WASHINGTON – The Senate on Wednesday voted 93-5 to revamp how regulators can dissolve large financial firms that are dubbed “too big to fail,” a rare bipartisan agreement that replaced a controversial proposed $50 billion bank-financed fund to help break up ailing companies.
The Senate also voted 96-1 to guarantee that no taxpayers’ money will be used to bail out financial institutions, a stand of political cosmetics since no bailouts are contained in the legislation. Those tallies kicked off Senate voting on the historic bill that would overhaul how the government regulates and oversees the nation’s financial institutions.
The votes were important steps, since the agreement on breaking up big firms resulted from months of talks by leaders of the Senate Banking Committee from both political parties. Instead of the partisan rancor that’s dominated Congress for years, lawmakers are signaling this time that they’re willing to compromise on one of 2010’s biggest legislative challenges.
Senate Banking Committee Chairman Christopher Dodd, D-Conn, hailed the votes as a “fundamental change in our country’s ability to protect taxpayers from the economic fallout of having a large, interconnected firm collapse.”
“This is very positive,” said Sen. Judd Gregg, R-N.H.
The House of Representatives passed a similar bill last year, and President Barack Obama hopes to sign final legislation this summer, but significant obstacles to Senate passage remain.
The legislation, written largely by Democrats, would create an agency inside the Federal Reserve Board to protect consumers with credit products such as mortgages and credit cards. Republicans fear that the agency could force small businesses to endure burdensome regulations and make it hard for them to attract capital.
Dodd says the bill would do no such thing, but Sen. Richard Shelby of Alabama, the top Banking Committee Republican, who negotiated the Wednesday agreement with Dodd, offered an alternative consumer-protection plan after the initial lopsided votes.
“I don’t want to leave the impression I support the overall bill,” he said.
The other flash point is likely to involve the bill’s ban on most bank trading of derivatives for their own accounts. Derivatives are exotic financial products that played a big role in the 2008 economic collapse.
Changing the proposed ban on bank trading of derivatives is expected to attract bipartisan support. “What we have now is a disaster,” Gregg said of the current language, written largely by Senate Agriculture Committee Democrats.