Bipartisan duos have been formed to work through some of the stickier issues. And the leaders agree on some broad strokes: ending “too big to fail,” enhancing the government’s ability to resolve failing companies, more consumer protections and preservation of the dual-banking system — among other points.
The note, which talked about “meaningful progress,” also suggested members are working at it during the break. “We hope to resolve the remaining issues before we reconvene in January.”
Still, the Senate is heavily occupied with finishing the health care negotiations, and it’s rarely able to fully tackle more than one massive debate at a time. At the earliest, the health care negotiation is expected to stretch into February.
Meanwhile, Dodd himself is a central figure in that health care process, appointed to the role by Sen. Edward Kennedy as he was succumbing to his bout with cancer. Dodd’s time will be split between that and the financial reform effort in his own committee.
Once Dodd’s committee passes a financial reform package, it then becomes a matter of debate for the overall Senate — a clash of ideologies that promises to be heated.
The closer that debate moves toward November 2010, the more hazardous it becomes for those — such as Dodd — facing serious re-election struggles. Lawmakers who aren’t counting on easy majorities in the elections begin looking at each vote as a potential political liability. Today’s controversial vote becomes the foundation for tomorrow’s attack ad.
And as time passes, the U.S. economy improves and the sting of the economic crisis becomes an increasingly faint memory. In Congress, crisis breeds action. The longer this legislation waits for action, the less vigorously it may be fought over. So the insurance industry may know by Congress’ end-of-March recess whether financial reform has the momentum to carry it through.
(Jesse A. Hamilton, Washington bureau manager: Jesse.Hamilton@ambest.com)