With Senate Vote Complete, Bankers Eye Next Step

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WASHINGTON — As Senate leaders celebrated passage of regulatory reform Thursday, financial industry lobbyists were already focusing on the myriad problems they hope to fix before enactment.

The industry is hoping to use the reconciliation process — in which House and Senate leaders iron out the differences between their versions of the legislation — to reverse a series of setbacks suffered during the past two weeks, including eliminating provisions that would regulate interchange fees on debit cards, prohibit banks from counting trust-preferred securities as Tier 1 capital and force institutions to spin off their swaps desks.

"The bill contains a large number of very problematic provisions, and it has turned very negative for banks of all sizes," said Ed Yingling, the American Bankers Association's president and chief executive. "We are going to have to try and clean up as much of this as we can."

The Senate voted 59 to 39 to approve the reform bill late Thursday.

Leaders from both chambers of Congress must now hash out a host of differences between the two bills before sending a final draft to President Obama. It is unclear whether the House and Senate will resolve the differences in a formal conference, as House Financial Services Committee Chairman Barney Frank has advocated, or in the more customary process, ping-ponging versions back and forth between the chambers.

Complicating things, however, is the fact that the regulatory reform bill came to the Senate floor without a bipartisan agreement, which meant a lot of amendments were added with little debate.

"With the other banking statutes that were passed, there were much more extensive hearings, and there seemed to be a much more deliberative process," said Ron Glancz, a partner in the Venable law firm. "When we saw the provisions, we had a lot more time to react to them," Glancz said. "This has really gone with lightning speed in the Senate."

Yingling listed several provisions added in the Senate that his group hopes to kill as the bill is negotiated with the House.

Among them are an interchange amendment from Sen. Dick Durbin, D-Ill., that would require the Federal Reserve Board to ensure interchange fees on debit cards were reasonable and allow merchants to offer discounts for particular forms of payment; a measure from Sen. Susan Collins, R-Maine, that would bar banks from counting trust-preferred securities as Tier 1 capital; a provision from Senate Agriculture Committee Chairman Blanche Lincoln that would force banks to divest their swaps units and the proposed elimination of the thrift charter.

Yingling acknowledged that banks will not get everything they seek, and he blamed the Obama administration for fostering an anti-bank atmosphere.

"There is no way to get a bill that we like at this point," Yingling said. "But part of the problem is that they have in part created an atmosphere that is a bit of a feeding frenzy here in the Senate."

Camden Fine, the head of the Independent Community Bankers of America, said that his group had largely supported the thrust of reform but still has problems with last-minute amendments, including those added by Collins and Durbin. Though Collins has said she wants to change her amendment to apply only to the largest banks, the language in the bill would affect all holding companies.

"We are deeply concerned about the Collins amendment," Fine said. "Unfortunately, the way the amendment was drafted creates some very negative unintended consequences on community banks."

Similarly, though Durbin sought to exempt small banks from the interchange amendment, Fine said its impact would still be felt. The bill would allow the Fed to compel large banks to cut their interchange rates on debit cards. If that happens, community bankers fear retailers will be able to force them to follow suit.

"The effect of the Durbin amendment would be to knock 90% of community banks out from being able to even offer debit cards," Fine said. "They'll just have to stop because they'll lose money."

Though the focus has lately been on changing the Senate bill, the House version also has provisions that the industry would like altered.

For example, Ken Bentsen, the executive vice president of public policy at the Securities Industry and Financial Markets Association, said his group is trying to ensure that the final bill incorporates the Senate's version of resolution authority, which he said was more fully fleshed out.

"On resolution authority they made tremendous progress on establishing a bankruptcy-like regime in the Senate," he said. "We think there is a lot to like in this bill."

The industry also prefers the Senate preemption language, which gives federal regulators more leeway to preempt state laws than the House version.

The Senate bill would also limit the power of state attorneys general to enforce federal law against national banks, while the House bill gives them a freer hand.

John Courson, the president and chief executive of the Mortgage Bankers Association, said his group also hopes to persuade the House to agree to the Senate version of a proposed 5% risk-retention requirement for mortgages.

Under the Senate bill, regulators could exempt loans that were properly underwritten. The House bill does not include as explicit an exemption. The House version would mean that a lot of "nondepositories, small businesses and independent mortgage bankers would not be able to continue to exist," he said.

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