• Conference Committee Continues Week Two of Negotiations on Financial Regulatory Reform
  • July 1, 2010 | Author: Martin Dozier
  • Law Firm: Alston & Bird LLP - Atlanta Office
  • Today, the House-Senate Conference Committee met for its fifth day of negotiations on the Restoring American Financial Stability Act of 2010, focusing on Title VI of the Senate base text, Improvements to Regulation of Bank and Savings Association Holding Companies and Depository Institutions.

    The proposed House offer to Title VI and the ensuing discussion and debate concerned the regulation of institutions that hold consumer deposits and companies with ownership or controlling interest in such institutions.

    House Conference Committee Chairman Barney Frank (D-MA) began the session by stressing the importance of completing the bill prior to the G-20 meeting and voting on it before the July 4 break, explaining that “no one benefits from uncertainty.” He warned that a delay would postpone a final vote on the bill until mid-summer. He then reviewed the germaneness of certain amendments being offered and the procedure by which he as Chairman would permit amendments to be considered or not.

    In a series of heated exchanges, the Committee discussed an amendment regarding the “Volcker Rule,” which would prohibit insured depository institutions or bank holding companies from engaging in “speculative activity unrelated to essential bank services,” i.e., proprietary trading. Ranking Member Spencer Bachus (R-AL) expressed concern regarding the competitive disadvantage that U.S. firms would be under absent adoption of a similar rule in European countries. He added that it was unclear to him whether any other G-20 country was supportive of implementing the Volcker Rule, noting that officials from the European Union had argued adoption of a similar rule in Europe would violate the European Union’s rules on universal banking. “Chairman Frank has stressed the importance of international coordination so that other countries don't produce more competitive regulatory regime and put the U.S. at a regulatory disadvantage globally,” said Bachus, arguing the rule “amount[ed] to unilateral disarmament.” “They cannot continue to do business as they were doing,” replied Chairman Frank. “They have to get back in the business of accumulating capital and making loans to private parties.” Chairman Frank tabled further discussion of the Volcker Rule until a later hearing.

    The Committee removed a $150 billion resolution fund that was included in the House version of the bill. Instead, the House conferees backed the Senate approach, which would use taxpayer funds to resolve a systemically significant failing financial institution and then recoup those costs through asset sales and assessing fees on other banks if more money was needed.

    Chairman Frank also proposed language that would impose a $3 billion tax on large banks and hedge funds to provide emergency mortgage relief for the unemployed, and another $1 billion for a program that would allow cities to purchase foreclosed properties, dismissing objections that these banks would simply pass this new tax on to customers. Frank said that language would unveiled on Thursday.

    The Committee deleted a Senate provision which would have applied national bank lending standards to state-chartered banks. State banks currently are subject to two regulators: the state banking commissioner at the bank level and the Federal Reserve at both the bank and holding company level. The Senate bill would add a third regulator, the FDIC, to the regulation of state banks, adding additional compliance costs for state member banks. In rejecting the provision, conferees discussed the increased costs and complexity of compliance this would create compared to national banks. The Committee also approved provisions that repealed the prohibition on banks paying interest on commercial demand deposits.