- The Washington Times - Wednesday, December 2, 2009

UPDATED:

WASHINGTON (AP) — A key House panel voted Wednesday to slap new restraints on big Wall Street institutions and to demand greater openness from the U.S. central bank, clearing a significant hurdle in the drive for a sweeping financial regulations overhaul.

Motivated by the crisis that caused a near collapse in financial markets, the House Financial Services Committee approved legislation 31-27 that would give the government the right to dismantle financial firms that pose a risk to the economy, even if they are healthy.

The legislation also would require a detailed congressional audit of the privacy-shrouded Federal Reserve and would assess fees up front on large financial institutions to pay for the failure of their competitors.

The action sets the stage for a full House vote next week on comprehensive regulatory changes meant as a response to the financial sector’s meltdown more than a year ago. That package, set to go to the House floor on Wednesday, would include the creation of a new consumer finance protection agency, restrictions on complex financial instruments blamed for feeding last year’s panic and restrictions on Wall Street compensation.

The committee’s vote, however, was closer than expected. Ten members of the Congressional Black Caucus did not vote, signaling their continuing demands that the Obama administration address unrelated joblessness issues facing the black community, where unemployment far exceeds the national average.

Their absence from Wednesday’s vote signals potential troubles ahead for the comprehensive regulatory package if their concerns are not addressed. Forty-one House members, all Democrats, are members of the caucus.

In a statement Tuesday, White House spokeswoman Jennifer Psaki said: “The president’s top priority is economic recovery and we understand the profound impact that the recession is having on the African-American community. We welcome a continuing dialogue with the CBC on how we can collaborate to implement the president’s agenda to support economic growth and opportunity for all Americans.”

Wednesday’s vote marked the end of the committee’s work on the package that began months ago after the administration submitted its package of regulatory changes meant to avoid a repeat of last year’s crisis.

Since then, some tough provisions requested by the Obama administration have been removed or weakened through exceptions. In the case of the Fed audit and the fee assessment on financial firms, however, administration officials have said the committee was too harsh.

As chairman, Frank faced not only Republican opposition to most provisions but also had to compromise with moderate Democrats who were not eager to go as far as Obama.

“You make trade-offs,” Frank said Tuesday. “I think our bill came out stronger than I was afraid it would given where the membership was.”

In a response to the government’s rescue of the huge insurance conglomerate American International Group, the committee also approved legislation that would create an Office of Insurance Information. It would monitor the insurance industry and help detect gaps that could arise under the industry’s state-based regulatory system.

Regulatory efforts in the Senate were moving at a slower pace.

Banking Committee Chairman Christopher Dodd, after introducing a draft piece of legislation before Thanksgiving that was panned by Republicans, has asked Democrats and Republicans on his committee to split up into issue-based groups to work out compromises.

While Dodd, a Connecticut Democrat, initially aimed to have the legislation clear his committee this month, that could slip into next year.

Treasury Secretary Timothy Geithner told the Senate Agriculture Committee on Wednesday that legislation to bring transparency to the global, unregulated $600 trillion derivatives market was needed soon to restore confidence in the U.S. financial system.

The issue is difficult because the administration has asked for banks and hedge funds to trade these previously unregulated instruments on regulated exchanges. A coalition of companies that use derivatives to hedge risk — not speculate — have argued for exemptions.

Sen. Jack Reed, D-R.I., who is taking the lead on derivatives on the Senate banking panel, said he doesn’t believe in spelling out a series of exceptions in the legislation. He said regulators — the Securities and Exchange Commission and the Commodity Futures Trading Commission — should decide who is exempt.

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