WASHINGTON — Now it’s all about the details.
With Republicans ceding the way for debate, legislation to impose sweeping new controls on financial institutions faces a test from both parties. Some Democrats seek tougher restrictions on banks; some Republicans aim to ease consumer protection provisions.
Senate officials expect about two weeks of votes on amendments that could change the bill in substantial ways.
The legislation, aimed at preventing a recurrence of the crisis that knocked the nation’s financial system to its knees in 2008, advanced Wednesday when Republicans abandoned their blockade in the Senate. The House has already passed its version.
While Democrats and Republicans agree the Senate will ultimately pass landmark changes, how the debate unfolds will determine whether the legislation achieves significant bipartisan support. Democrats still need 60 votes to get past procedural obstacles, a number they can’t reach without at least one Republican on their side.
“It is not just Republicans who are going to offer amendments,” said Sen. Bob Corker, R-Tenn. “This may be a real debate, which would shock America.”
The bill would establish a nine-member Financial Services Oversight Council, including the treasury secretary, the Federal Reserve chairman and the heads of regulatory agencies to monitor markets for threats, such as the bubble in housing prices and mortgage-backed securities that preceded the near-collapse two years ago.
The Federal Reserve would begin policing large bank holding companies and interconnected nonbank institutions whose collapse might pose a threat to the economy. With approval of the council, the Fed could even break up complex companies that posed a grave threat.
Most investment derivatives — such as the hundreds of billions of dollars in complex instruments blamed for accelerating the crisis two years ago — would have to be traded on regulated exchanges.
President Barack Obama said he was pleased debate on the Senate bill would proceed and said he hoped to sign a final version “very soon.”
“We’ll end up having a safer, more secure financial system,” Obama told reporters on Air Force One as he returned to Washington from a trip to the Midwest, “and I think banks and other financial institutions can get back to making money the old-fashioned way, by lending it to companies to build business and create jobs and do all the things we want our financial system to do.”
Sen. Richard Shelby of Alabama, the top Republican on the Banking Committee, said Wednesday he had received assurances that Democrats would adjust the bill to address GOP concerns that it would perpetuate bailouts of banks. But he said he and Sen. Chris Dodd, D-Conn., the committee chairman, had given up finding common ground on other provisions, including Dodd’s consumer protection language, which Republicans say goes too far.
Dodd said his talks with Shelby had been productive. “But,” he added, “I cannot agree to his desire to weaken consumer protections given the enormous abuses we have seen.”
Republicans said they now expect Democrats to jettison a $50 billion fund that would have been financed by banks to help liquidate large failing institutions. The Republicans said they also expect Democrats to tighten language so the bill would mandate that shareholders’ stakes in a failing firm be wiped out. The current bill says there would be that presumption.
“Now that those bipartisan negotiations have ended,” said Senate Republican leader Mitch McConnell, “it is my hope that the majority’s avowed interest in improving this legislation on the Senate floor is genuine and the partisan gamesmanship is over.”
Democrats said the Republicans had given in after three days of votes to block debate, realizing they were on the losing end of a battle for public opinion. The Republican retreat came one day after senior executives of Wall Street giant Goldman Sachs were denounced by lawmakers from both parties at a marathon Senate hearing.
Sen. Sheldon Whitehouse, D-R.I., said: “There’s been immense pressure bottled up inside the Republican caucus through these last three votes. A lot of their members have been very deeply unhappy with the direction their leadership has been taking them. Better heads prevailed.”
Republicans have begun to focus their criticism on the consumer protection provision.
The Senate Democrats’ bill would create a Consumer Financial Protection Bureau within the Federal Reserve that would have power to police transactions between financial institutions and their customers.
Republicans say the bill would have unintended consequences that could ensnare small business owners for merely extending credit to their customers.
A group of Democrats is also seeking to put new restrictions on banks, including placing limits on their size.