May 6, 2010 / 7:29 AM / 8 years ago

Senate Dems thwart GOP attack on consumer watchdog

WASHINGTON (Reuters) - The Senate on Thursday voted to reject a Republican proposal that would have weakened a plan to set up a financial consumer watchdog, a key part of a landmark Wall Street reform bill backed by Democrats.

Onlookers gather outside the historic Federal Hall where President Barack Obama is speaking in the heart of Wall Street in New York September 14, 2009. REUTERS/Larry Downing

The 38 to 61 vote, 13 short of the 51 needed for passage, came as the Senate forged ahead on the biggest overhaul of the financial rulebook since the 1930s.

Lawmakers were next moving to debate an amendment that challenged secrecy at the Federal Reserve, Earlier the Senate gave small banks a break on government deposit insurance premiums.

Final approval of the 1,600-page reform bill was expected in two to four weeks, but thorny disputes loomed and with more than 140 amendments circulating, the possibility of gridlock on the Senate floor was presenting procedural difficulties.

If approved, the Wall Street reform bill would give Democrats a major victory ahead of November’s elections. Republicans have worked for months to weaken and delay the measures, siding with Wall Street banks and lobbying firms opposed to the legislation.

Congress is undertaking a major rewrite of the financial rules to try to make banks and capital markets less prone to financial upheaval. The future profitability, risk capacity and growth potential of financial firms hangs in the balance.

In the second day of Senate voting on the bill, lawmakers approved an amendment that would force major banks, such as Bank of America and Citigroup, to pay more for government deposit insurance and let smaller banks pay less.

The measure, approved by a vote of 98-0, reflected the increased clout of small banks on Capitol Hill since the 2008-09 financial crisis, which has deeply damaged the political standing of big banks and Wall Street.

“We expect the change to force the mega-banks to spend more for deposit insurance,” said Jaret Seiberg, a policy analyst at investment firm Concept Capital.


The stakes in Wall Street reform are high for President Barack Obama. He laid the basis for legislation in mid-2009 with a range of proposals. The House of Representatives in December approved a bill embracing many of Obama’s ideas.

Whatever comes out of the Senate will have to merged with the House bill. Analysts say that could happen by the end of June.

The Senate made progress on its massive regulatory reform legislation on Wednesday, approving amendments to create a new protocol for dismantling distressed financial firms, and to bar use of taxpayer funds to bail out financial institutions.

The bill also calls for creating a consumer protection watchdog bureau within the Federal Reserve to regulate mortgages, credit cards, payday loans and other products.

These duties are now scattered across seven government agencies that have paid consumer protection scant attention.

The spread of subprime mortgages in the real estate bubble ahead of the crisis showed that consumers need to be better protected from aggressive lenders, Democrats say.

But Republicans say the Democrats’ consumer watchdog proposal would impose more compliance costs and red tape on small businesses including orthodontists and florists.

Major financial firms’ credit card and mortgage profits could also be threatened by a consumer protection watchdog.

Senator Richard Shelby, the top Republican member of the Senate Banking Committee, offered an amendment to put the watchdog in the FDIC, not the Fed, with less independence.

Obama on Thursday said the amendment would “gut consumer protections.” He urged lawmakers to reject it and they did.


Along with Wall Street and the big banks, the Fed has come under heavy fire since the crisis, with many lawmakers blaming it for failing to detect and head off excesses in the system.

Senator Bernie Sanders wants to amend the regulatory reform bill to open the U.S. central bank to broader congressional audits, and force it to disclose information about its role in the 2008-09 Wall Street bailouts.

The Fed has fought to block the amendment.

Sanders, an independent who votes with Democrats, said he expected a vote on his amendment as soon as Thursday and he urged senators to take a stand against “the huge money and pressure” being deployed against his proposal.

“This amendment does not take away the ‘independence’ of the Fed and does not put monetary policy into the hands of Congress,” he said on the Senate floor on Wednesday.

“We need transparency at the Fed and we need it now.”

The Fed, which has taken unprecedented actions to battle the financial crisis and deep recession, has worked fiercely to protect its tradition of secrecy, warning of the potential for political interference in its core monetary policy mission.

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