Financial Reform Update: Kaufman-Brown Defeated.

Yesterday, we saw a number of votes on amendments to the financial-reform bill. While this may be a bit wonky, the bill's details are key, so here's a quick summary:

The Tester-Hutchinson amendment, which we previewed yesterday, passed, 98-0. It will ease the burden on smaller banks and force larger banks to contribute more to the FDIC insurance fund. This was an easy-to-support populist amendment that sticks it to the big banks a little while helping out local banks that most politicians cannot afford to offend.

An amendment from ranking Banking Committee member Richard Shelby failed, 38-61. His proposal would have moved consumer-protection authority from an independent bureau to a division within the FDIC and limited its jurisdiction; defeating this bill by such a large margin shows the political favorability of (relatively) strong consumer authority.

Two amendments were agreed to by voice vote, from Sens. Ben Cardin and Maria Cantwell, that protect whistle blowers at ratings agencies and clarify the Commodity Futures Trading Commission's anti-market manipulation authority, respectively.

Republican Sen. John Ensign proposed an amendment that would limit the size of Fannie Mae and Freddie Mac, which was defeated 35-59, mainly on the grounds that reforming these entities will require much more planning, since they are backstopping much of the housing market right now, and a sudden shift could cause serious economic problems.

Finally and most important, Kaufman-Brown, the bill to impose caps on bank size and, in effect, break up the largest financial institutions, failed, 33-61. I'll have much more to say about this later today, but it's obviously a defeat for reformers who wanted to take aggressive action against Wall Street. That it got to the floor at all and resulted in a recorded vote is something of an accomplishment. Still, a third of the Senate voted in favor, and that chunk included the top two Democrats in the chamber and conservative Republicans like Shelby, Ensign, and Sen. Tom Coburn.

There won't be any votes today or Monday, but there was one more positive development yesterday: A compromise has been reached on Sen. Bernie Sanders' bill to audit the Fed, which will apparently allow for more transparency while protecting independent monetary policy. That means the White House and Senate leaders are supporting the amendment. If progressive economist Dean Baker thinks the deal is a win for reformers, it probably is.

-- Tim Fernholz

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