The Wall Street reform debate continues on the Senate floor right now, with a cloture vote still expected at 2:30pm ET. The Democratic leadership hopes they can thread the needle and get the one Republican they need so they don’t have to address Maria Cantwell’s legitimate concern about derivatives loopholes. It seems they just don’t want to open the can of worms of allowing more amendments, even ones with broad support. Daniel Akaka, a Democrat, objected to Tom Harkin bringing up an amendment on annuities because he didn’t like a part of it. That’s what we’ve come to. It’s still Lord of the Flies on the Senate floor, with no real leadership emerging.

Meanwhile, behind the scenes, the Treasury Department and the Federal Reserve is scouring the bill and trying to red-line parts that might shake up the big banks, including an obscure proposal Susan Collins passed on a voice vote last week:

Officials from the Treasury Department, Federal Reserve and Wall Street are working to kill an amendment to the Senate’s financial regulations bill that was adopted unanimously last week and that could force big U.S. banks to hold billions of dollars in additional capital. This could also potentially complicate international negotiations on banking rules.

The amendment, written by Sen. Susan Collins (R,. Maine) with backing from Federal Deposit Insurance Corp. Chairman Sheila Bair, would force banks with more than $250 billion in assets to meet higher capital requirements, according to a summary provided by her office. The amendment was passed with little fanfare and attached to the broader financial-overhaul bill.

The amendment is significant for both political and practical reasons. Politically, it reignites a turf war between regulators as they maneuver to finish rules for global capital standards by December. Practically, it sets into law standards for how much capital large bank holding companies should be required to hold, upending precedent that gives wide discretion to regulators to set these standards.

Somehow, this capital requirements amendment got by everyone on the floor, but it’s certainly made the big banks unhappy – they apparently “didn’t recognize the significance of the amendment” at the time. And Treasury and the Fed have been adamant that the Congress not write capital requirements into the law, giving regulators who in the past have been captured by industry the discretion to set the limits. Treasury has claimed that any specific numbers from Congress would disrupt the international process on capital requirements, as if Congress couldn’t go back and adhere to those standards if need be (like they didn’t quicken their pace to pass TARP).

But the House bill has a hard leverage cap of 15:1. And so this should represent the floor of what should get into the final bill in conference committee. Moreover, the Collins amendment has the support of Sheila Bair of the FDIC, so there’s at least one executive branch champion in the corner of capital requirements. But you could imagine a scenario where the hard leverage cap goes out in conference, and so does Collins’ restrictions on the big bank capital requirements, because they are technically different. Certainly that’s the preferred scenario of the banks.

We’ll be watching.

UPDATE: Mike Konczal has a further explanation of the Collins amendment and why the banksters want it dead. He also notes how ridiculous the argument is that Treasury wants to preserve the capital requirements discussion for the international Basel III negotiations, since Treasury is trying to fight the SAME THING over there.

David Dayen

David Dayen

1 Comment