The real work begins today, now that the grandstanding of opening statements was dispensed with last week. Actually, work has been ongoing since last week, as deal-making and political positioning--particularly on the Sec. 716, the Lincoln provisions.
After a flurry of reports yesterday, the last word last night was that Lincoln was open to a compromise on the provision, which the administration has been fighting tooth and nail, despite the fact that it has gained the support of some key regional Federal Reserve presidents. Additionally, Paul Volcker has softened in his opposition to it, so it continues to live.
The compromise would "phase in over two years a requirement that commercial banks push out their swaps trading desks to subsidiaries."
Under the proposed new language, during the phase-in federal banking agencies would have two years to determine the impact of the measure on mortgage lending, small business lending, jobs and capital formation. The proposal does not provide for any action after the study.
The revised language being considered by Lincoln would clarify that banks with access to Federal Deposit Insurance Corp. deposit guarantees and the Federal Reserve’s discount lending window would be allowed to hold a separately capitalized swap dealer in an affiliate of the bank holding company.
The good news is that the provision has enough support within the conference committee that it is being negotiated--and this compromise doesn't seem fatal to the end goal, at least not yet. As David Dayen points out, though there's a danger of the provision becoming a bargaining chip as conferees try to balance demands of Wall Street lobbyists and the White House. Derivatives reform is slated to be one of the last titles to be negotiated.
There's a lot more than just Sec. 716, though. To sum it up in a narrative that makes sense, Mike Konczal argues for getting the best out of both bills in a new report for the Roosevelt Institute. Here it is in a handy graph (click on it to see it full-size at his site).
And here's a quick and dirty summary from him of the report:
There was a lot to choose from, and rather than give you dozens and dozens of examples I decided to focus on four that I thought were the closest to fantastic reform but were also in the most danger of being tossed overboard. Specifically, I frame it as how something that is in the baseline Senate bill (or something that is very close to being in there, namely the Cantwell and Merkley-Levin amendments) forms a solid foundation, and with an amendment or two brought over from the House it would be significantly better.
There is uncertainty in whether resolution authority will work in practice, and as such mechanisms that make it more credible are worth fighting for. Banks need to hold more and better capital, and there are amendments between the House and Senate that can deliver both. The over-the-counter derivatives market need to be brought into the disinfectant sunlight of clearinghouses and exchanges, and there is a clear path in the bill that gets the financial sector there. And an ongoing audit of the Federal Reserve using the mechanism from the Senate version gets us closer to an ultimate goal of transparency.
One of those amendments that need to be brought over from the House, Simon Johnson argues, is the Kanjorski amendment that "would greatly strengthen the hand of regulators vis-à-vis big banks and further reinforce their power to break up those banks." It's not as strong as the Kaufman-Brown Senate amendment to break up the big banks that failed in that chamber, but it would be step toward giving regulators that option in the next crisis.
Look for much more on all these moving parts as the conference moves forward. You can watch it proceed on C-SPAN3 this week and at the Sunlight Foundation where you can see in real time key info like how much money industry has contributed to the participating members.