High-stakes financial debate ongoing

By Matt Viser, Globe Staff

WASHINGTON – House and Senate negotiators continue to wrangle over several key provisions in a proposal that would dramatically restructure the nation’s financial regulations.

A committee of House and Senate lawmakers, controlled by Representative Barney Frank of Newton, has been meeting for several weeks. They are attempting to wrap up tonight – or perhaps stretching to the early hours of tomorrow morning – but there are still major issues to resolve, including several that will determine the vote of Senator Scott Brown.

While the discussions are still ongoing, Brown and Frank both appeared confident that there would be an agreement that would satisfy Brown.

“They’re very close,” Brown said in an interview this morning. “I’m hopeful we’ll have a resolution today.”

“I told them that I need to see everything in writing,” he added. “Because I’ve had representations made before and then when we read it, they’re not in there. So I want to make sure it’s in there.”

Brown is one of the key votes – “I’m probably the deciding vote again,” he boasted – and as a result has wielded extraordinary sway over the negotiations, particularly for a senator who was sworn in just five months ago.

He also ran a campaign railing against the culture of Washington, and now has been engaged in high-stakes discussions to ensure that key businesses – and campaign contributors – in Massachusetts are taken care of, among them State Street Corp., Fidelity Investments, and MassMutual.

And while Republicans had hoped Brown would be the 41st vote to block the Democrats agenda, instead he has been working closely with top Democrats.

“He’s been terrific,” Senator Christopher J. Dodd, the Connecticut Democrat and chief negotiator for the Senate, said this afternoon. “He’s been great, we’ve had great conversations.”

Brown said the ongoing dialogue Dodd has been “refreshing.”

“I pick up the phone, I call him at home, I call him on the cell phone, the work phone,” Brown said. “He calls me back. We meet. I don’t know if it’s because I’m the 41st vote or the 60th vote, but more importantly I get the sense that Senator Dodd’s really trying to get a good bill.”

Brown backed the Senate bill last month, but only after gaining assurances from top lawmakers, including Frank, that several changes would be made. Without those changes, Brown could hold up the entire process.

Frank said things are “moving in the right direction.”

“We haven’t done anything for Massachusetts entities that would damage the whole thing,” Frank said in a brief interview. “It’s just, we tend to have the slow steady ones, like mutual funds and life insurance.”

Top aides to Frank and Brown have also been in frequent contact.

Brown has 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 has wanted two different changes to be made on how the Volcker Rule would be applied. First, he wants to exempt altogether financial institutions that use banks for limited purposes, such as MassMutual and its insurance business or Fidelity and its investment funds.

Second, he wants to let firms invest a limited amount of their top capital in hedge funds and private equity funds. Brown has called for a 5 percent cap, but negotiators appear to be settling on 3 percent. Those changes are wanted by Boston-based State Street Corp., and Bank of New York Mellon Corp., which has several thousand Massachusetts employees.

Debate on the Volcker Rule is expected to take place this afternoon.

While Brown appears poised to support the bill, there are larger questions looming over the regulations of derivatives, the financial product that many institutions use to speculate or hedge their investment strategies. Derivatives also carry risks that have been blamed for worsening the financial collapse.

The House and Senate bills each have restrictions on derivatives, and would require them to go through a clearinghouse with more disclosure. But the Senate bill goes further, and has been opposed by conservative House Democrats -- and many in the delegation from New York, where many of the firms that rely on derivatives are based.

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