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Sen. Christopher Dodd (C) and Rep. Barney Frank (L) walk toward the podium prior to speaking to the media after a meeting with President Barack Obama at the White House on May 21 in Washington.
NEW YORK—The U.S. House and Senate have exactly one week to reconcile their versions of the landmark financial reform bill—aimed at preventing the next major financial crisis—before President Barack Obama heads out of Washington on Friday.
House Financial Services Committee Chairman Rep. Barney Frank (D-Conn.) and Senate Banking Committee Chairman Sen. Chris Dodd (D-Conn.) and colleagues will meet on Tuesday to hash out varying positions on a number of regulatory issues surrounding both Wall Street and Main Street.
Indeed, ramifications of the financial reform bill could be vast. Many issues will be discussed, including regulations over the $600 trillion financial derivatives market, consumer finance and mortgages, as well as credit card reforms. It may very well become a major part of President Obama’s legacy.
Financial Derivatives
Derivatives, or financial securities that “derive” their value from a reference security or trigger-event, seem like arcane Wall Street jargon—but they were a major culprit that exacerbated the financial crisis, and directly contributed to the near-collapse of insurance giant American International Group Inc. in September 2008.
Many lawmakers have proposed legislation to require more transparency over derivatives, which used to be negotiated behind closed doors between financial institutions.
Both the Senate and the House version of the financial reform bill seek an exchange or clearinghouse to process the trading of such securities to increased transparency.
A wrinkle in the derivatives reform bill from the Senate was recently introduced by Sen. Blanche Lincoln (D-Ark.) who proposed that banks isolate their swaps desks—by spinning off all trading of derivatives onto a new entity. Swaps include securities contracts that hedge interest rate, foreign exchange, as well as credit risk.
As of last Friday, Rep. Frank said that his side was close to implementing the swaps regulation, which Wall Street banks have been staunchly opposing.
