- The Washington Times - Tuesday, April 20, 2010

The Senate’s 41 Republicans held firm Monday against White House attempts to peel off one vote and ram through a partisan financial reform bill in a Senate floor vote expected at the end of the week.

Treasury Secretary Timothy F. Geithner in recent days has met with a string of moderate Republicans to see whether any modifications in the bill could win their votes, but Republican legislators have emerged from the meetings saying they want the Democrats to go back to negotiating with Senate banking committee Republicans to come up with a bipartisan bill. Financial reform legislation traditionally has been bipartisan in both houses of Congress.

“I am very optimistic that, given more time and the kind of discussion that I just had with the secretary of the Treasury, that we can put together a bipartisan bill that will deal effectively with the ‘too big to fail’ phenomenon,” said Sen. Susan Collins of Maine, the latest to meet with Mr. Geithner.

But Mrs. Collins said it would take weeks, not days, to forge a compromise bill. Unless the legislation is improved, she said, she would not provide the one Republican vote Democrats need to overcome solid Republican opposition and proceed to debate on the bill on Thursday.

Thursday is seen as the tentative deadline for starting Senate floor debate on the bill, as President Obama is scheduled to make a speech on Wall Street that day at the same time Group of 20 finance ministers are arriving in Washington to negotiate further reforms that would apply to financial firms operating globally.

Like other Republicans, Mrs. Collins said she told Mr. Geithner that she is concerned that the bill does nothing to address problems with Fannie Mae and Freddie Mac, though the mortgage giants played a major role in the financial crisis.

In another reform sought by Republicans, Mrs. Collins said she suggested forcing the biggest financial institutions to set aside more capital reserves to cover potential losses from their risky activities, which she said would “go a long ways” toward solving the “too big to fail” problem that the legislation is intended to resolve. The higher capital requirements would create an incentive for firms to stay small and not become an encumbrance to taxpayers.

Republicans have charged that the bill would institutionalize “too big to fail” by creating a $50 billion “bailout” fund, which ostensibly would be used by regulators to shut down failing banks but which financial markets might interpret otherwise as a kind of guarantee that the banks will be kept running once the government takes custody of them.

“I believe that would create a moral hazard,” Mrs. Collins said. Mr. Geithner, who last year criticized creating such a fund for similar reasons, told her the administration was willing to jettison the proposal.

But Senate Banking, Housing and Urban Affairs Committee Chairman Christopher J. Dodd, Connecticut Democrat, said separately that Democrats will not drop the proposal unless a substitute is found that would provide the Federal Deposit Insurance Corp. with the funding it needs to start shutting down failing financial giants as required under the bill.

Without the fund, which would get its funding from assessments on the largest institutions with more than $50 billion in assets, “you could have this window where taxpayers could be exposed” and forced to pay for shutting down the banks, said Mr. Dodd.

“This is where I think the hypocrisy lies” in Republican charges that it’s a bailout fund, he said. If Republicans have a better way to protect taxpayers, Mr. Dodd said he is open to changing the legislation. But he said he has received no “specific suggestions,” only “broad-based partisan attacks” on the bill.

Brian Gardner, an analyst at Keefe, Bruyette & Woods, said if Democrats relent and take the time needed to draft a bipartisan bill, it probably would pass by large margins in the Senate.

But Democrats may continue “turning up the political heat” on Republicans by accusing them of siding with Wall Street, in an attempt to peel off one or two who are willing to vote for the bill. Continuing that theme Monday, Democrats accused Republicans of aiding firms such as Goldman Sachs, which on Friday became the first firm to be charged with fraud for its handling of subprime mortgage securities leading up to the crisis.

If the negotiations break down, Mr. Gardner said, Democrats could “blame Republicans for blocking the bill and use the issue against Republican candidates during the November elections,” though Republicans are sure to counter with charges that the Democratic bill continued to expose taxpayers to bailouts.

Mr. Gardner said one compromise Republicans may seek is to “push for some big banks to be broken up” as a way of preventing further monumental bailouts like the $182 billion rescue of American International Group in September 2008.

But Sen. Judd Gregg, New Hampshire Republican and a negotiator on parts of the reform bill, said it would be a “bad idea” for Washington regulators to try to break up big banks.

“If a company is large, that doesn’t necessarily mean they’re bad. In fact, large is good in many ways. We need large financial houses that can follow our American firms around the world and give us an international presence,” he told CNBC.

“The issue, of course, is if a large firm overextends itself and gets into serious problems. At that point, the government should not be and the American taxpayer should not be on the hook.”

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