–Senate Debate To Begin 12:15 PM Thursday
–Senate GOP Signal Amendments To Come on Derivs, Consumer Agency
–Senate Democrats Promise Open Amendent Process

By John Shaw

WASHINGTON (MNI) – The Senate will come into session at 12:15 p.m.
Thursday and will turn to a debate on financial services legislation.

After weeks of public acrimony, scorching rhetoric and three test
votes this week designed to put pressure on Republicans, Senate Majority
Leader Harry Reid was able to win GOP approval Wednesday evening to
formally begin the regulatory debate.

Both Reid and Senate Minority Leader Mitch McConnell signalled they
expect a lengthy Senate debate with a number of amendments under
consideration.

One of the first and most consequential issues that will be debated
is regulation of the over-the-counter derivatives market.

Republicans and some Democrats have been very critical of the
derivatives regulation language approved last week by the Senate
Agriculture Committee which is expected to be incorporated into the
underlying Senate bill that was crafted by Senate Banking Committee
Chairman Chris Dodd.

The package approved by the Agriculture panel requires OTC markets
to adopt aspects of the regulated markets such as mandatory clearing
through derivatives clearing organizations and trading on exchanges or
exchange-like facilities.

It has a narrow exemption for commercial “end users” who use
derivatives to hedge against such economic contingencies as fluctuations
in fuel prices or in currency and interest rates.

The most controversial features of the package is a provision that
requires a bank that qualifies as a “swap dealer” or a “major swap
participant” to either divest its swap desk or forego access to federal
credit assistance such as the Federal Reserve Board’s discount window of
FDIC deposit insurance.

This provision is certain to be challenged on the Senate floor.

In a statement released Wednesday afternoon, Sen. Richard Shelby,
the ranking Republican on the Banking panel, identified the issues in
which Republicans are likely to try to focus their efforts.

He said that he was most troubled by the bill’s provisions on a
consumer protection agency and on derivatives regulation.

Shelby said the Dodd bill would create a “sprawling new consumer
protection bureau” that would have “unchecked authority to regulate
whatever it wants, whenever it wants, however it wants.”

Shelby also said the derivatives language from the Agriculture
panel’s bill would have “far reaching and devastating effects” on the
U.S. economy.

The legislation under Senate debate will be largely drawn from the
bill drafted by Dodd that was approved by Senate Banking Committee on
March 22 on a party-line 13 to 10 vote.

It establishes a new independent Consumer Protection Bureau at the
Federal Reserve Board, creates a process to liquidate failed financial
firms, sets up a council of regulators to oversee systemic risk in the
economy, establishes a regulatory structure for over-the-counter
derivatives, requires hedge funds that manage over $100 million to
register with the SEC and creates a new office within Treasury to
monitor the insurance industry.

The House passed a sweeping financial regulatory reform bill in
December.

President Obama has said that financial regulatory reform is one of
his central goals for the rest of this legislative session.

** Market News International Washington Bureau: (202) 371-2121 **

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