Liberal Democrats are rallying to protest the inclusion of a change to the Dodd-Frank financial reform law in the massive spending bill released Tuesday night.
Led by Sen. Elizabeth Warren, the Massachusetts Wall Street critic, Democrats increasingly expressed outrage over the proposed change throughout the day Wednesday, ramping up their political rhetoric as congressional leadership moves to quickly pass the spending bill before government funding runs out Thursday night.
The omnibus spending bill would roll back a small and arcane, yet substantive, provision of the law, one that prohibits banks from speculating with derivatives, using funds that enjoy taxpayer insurance.
That tweak has enjoyed bipartisan support in the past, including from top Democrats such as Maxine Waters of California, the ranking Democrat on the House Financial Services Committee. Republicans and banking industry representatives noted the reversal in many Democrats’ attitudes Wednesday.
Underlying Democrats’ concern about the change, however, was the fear that it could set a precedent for larger changes to financial regulation under a GOP-controlled Senate.
“This is a roadmap for the stealth unwinding of financial reform,” said former House Financial Services Committee chairman Barney Frank, one of the law’s architects.
Frank has previously opposed the swaps push-out, as the limit on derivatives trades is known. But on a call with reporters Wednesday afternoon, Frank cast the issue as one of tactics. In the future, he said, Dodd-Frank’s supporters would have to worry about the integrity of the law every time an important bill came up.
“Substantively and procedurally, this is a very real assault on the possibility of ensuring stability in the financial system,” Frank concluded.
Democrats were pushed by Warren, who took to the floor Wednesday to encourage House Democrats to oppose the spending bill, which Republican leadership will rely on Democrats to help pass. Later in the day, at a press conference with Waters, she declined to say she would hold up the bill in the Senate. But she said the House vote would “show us the worst of government for the rich and powerful.”
Other lawmakers joined Warren’s opposition to the bill throughout the day.
“I am clearly, firmly clearly on the side that this key provision in shutting down the Wall Street casino should not be reversed,” said Oregon senator Jeff Merkley.
Citing the fact that Congress passed a previous deregulation of derivatives in the “dead of the night” in a larger bill in 2001, Sen. Carl Levin of Michigan said on the Senate floor that “a legislative vehicle is the right place for considering these issues, not an urgent appropriations bill.”
Federal Deposit Insurance Corporation Vice Chairman Thomas Hoenig also entered the debate Wednesday afternoon, releasing a statement calling the effort to repeal the swaps push-out “illogical.”
The Dodd-Frank provision, Hoenig said, is “an important step in pushing the trading activity out to where it should be conducted: in the open market, outside of taxpayer-backed commercial banks.”
Nevertheless, repealing the derivatives provision had supporters on its merits.
The Bipartisan Policy Center’s Martin Neil Baily, a former Clinton economic adviser, said that passing the legislation, which includes added funding for some regulatory agencies, “will improve financial regulation by providing additional resources to regulators in order to fulfill Dodd-Frank’s objectives, while eliminating a duplicative regulatory structure that has proven far more difficult to implement than originally anticipated.”
The American Bankers Association also stepped into the debate. The existing law “harms the ability of banks of all sizes to serve their customers,” said ABA Executive Vice President James Ballentine, by limiting their ability to use derivatives to hedge and mitigate normal risks, as opposed to speculating.
