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All sides press Frank on finance bill

Lawmaker seeks to finish a compromise this week

By Matt Viser
Globe Staff / June 23, 2010

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WASHINGTON — Representative Barney Frank, trying to complete intense negotiations between the House and Senate over a massive revision of financial regulations, is coming under significant lobbying pressure from across the political spectrum as he tries this week to come up with a compromise that can win final approval.

On one side, a liberal group is circulating an online petition that admonishes the Newton Democrat “not to give in to Wall Street.’’ On the other, a group of conservative House Democrats has written to Frank saying some of the financial regulations already go too far.

All of this could complicate Frank’s effort to keep his promise to Senator Scott Brown, the Massachusetts Republican, to change a restriction on investments so that it would not apply to businesses such as MassMutual. Brown has said that without that change, he cannot support the bill.

Frank, as chairman of the House Financial Services Committee, is overseeing the conference committee negotiations that will craft the final legislation, an Obama administration priority. Now, with a final vote on the months-in-the-making bill perhaps just days away, he is scrambling to keep together disparate political interests.

Frank said the negotiations are just part of finalizing a bill. “What you have to decide at some point is that you hope that people will find that there are enough important things that they agree on so that they can tolerate an utterly small amount of disagreement,’’ Frank said. “It’s impossible to pass a bill that everybody’s happy with.’’

Yesterday, in a large congressional conference room, House and Senate lawmakers gathered around a table to discuss some lingering issues. One looms large: how far to go in restricting the financial product known as derivatives, which many institutions use to speculate or hedge their investment strategies.

Frank said the legislators would work through the next few days to complete their work.

“Barney’s got a tough job,’’ said Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University. “To say that the [conference] committee is eclectic is a disservice to the word eclectic.’’

The committee is trying to reconcile the differences between a House bill passed in December and a Senate bill approved last month. The Senate bill is seen as having tougher restrictions on businesses. Overall, the legislation is designed to crack down on some of the risky practices that contributed to the economic meltdown of 2008.

“The worry is that [Frank] would propose some compromise that would weaken it [the final bill], said Aaron Swartz, cofounder of Progressive Change Campaign Committee, a liberal group that wants tougher restrictions. “We know that Wall Street lobbyists are knocking down the door right now.’’

Many of the principals in the bill have been agreed upon. It would establish a council, for example, to monitor the financial system for potential problems.

The committee members yesterday moved toward agreement on two key issues. They decided to create a consumer protection bureau that will likely be housed in the Federal Reserve, but will have independent authority to write and enforce new rules.

The members also neared agreement to exempt car dealers from the purview of the new bureau, a decision that has been opposed by the Obama administration. The exemption would mean that while the new consumer protection bureau will be able to regulate practices in mortgage lending or credit card applications, the new bureau would not be able to oversee certain kinds of loans for car purchases.

But there are several important details — some worth billions to financial firms — left to be worked out. The committee is continuing to discuss how to regulate derivatives, the financial instruments that are often used to hedge against market fluctuations and yet carry risks that are now often blamed for worsening the financial collapse.

Both bills have restrictions on derivatives and would require them to go through a clearinghouse with more disclosure. The Senate bill goes further, drawing the ire of many House Democrats who want several changes.

A group of several dozen lawmakers, called the New Democrat Coalition, wrote letters to Frank and other top lawmakers saying they had particular concerns over restrictions on derivatives used by business to hedge their financial strategy, instead of simply as a bet on market movements. An airline company, for example, might use derivatives to limit its financial risk if the price of fuel skyrockets.

The other unresolved issue is a series of exemptions from the so-called Volcker Rule, named after former Federal Reserve chairman Paul Volcker, now an economic adviser to President Obama. The rule would limit the investment options of large institutions, preventing investments in hedge funds and private equity funds, for example.

This is the provision that Brown is most focused on changing, arguing that the restrictions should be aimed at curbing risky bets by Wall Street, not the more traditional practices of companies such as State Street.

The Volcker Rule would eliminate certain investment practices altogether for the largest firms; Brown is arguing that they should be allowed to invest small amounts. Brown also wants to prevent the Volker rule from applying to large financial institutions that use banks for limited purposes, such as MassMutual and its insurance business or Fidelity and its investment funds.

Brown has received significant contributions from the financial industry, taking in nearly $968,000 from the finance, insurance, and real estate industries, according to the Center for Responsive Politics. Frank has received nearly $582,000 from the industry over the past year and a half. Frank recently canceled several fund-raisers, telling the Hill newspaper that “it was a mistake to have financial industry-related fund-raisers while this bill was being considered.’’

Frank said he hopes the committee can complete its work by tomorrow. The bill could be on Obama’s desk by July 4.

Matt Viser can be reached at maviser@globe.com.