May 10, 2010 / 9:59 PM / 7 years ago

Senate's Wall Street reform bill churns ahead

5 Min Read

WASHINGTON (Reuters) - Two key amendments to the Senate's far-reaching Wall Street reform bill are expected to be voted on Tuesday, with a measure that would allow limited oversight of the Federal Reserve expected to pass.

Another amendment that would require the government to relinquish control of housing finance giants Fannie Mae and Freddie Mac within two years looked set to fail.

A final vote on the bill, with nearly 200 other amendments still vying for attention, looked unlikely until next week.

So far, extreme amendments trying to veer the bill one way or another have failed, suggesting to some analysts that while banks are in for tough, new rules that will weigh on profits, their business models will not be blown to smithereens.

The biggest earnings hits will be felt by large broker-dealers such as Goldman Sachs and Morgan Stanley, with large deposit-taking banks such as Bank of America, Citigroup, JPMorgan Chase and Wells Fargo less vulnerable, said analysts at Keefe Bruyette & Woods.

Since the share prices of all these firms already reflect such forecasts, knowing the shape of the final bill should be a positive boost for the sector, the analysts said.

That prospect could be near as disputes between Democrats and Republicans dwindle to a handful, more than two years after the downfall of former Wall Street giant Bear Stearns ushered in the worst financial crisis in decades.

Senate Democratic Leader Harry Reid had hoped to finish work on the legislation by Friday. But that looked increasingly unlikely. Reid was expected to take steps within days to reduce the number of amendments allowable, aides said.

No votes were cast on amendments on Monday. The first vote on Tuesday was slated to come on a proposal by Senator Bernie Sanders, an independent, to shed more light on the U.S. Federal Reserve's emergency lending activity during the crisis.

The amendment, pared back last week to win support, was "likely to prevail," Senator Richard Durbin, the chamber's No. 2 Democrat, said on Monday.

The Sanders measure would allow the Government Accountability Office, the investigative arm of Congress, to conduct a one-time audit of the central bank's emergency lending activity during the crisis and require the Fed to make public information about who it assisted.

A vote may also be allowed on a Republican alternative from Senator David Vitter that would allow broader GAO audits.

Gop Targets Fannie, Freddie Reform

The next vote on Tuesday, aides said, will likely be on the amendment to get Fannie and Freddie out from under the government's wing. The measure was offered by Republicans John McCain, Richard Shelby and Judd Gregg.

Fannie and Freddie were seized by the Bush administration at the height of the crisis in 2008 and put into what was described than as temporary conservatorship.

More than a year and a half later, the companies' status is unchanged and the Obama administration has not decided what it wants to do about overhauling the housing finance system.

The McCain amendment looked set to fail, nonetheless, aides said, given Democrats' decision to put off until later the complex and controversial Fannie-Freddie reform debate.

Another issue is the Obama administration's proposed government watchdog for financial consumers.

As drafted now, the bill authored by Senate Banking Committee Chairman Christopher Dodd, a Democrat, calls for making the watchdog a bureau within the Fed.

A Republican amendment that would have pulled most of the watchdog's teeth and put the agency in the Federal Deposit Insurance Corp instead was defeated last week.

Little has been heard recently from Democrats who had pledged earlier to bring an amendment making the watchdog a full-blown independent agency.

If changes to the proposal can be made concerning state regulators and the impact on retailers, enough support for passage could be achieved, aides said.

Tougher Volcker Rule

In another matter, Democrats moved on Monday to toughen their proposed "Volcker rule" on risky bank trading.

Banks would be barred from high-risk speculative trading under the measure. It has an "extremely good" chance of becoming law, Democratic Senator Carl Levin said.

The measure also would require large nonbank financial institutions to set aside more capital to cover the risks of speculative activity, and prohibit financial firms from betting against their customers.

Levin and fellow Democrat Jeff Merkley said their proposal has wide support among Democrats, including Dodd.

The Treasury Department supports tougher rules to ensure that banks cannot engage in high-risk speculative trading, as well, the measure's sponsor said on Monday.

Still to be resolved is yet another contentious proposal -- regulating over-the-counter derivatives, aides said.

No Senate votes were expected this coming Friday.

Additional reporting by Andy Sullivan; Editing by Leslie Adler

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