It has been two weeks since the U.S. Senate passed its financial services regulatory reform legislation, the Restoring American Financial Stability Act of 20101 (Senate Bill). Since that time, Congress has begun preparing for the conference committee, which will be charged with reconciling the differences between the Senate Bill and the House-passed Wall Street Reform and Consumer Protection Act of 20092 (House Bill).
With the end of the Memorial Day recess, the conference committee will begin to move quickly to produce a consensus legislative proposal. Financial Services Committee Chairman Barney Frank (D-MA), who will chair the conference, has indicated his desire to complete the conference committee’s work before the Fourth of July. The White House has indicated its desire for an agreement in place before President Obama attends the Group of 20 meetings in Toronto on June 26. As we previously noted, there remain several significant differences between the Senate Bill and the House Bill which will need to be reconciled before Congress sends the legislation to the President for signature. While we believe that a concerted effort will be made to complete the conference committee by the July 4th goal, if that date slips, we do expect the final legislation to be completed no later than the congressional recess which begins the first week in August.
This memorandum provides additional information related to the conference committee process, including new details related to the timing of the conference committee’s work and the likely members of the conference committee.
For more details or if you have any questions, please contact any member of the Patton Boggs Financial Services Policy Group.
Staffers spent the Memorial Day recess preparing for the conference by completing a “side-by-side” comparison of the House Bill and the Senate Bill. The Senate has already formally appointed its conferees, and we expect the House to formally make its appointments on Wednesday, June 9th. Once the committee members are known, they will move quickly to complete their work.
Chairman Frank and Senate Banking Committee Chairman Christopher Dodd (D-CT) have set forth the following as a proposed aggressive timeline:
- June 9: House to Appoint Conferees
- June 10: Opening Meeting of the Conference Committee
- June 15 – June 17: Conference Meets on Substantive Issues
- June 22 – June 23: Conference Meets on Substantive Issues
- June 24: Conference Concludes
- June 28: Rules Committee Meets to Grant Rule
- June 29: House Passes Conference Report
- July 2: Senate Passes Conference Report
The Senate has formally appointed seven Democrats and five Republicans to the conference committee. Democratic appointees from the Senate Banking Committee include Chairman Dodd, Tim Johnson (D-SD), Jack Reed (D-RI) and Chuck Schumer (D-NY). They are joined by their Republican counterparts Ranking Member Richard Shelby (R-AL), Mike Crapo (R-ID), Bob Corker (R-TN) and Judd Gregg (R-NH). Senate Agriculture Committee appointees include Chairwoman Blanche Lincoln (D-AR), Tom Harkin (D-IA), Patrick Leahy (D-VT) and the Ranking Member of the Senate Agriculture Committee, Saxby Chambliss (R-GA).
While the House appointees will not be formally announced until June 9th, Chairman Frank sent a letter to Speaker of the House Nancy Pelosi (D-CA) recommending seven other Democrats to sit on the committee with him. They include Carolyn Maloney (D-NY), Paul Kanjorski (D-PA), Luis Gutierrez (D-IL), Maxine Waters (D-CA), Melvin Watt (D-NC), Gregory Meeks (D-NY) and Dennis Moore (D-KS). With the exception of Congresswoman Maloney, each chairs a subcommittee of the House Financial Services Committee. Congresswoman Maloney serves as Chairwoman of the Joint Economic Committee. It is likely that Speaker Pelosi will accept Chairman Frank’s recommendations and include these nominees among the formal appointments made this week.
Republican members to be appointed to the conference committee from the House Financial Services Committee have not yet been identified by minority leader John Boehner (R-OH). Most likely to be included are Financial Services Committee Ranking Member Spencer Bachus (R-AL), as well as Jeb Hensarling (R-TX) and Scott Garrett (R-NJ), as speculated by media sources.
House conferees from the House Agriculture Committee have not been identified from either the Democratic or Republican side of the aisle.
Republican Procedural Demands; Key Issues
Republican Senate conferees sent a letter on May 27, 2010 to Chairman Frank and Chairman Dodd with procedural demands for conference committee proceedings. Noting that “this conference is too important for the major issues to be decided behind closed doors,” Republican conferees requested public votes on all major issues, accountability for proposals (ensuring that the public is aware of the source of any additional language included in the conference report), and a fair and open process.
As the conference committee begins its review of the Senate Bill and the House Bill, it is now expected that the Senate Bill will be the underlying model used to formulate the final piece of legislation. The regulations in the Senate Bill are stronger than the House Bill in many of the major regulation areas, and the Senate Bill includes various issues not included in the House Bill. By using the Senate Bill as the underlying model, negotiations will focus on whether the Senate’s additional regulations should be removed, rather than negotiating to include these regulations into the underlying model of the House Bill. Committee members must work carefully to ensure that the resulting legislation can still attract the necessary 60 votes to clear the Senate.
The most challenging issue facing the conference committee is the regulation of over-the-counter derivatives markets. The Senate Bill and the House Bill contain several inconsistencies, and the Senate Bill includes several provisions which were not considered for the House Bill. It remains to be seen whether the Volcker Rule, which prevents proprietary trading, will be included in the final legislation. With respect to Chairman Lincoln’s proposal to require banks to spin off their derivatives trading desks, several conferees, including Chairman Frank and Senator Reed, have voiced their concerns with such an approach. Chairman Lincoln and Senator Harkin have declared their intent to advocate for this provision’s inclusion in the conference committee’s final report.
There remain several other controversial provisions likely to face increased attention before being included in the final version of the legislation. For example, the interchange fee provision, which would require debit card interchange fees to be “reasonable and proportional” to the issuer’s costs, will be highly debated during negotiations. This provision was included in the Senate Bill and championed by Senator Dick Durbin (D-IL), but was not included in the House Bill. Senator Durbin will not be a member of the conference committee, decreasing the possibility that the provision will survive the conference committee process. In addition, there is increased scrutiny over a provision in the Senate Bill that was added on the Senate floor in an amendment by Senator Susan Collins (R-ME). This piece of the legislation would change the capital rules for banks by restricting the use of trust preferred securities as Tier 1 capital. The amendment was passed by unanimous consent and has been the subject of significant attention because of its impact on financial services companies and regulators with respect to compliance with capital requirements.
Lexology – Financial regulatory reform: conference committee update