Bill can’t bank on Brown’s support
Financial regulations overhaul faces hurdle | Legislation seeks to rein in abuses
WASHINGTON — Bleary eyed House and Senate negotiators produced an overhaul of financial industry rules early yesterday that would give the government broad powers to regulate Wall Street and protect consumers from unscrupulous lenders, but Democrats enjoyed only a fleeting celebration before Senator Scott Brown, a Massachusetts Republican, said he was withholding support, citing $19 billion in new bank taxes inserted at the last minute.
Brown’s ire over the levy on big banks and hedge funds, which he said would be passed on to consumers, highlighted the difficulties Democrats will face getting the compromise legislation passed in the Senate. Brown and several other Republicans provided crucial support for passage of an earlier Senate bill.
The $19 billion in new taxes would be imposed on large institutions over five years, and the money mostly would be used to pay for costs of increasing regulation over 10 years. It also would pay for $1 billion in federal bridge loans for unemployed homeowners facing foreclosure.
The taxes were tacked onto the legislation during a marathon, 20-hour negotiating session which ended with a final vote at 5:39 a.m. yesterday — just five minutes before dawn.
The legislation cleared a conference committee along party lines, with House conferees voting 20 to 11 and Senate conferees voting 7 to 5. If Democrats can engineer final passage in the House and Senate, President Obama is hoping to sign it into law by July 4.
“I was surprised and extremely disappointed to hear that . . . new assessments and fees were added in the wee hours of the morning by the conference committee,’’ Brown said in a statement yesterday. “I’ve said repeatedly that I cannot support any bill that raises taxes.’’
Brown did not declare outright opposition, however, saying he and his staff were continuing to study the 2,000-page bill. He did win other provisions that he had made conditions of his support, including a key exemption that would apply to MassMutual and provisions allowing banks such as
Republicans who previously supported the bill were Susan Collins and Olympia Snowe, from Maine, and Senator Chuck Grassley of Iowa. Snowe’s office said she was not ready to support the compromise and was still studying it. Representatives of Grassley and Collins did not respond to requests for comment.
There were two Democrats — Maria Cantwell of Washington, and Russ Feingold of Wisconsin — who opposed the bill previously in the Senate, saying it did not go far enough.
Despite the challenges for Senate vote-counters, Obama yesterday predicted victory.
“You bet,’’ the president said, when asked whether Democrats could get the bill through the Senate.
The final bill, shepherded by Representative Barney Frank of Newton, chairman of the House Financial Services Committee, closely resembles a list of proposals Obama produced in June 2009 in response to the 2008 financial crisis, which was the worst economic disaster since the Great Depression.
“The reforms making their way through Congress will hold Wall Street accountable so we can help prevent another financial crisis like the one that we’re still recovering from,’’ Obama said, before departing for the G20 summit in Toronto.
Frank defended the new bank taxes, signaling that it was a fight Democrats are ready to have with Republicans.
“It will amount each year to less than their bonus pool,’’ Frank said shortly before the bill passed. “That’s my metric.’’
Fees would be levied on banks with assets of more than $50 billion and hedge funds of more than $10 billion. Their fees would vary on a sliding scale, calculated so that institutions taking the greatest risks in the market would pay the highest taxes.
Frank said some of the large Massachusetts institutions probably would not face large fee increases, since their operations are generally focused on mutual and insurance funds, rather than the riskiest Wall Street bets. Officials from Boston-based State Street Corp., and Springfield-based MassMutual, were generally supportive of the new bill but declined to comment specifically on the bank fees proposal.
Other big components of the legislation survived intact. It would curb some types of risk-prone trading, give government new tools to dismantle tottering financial institutions, and establish a council charged with monitoring the financial system for potential problems.
“We didn’t get everything,’’ Frank said, “but we’re getting most of it.’’
It would also create a consumer protection bureau that would aim to help people avoid trouble with mortgages and credit cards they can’t afford, an idea championed by Harvard law professor Elizabeth Warren.
“They created a strong, independent consumer agency that will have the tools to rein in industry tricks and traps and to cut out the fine print,’’ Warren said in a statement. “For the first time, there will be a financial regulator in Washington watching out for families instead of banks.’’
The $1 billion in loans to help unemployed workers pay for their mortgages was applauded by Massachusetts activists who lobbied for it.
“This kind of a provision is really going to be a lifeline,’’ said Lewis Finfer, of the Massachusetts Communities Action Network. “We hope [Brown] will vote for the final bill. These people are in this shape not because of anything they did but because of the deep recession that was caused in large part because of the terrible speculative activity of the large banks.’’
The conference committee agreement capped a frenzied two weeks. Through most of the hearings, Frank was at center stage, banging his gavel to overrule other members and attempting to steer the direction of the debate. He bantered with his Senate counterpart, Democrat Christopher Dodd of Connecticut, who is chairman of the Senate Banking Committee.
“Could I have an additional one minute?’’ Representative Spencer Bachus, an Alabama Republican, asked at one point in the last, 20-hour session.
“No,’’ Frank responded. “Not at 11 o’clock at night.’’
Brown had been focused on a series of exemptions from the so-called Volcker Rule, named after former Federal Reserve chairman Paul Volcker, who is now an economic adviser to President Obama and proposed the plan. The rule is designed to limit the investment options of large institutions, trying to crack down on the speculative activity that played a major role in the 2008 economic collapse.
But Brown sought and won two changes to how the Volcker Rule would be applied. First, he insisted that financial institutions that use banks only for limited purposes, such as MassMutual and Fidelity, were exempt.
Second, he demanded that banks be permitted to invest a portion of their capital in hedge funds and private equity funds. Brown called for a 5 percent cap, but negotiators settled on 3 percent. Those changes were sought by State Street Corp., and
Matt Viser can be reached at email@example.com.