Today in Financial Reform: Not Much

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The Senate began voting on amendments to their financial re-regulation bill in earnest Wednesday with changes from Barbara Boxer and the Shelby/Dodd tag-team sailing through on bipartisan votes. The ultimate impact to the bill? Not a lot. Boxer’s amendment was a three-paragraph gimmee explicitly stating in plain language what the resolution title already says: Seized firms are to be liquidated, costs sooner or later fall to the financial sector, not the taxpayer. It passed 96-1.

The Shelby-Dodd amendment dealt more substantively with that sooner or later part; it stripped the $50 billion ex ante resolution fund from the bill. Rather than have the financial sector pay into a pool that would cover overhead costs to liquidate failed firms, the resolution process will be paid for by money borrowed from the Treasury and paid back by the sale of assets as well as a tax on the financial sector after the fact. The amendment also tweaked language dealing with creditors to make sure they don’t gain more from the resolution process than they would from a standard bankruptcy, and generally tightened the bill to try to guard against moral hazard. The FDIC would now be required to get Congress’s approval before guaranteeing a company’s debt and the Fed’s 13(3) emergency lending powers would be limited to solvent firms. This package of changes managed to squeak by a of vote of 93-5.

All in all, Wednesday’s action has little bearing on the main thrust of the bill. But if Democrats and Republicans hope to wrap this thing up in the coming weeks, here are three possible remaining sticking points:

Unintended poison pills. There are some amendments that could make it into the bill during the amendment process that might jeopardize the final vote. The Brown-Kaufman SAFE Banking Act that would break up big banks comes to mind. One potential hurdle that’s already in the bill and may be hard to get out: Blanche Lincoln’s measure totally spinning off the derivatives trade from banks.

Consumer protection. Republicans want to constrain the scope and reach of the proposed Consumer Finance Protection bureau. They floated a new proposal Wednesday to relegate consumer protection duties to a division of the FDIC and limit its oversight to “large non-bank mortgage originators” (read: not the commercial banks, credit card companies, pay-day lenders and other institutions Democrats would like to see under the bureau’s power.)

Fannie and Freddie. The Dodd bill doesn’t address the twin government-backed mortgage giants and Republicans really want it to (or at least kick the can down the road a bit.) There’s not a lot of room for negotiation on this issue as Democrats are currently arguing it’s shouldn’t be handled in this legislation. Sure to fuel the debate is news that Freddie Mac is asking for an additional $10.6 billion in federal aid after posting an $8 billion loss in the first quarter of 2010.

Shorter: No earth-shattering revelations today, stay tuned.