–Senate To Begin Voting Tuesday On Amendments To Reg Reform Bill
–Treasury’s Geithner To Testify On Bank Tax and On Financial Crisis
–Hill Dems To Continue To Discuss FY’2011 Budget Resolution

By John Shaw

WASHINGTON (MNI) – The Senate is expected to intensify its
consideration of financial regulatory reform legislation this week, with
votes on amendments to the sweeping bill beginning Tuesday.

Additionally, Treasury Secretary Tim Geithner will be in the center
of the Capitol Hill debate this week on regulatory reform.

Geithner will testify mid-Tuesday morning before the Senate Finance
Committee on the administration’s proposed fee on the largest banks
designed to raise $90 billion to pay for recent bailouts.

Senators are likely to question Geithner if it makes sense to
structure the tax around the liabilities of the large firms.

Geithner will testify Thursday morning before the Financial Crisis
Commission on the shadow banking system as will former Treasury
secretary Henry Paulson.

Most of the focus on Capitol Hill will be on the Senate debate on
regulatory reform.

The Senate began debating a bill Thursday that was largely drafted
by Senate Banking Committee Chairman Chris Dodd.

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.

Dodd’s bill has been merged with a package that was approved by the
Senate Agriculture Committee which 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 economic contingencies such as fluctuations
in fuel prices, 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 as
early as this week. Senate Republicans have said they favor more
disclosure of derivative swaps and are expected to push amendments that
strip the language that prohibits depository institutions from trading
derivatives.

Sen. Richard Shelby, the ranking Republican on the Banking panel,
has made it clear that Republicans will try to pass amendments related
to the newly proposed consumer protection entity.

Shelby has 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.”

The first amendment that was filed was offered by Democratic
senator Barbara Boxer from California and it says that “no taxpayer
funds shall be used to prevent the liquidation of any financial
company.”

Two Democratic senators, Sherrod Brown and Ted Kaufman, are pushing
an amendment that would ban any bank from holding 10% of the nation’s
total deposits.

Two other Democratic senators, Jeff Merkley and Carl Levin, will
offer an amendment to ban banks from proprietary trading.

Dodd has said he would like the Senate to pass its financial
regulatory reform bill by May 14, but this may be an ambitious goal. If
the Senate passes a bill, it must be reconciled with a competing version
that was approved by the House in December.

On another matter, House and Senate Democratic leaders will resume
their discussions on whether they want to try to pass a five year budget
resolution, as budget law requires, or instead op for passing a deeming
resolution that sets a ceiling on discretionary spending for the 2011
fiscal year.

The Senate Budget Committee approved a Democratic-drafted budget on
April 22, but there is little sign of movement in the House Budget
Committee.

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

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