June 10, 2010 / 1:51 PM / 8 years ago

COLUMN-Finance reform goes to unusual open conference: John Kemp

-- John Kemp is a Reuters market analyst. The views expressed are his own --

By John Kemp

LONDON, June 10 (Reuters) - Following months of hard-fought manoeuvring, the Wall Street Reform and Consumer Protection Act (HR 4173) is entering its last stages as negotiators from the House of Representatives and Senate try to iron out differences between the two versions of the bill.

Both the U.S. Treasury and lobbyists for financial services firms are mounting an immense effort to reshape the bill in the coming weeks.

But this is a very unusual conference committee, much larger and more open than normal. For once changes will have to be made in the full glare of publicity. It is likely to involve far more concessions than the lobbyists thought they would need to make.

SMOKE-FILLED ROOMS

The basic rules of the conference process are simple. Each house appoints conferees to iron out differences between the two texts. The committee compromise, set out in its final report, must be approved by a majority of both the senators and the representatives (which is why the Senate has appointed only 12 conferees while the House has appointed 31, though only 16 will vote on all parts of the bill, the rest have limited voting rights for different parts).

The final text is offered as a privileged amendment on the floor of the House and the Senate for a straight up-or-down vote in a form that prevents amendments, objections and further debate.

The committee is meant to confine itself to resolving differences between the two versions already passed by the House and Senate.

Senators in particular can object to any attempt to insert new provisions. “If new matter is inserted in the report, or if matter which was agreed by both House is stricken from the bill, a point of order may be made against the report, and if the point order is sustained, the report is rejected”, according to Senate Rule 28. So the House and Senate language largely define the scope for eventual compromise.

In practice, conference committees wield immense power, and the resolution process has often stirred fierce controversy.

In passing HR 4173, the Senate struck out the whole text of the House bill and inserted its own language as an amendment. So the two houses are now technically in disagreement over the whole bill, which gives the conferees much wider authority to (in effect) write a new bill.

“All parts of either bill, when it is a strike out and insert, go into the conference in disagreement,” according to Riddick’s Senate Procedure manual.

"The conferees may accept either passed version or they may write a new bill but no new non-germane matter may be put in the third bill. All provisions in the third bill must be germane to the provisions of one or the other passed bills" (here).

This power to write an entirely new bill, then force each house to take a single up-down vote on a measure that legislators have not seen before, with no possibility of amendment, is what makes conference committees so powerful, and open to accusations of abuse.

Conferences give enormous power to small groups of senior legislators from each chamber to present their colleagues with a take-it-or-leave-it ultimatum on high-priority or must-pass legislation. While at least one committee session must be held in public, most sessions, and the informal negotiations, are held in secret.

The final mega-bill is sometimes announced and rushed to the floor of each chamber within hours -- before anyone has had chance to read the whole of it, let alone understand the true implications of all of the hundreds of technical changes that have been made.

All sorts of surprising changes and additions have a habit of turning up in the final measure, far too late for anyone to object or change them. Critics accuse conference committees of usurping the regular legislative process, allowing small groups of senior lawmakers and well-connected lobbyists to hijack bills and include all sorts of special treatment for favoured clients.

In 2007, amid the controversial sacking of seven U.S. Attorneys, a firestorm briefly engulfed Senate Judiciary Committee Chairman Arlen Specter when it turned out a member of his staff had slipped a provision enabling the president to appoint interim U.S. Attorneys for an indefinite period into the conference report reauthorizing anti-terrorism legislation.

Senator Charles Schumer (D, New York) accused Specter or his staff of having “slipped the new provision into the Patriot Act at the dead of night.” Specter initially denied knowledge of it, and was later forced to admit one of his staff had put it in, at the request of the Justice Department.

Fears have been expressed that something similar will happen to HR 4173. In fact Wall Street lobbyists have been counting on it. But their confidence may be misplaced. Under immense pressure, this time the proceedings will be the most open on record. [ID:nLDE64K0T4]

Background discussions have been under way between the three key players (Senate Banking Committee Chairman Christopher Dodd, House Financial Services Committee Chairman Barney Frank and U.S. Treasury Secretary Timothy Geithner, and their deputies) for several weeks before the House panellists were formally appointed.

Concern about secrecy and speed prompted Representative Spencer Bachus (R, Alabama) to propose a motion instructing House conferees not to give final agreement to the conference report unless the text is made available to the managers in an electronic, searchable and downloadable form for at least 72 hours.

The motion to instruct (which contained other provisions as well) was defeated yesterday (198-217) on a mostly party-line vote but with 28 conservative Democrats defecting to join the Republicans, mostly to support tougher language on bank bailouts and resolution authority.

In a concession, however, Dodd and Frank have agreed committee sessions, over a period of two weeks or more, will be held in public, with gavel-to-gavel television coverage on C-SPAN. It is in part a tactical move. There will still be plenty of manoeuvring behind the scenes. But the re-shaping of HR 4173 will be carried out more or less in real-time and in the full glare of the public eye.

Crucially, the committee members, especially on the Senate side, contain plenty of lawmakers who want a tough bill, and support provisions bank lobbyists have been hoping to delete or water down significantly. [ID:nLDE64O21R]

The lack of Republican support means Dodd needs to keep all 7 Democrats on the 12-member Senate side united if he is to assemble the majority needed to report back to the Senate. That gives hardliners such as Agriculture Committee Chairman Blanche Lincoln leverage. Lincoln sponsored the derivatives title which is fiercely resisted by the industry, including provisions requiring banks with access to the Fed’s discount window from running swaps desks.

Lincoln’s provisions could yet be deleted (the swaps spin out is not in the House version) or watered down, but the industry will have to make concessions in return. The once-vilified Volcker Rule prohibiting banks from employing their own capital to take speculative trading positions is being talked up as a substitute for the swaps spin off, at least in some form. [ID:nWNA3116] [ID:nN09134056]

In the final lap, negotiators need to get serious and become constructive, deciding which reforms the banking industry finds unpopular but can live with, and trading them for movement on the more radical measures.

There is still everything to play for, and the bill remains in flux. But the final version is likely to be tougher than the industry hoped.

To the end, lobbyists have miscalculated, over-estimating their political support and underestimating congressional determination to be seen to take a tough line and restructure controversial practices.

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