House-Senate Panel to Eye Derivatives, Credit Overseer

Rep. Barney Frank and Sen. Christopher DoddA bipartisan panel of lawmakers from both chambers next week will likely begin hammering out a merged bill out of the financial oversight legislation approved by the House in December and the Senate this month. 
The reconciled law, expected to make it to the desk of President Obama by July 4, will contain a first of its kind consumer financial protection bureau to shield Americans from unfair, abusive or deceptive lending practices.
The entity’s much-debated autonomy may still be an issue, although a regulatory panel will likely have some oversight over the new watchdog as critics fear over-reaching authority would hurt non-banking institutions.
The Senate yesterday voted 60-30 to instruct their members preparing for the reform bill conference to exclude auto dealers from the new consumer protection bureau’s authority.
The House version did not include auto dealers under the consumer watchdog over credit cards, mortgages and other loan products. But the Senate version does. It is very likely that auto dealers will not be covered by the new credit overseer.
Another controversial provision to be a focus of the reform conference will involve restrictions in the proprietary trading of derivatives by federally-insured banking institutions.
Growing opposition from even top White House officials and regulators – including Federal Reserve Chairman Ben Bernanke and Sheila Bair, chairman of the Federal Deposit Insurance Corp. – may severely weaken or eliminate an amendment to the Senate version that calls for banks to spin-off derivatives, or “swaps” trading units.
Other provisions in both versions of reform already restricts or creates new regulatory oversight over such trading, considered instrumental in the huge losses that led to government bailouts of corporate giants at the height of the financial crisis.
Critics of an outright ban on derivatives say such a move would hamper the ability of financial institutions in hedging strategies and weaken their financial outlook, particularly in times of unstable market conditions.
Swaps are agreements between parties based on the outcome of underlying financial instruments. The unregulated trading of credit default swaps led to massive losses based on the performance of faltering subprime mortgage-backed securities. But derivatives also entail much more commonly traded products, such as commodity and currency futures contracts, options on futures or equity options.
The House-Senate conference committee will be headed by Rep. Barney Frank, D-Massachusetts, the chairman of the House Financial Services Committee and author of the House’s version of the financial oversight bill.  Joining him will be Sen. Christopher Dodd, D-Connecticut, chairman of the Senate Banking Committee and author of the Senate bill.
Seven Democrats and Five Republicans from the Senate will sit on the committee. From the House, Frank reportedly wants a total of eight Democrats and five Republicans.
For more details, see the latest articles on financial oversight reform: 

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