Mixed news from Congress yesterday, as the Senate united overwhelmingly behind two non-binding provisions designed to signal its preferences to the upcoming conference committee on the financial-reform bill.
First, some good news: After reading the amendment on which Sen. Kay Bailey Hutichson based her motion to instruct conferees, I wrote that it was an attempt to weaken the Volcker rule to ban risky practices at banks and was disappointed when it passed overwhelmingly. However, I've now seen the final text of the motion, and it is exceedingly straightforward. Hutchison's proposal simply asks that the conferees ensure that insurance companies can continue to do their business.
Insurance companies collect premiums and invest them in order to be able to pay off obligations on their policies. Many insurance companies have or are bank subsidiaries, so the Volcker rule, which bans banks from trading their own assets, would also ban this common insurance-company practice. Like any necessary exemption, this needs to be carefully crafted to prevent exploitation. Sens. Merkeley and Levin included language to this effect in their amendment to strengthen the Volcker rule, and I hear that it will be a model for the final bill.
Now, the bad news: Sen. Sam Brownback's motion to exempt auto lenders from consumer-protection regulation also passed, 60-30. This can be read two ways: One, because it's non-binding, it's easy for members who don't support the policy but want to placate their local auto dealers to vote "yes," knowing it won't be in the final bill. On the other hand, it's a strong signal for conferees to keep the House's huge loophole in place. This would be terrible public policy, which is why the White House, House Financial Services Chair (and likely conference committee chair) Barney Frank, and Senate Banking Chair Chris Dodd all oppose it vehemently. If they can manage to get Democrats on board, they can potentially close the loophole, but the politics are very dicey.
As to the conference committee itself, we know that Frank will be the chair, but other House members won't be revealed until after Memorial Day. The Senate just announced its conferees: Democrats Dodd, Blanche Lincoln, Tim Johnson, Jack Reed, Chuck Schumer, Pat Leahy and Tom Harkin; Republicans will send Richard Shelby, Bob Corker, Mike Crapo, Judd Gregg, and Saxby Chambliss. No huge surprises here, the slate is fairly representative of the members who played the largest roles in negotiating the legislation.
-- Tim Fernholz
