Republicans Dispute Course Of Financial Overhaul

End the public lifeline for large financial institutions.

That's what Republicans are demanding as they push back against Democratic efforts to set new rules for the financial industry.

The GOP is trying to fight many of the changes that President Obama and majority Democrats want. Legislation would give the government authority to split up big financial companies and force the industry to pay for its most massive failures.

Republicans have offered alternative legislation that calls for new bankruptcy proceedings to dismantle failing institutions. Rep. Kevin McCarthy of California, a member of the House Financial Services Committee, said that creating more federal agencies and putting taxpayers on the hook for more bailouts will not help revive the economy.

"It will only compound the pain for struggling small businesses and for families who played by the rules, lived within their means and acted responsibly," McCarthy said in the Republicans' weekly radio and Internet address Saturday.

The House passed a regulatory overhaul in December. The Senate has yet to vote on a similar measure.

Democratic senators sent a Wall Street regulation bill from the Senate Banking Committee to the full Senate on a party-line vote last month after a temporary retreat by Republicans that still left the bill's chances for bipartisan passage in doubt.

Despite a conciliatory tone struck by the committee's Democratic and Republican leaders, the development did nothing to mend the partisan divide over the legislation and adds even more uncertainty to Congress' ability to pass a sweeping rewrite of financial regulations this year.

Obama used a recent Saturday address to urge Congress to act, saying it's necessary to prevent firms from again taking on the kind of risks that led to the nation's recent economic woes.

But McCarthy attempted to frame the effort as one that would lead to more federal spending while the deficit is soaring.

"We have run out of money," he said. "And yet this administration and congressional Democrats want to spend even more."

US Senate Banking Committee; Wall Street Journal; Bloomberg.

UPDATE: Major Rewrite Of Financial Rules

Combining Obama administration and Republican priorities, the leading Senate author of a sweeping rewrite of the nation's financial regulations is looking for consensus with a proposal that neither side of the political spectrum is ready to embrace.

As we reported to you early this morning, Sen. Christopher Dodd, the chairman of the Senate Banking Committee, plans to unveil a proposal today that expands the powers of the Federal Reserve but creates a consumer protection entity with less authority than President Barack Obama once demanded.

Dodd's draft legislation aims to avoid a recurrence of the financial crisis that brought Wall Street to the verge of collapse 18 months ago. It would restrict the size and interconnections of large financial institutions once deemed "too big to fail," tame previously unregulated shadow markets with new restrictions and create a dismantling mechanism for failing financial giants without a bail out from taxpayers.

While navigating in the middle of the road, Dodd hasn't won the support of Republicans. And Democrats inside and outside his committee, as well as consumer advocates are eager to change his consumer proposals.

In looking for common ground, Dodd significantly shifted from financial regulations he proposed four months ago, when he called for a single powerful regulator to oversee all of the nation's banks and for a stand-alone consumer financial protections agency.

Instead, as preferred by the Obama administration, the Federal Reserve would gain oversight of all financial firms - banks and nonbanks - that are considered the biggest and most interconnected. For the Fed, the price of such power is losing supervision over smaller bank holding companies with less than $50 billion in assets.

Moreover, to the dismay of liberals and consumer advocates, the Fed would also house a consumer protection entity. That agency would be headed by a presidential appointee and would have an independent source of funds not subject to congressional appropriations. But its power to write regulations would be subject to review by a council of regulators that could veto consumer rules by a two-thirds vote.

In a nod to the White House, however, Dodd is expected to propose that states have enhanced ability to enforce consumer rules. State attorneys general and the Obama administration have called for such authority. Financial regulations approved by the House in December gave states more leeway to write and police their own consumer laws.

Among other likely provisions in Dodd's proposal:

• Institutions that are bank holding companies, such as Goldman Sachs and Morgan Stanley, cannot alter their status to avoid Fed oversight. The measure is being called the "Hotel California provision" because firms can enter Fed supervision but can never leave.
• Unlike the House bill, which imposes new requirements on broker-dealers and investment advisers, Dodd's is expected to adopt a proposal from Sen. Tim Johnson to conduct a study of potential investor protections before writing any regulations.
  

US Senate Banking Committee; The Wall Strret Journal; National Community Reinvestment Coalition, Bloomberg; AP.

US Bank Regulation Bill Due to be Unveiled

A new bill to tighten regulation of US banks is due to be unveiled on Monday, but it is unclear if it will succeed in gaining Senate support.

The new and improved banking legislation is being presented by Democratic Senator Christopher Dodd, chairman of the Senate Banking Committee.

He is moving ahead with the bill despite Republicans on the committee withdrawing their backing last week. However, Mr Dodd needs some Republican support to get the bill through the Senate.

This is because - following the Republicans victory in the Massachusetts Senate election in January of this year - the Democrats no longer have the 60-seat majority required to defeat blocking.

According to the Reuters, Republicans on the committee have indicated they could still back the bill, if given more time to consider it.

Although the exact details of the bill - in its first form - will not be known until it is presented, sometime today. It is widely expected to propose that the US central bank, the Federal Reserve, is given extensive new powers to regulate the commercial lenders.

It is also tipped to propose giving the government the power to seize and dismantle a large failing bank, or other such financial company. It is further expected to call for the establishment of a new "risk council" to monitor any emerging threats to the financial sector.