The Senate Banking Committee just started and ended its markup of financial regulation (you can watch on CSPAN-3), passing out the bill on a party-line vote.

At the beginning of the day, it was thought that Republicans would seek to bog down the markup with hundreds of amendments designed to weaken or kill the bill. Many of the amendments were seen as completely frivolous, doing nothing but changing effective dates, etc. However, Chairman Dodd apparently stopped that in its tracks, with the bill perhaps greased for committee passage:

In a move to clear the way for a final vote, about two dozen Democratic amendments are being added to a financial reform bill slated to come before a U.S. Senate committee on Monday, according to a document obtained by Reuters.

Senate Banking Committee Chairman Christopher Dodd plans to bring a bill that he unveiled last week to a vote on Monday, with Republicans having agreed not to move as many as 300 amendments they had drawn up.

No such agreement has been reached among Democrats, but Dodd is moving to prevent possible delays over amendments by incorporating many of them in a revised version of his bill.

Among the amendments accepted by Dodd include removing a measure to let the Federal Reserve “rescue” firms critical to market functioning, and requiring that the corporate board of the credit rating agencies be independent.

Republicans apparently withdrew their amendments because they wanted to fight things out on the Senate floor instead. Richard Shelby just said that Republicans had “no intention” of holding up the bill in committee, and remained hopeful of ultimately supporting the product coming out of the Senate.

This led to financial reform passing the Banking Committee today on a party line vote. It could hit the Senate floor after the Easter recess, by mid-April.

However, this momentary stand-down does not mean that passage is assured. In fact, major fights loom ahead. Liberals like Bernie Sanders have not warmed to the bill yet, and conservatives working for the banking industry lobbyists want to weaken the language that could put the Volcker rule in place.

The fate of the Volcker rule, which would ban proprietary trading at U.S. banks, may hinge on the word “shall.”

Lobbyists for financial firms are seeking to water down language in Section 619 of the 1,336-page proposal by Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat. Their message: Study the issue first to see if it’s needed, then give regulators the option of imposing a ban.

The current language in Dodd’s March 15 draft says federal agencies “shall issue final regulations implementing” the Volcker rule, which was proposed by the Obama administration in January and named after former Federal Reserve Chairman Paul A. Volcker, now a presidential adviser.

Wall Street may ultimately decide that the bill doesn’t cut into their core business and might as well move forward, but lobbyists have to earn their keep, after all.

Perhaps the biggest obstacle to an agreement may be the Federal Reserve. Ben Bernanke is working diligently to maintain as much power for his portfolio as possible, in particular keeping their regulatory authority over banks. He also has spoken of resolution of big banks getting paid by shareholders and creditors rather than taxpayers, but he probably would have said that in September 2008, too.

Bernanke’s push for more authority would be easier to swallow if the crucial consumer protection piece of the Dodd bill wasn’t housed in the Fed, which would control the consumer protection agency’s budget.

Clearly there are lots of ways to strengthen the current bill. And the Senate floor now becomes the venue for those actions. That’s probably a victory because the Senate as a whole is a tick to the left of the Banking Committee on these issues. And while I don’t totally agree with Barney Frank that financial reform will be “easier” to pass than health care, clearly there are ways Democrats can frame the issue to give Republicans a choice between ordinary people and the big banks. That only works, however, if the legislation is strong enough not to make Democrats susceptible to the same charge.

Meteor Blades has a good 1,000-foot view of things on financial reform.

David Dayen

David Dayen