In a 1,600-page, $1.1-trillion spending Bill, a provision to roll back an obscure financial regulation became a focal point of uproar as Congress struggled to keep the government funded.
The "push-out" regulation - a measure to ensure that banks trade their riskiest financial instruments without the protection of the Federal Deposit Insurance Corporation or the Federal Reserve's backup - was controversial from the start. Hundreds of billions of taxpayer dollars were shovelled into Wall Street banks after instruments like credit default swaps became worthless in the financial crisis, but even some crucial Democrats were unsure if Congress went too far when it voted to include push-out in the landmark Dodd-Frank law to regulate Wall Street in 2010.
But with regulators pressing to put rules into effect to carry out the law, a provision in the enormous spending bill to remove the push-out regulation drew bipartisan outrage. Representative Nancy Pelosi of California, the House minority leader, said she was "heartbroken" by the "taint" visited upon the spending bill, which would finance virtually all of the government through September.
Senator David Vitter, Republican of Louisiana, one of the Senate's most conservative lawmakers, teamed with Senator Sherrod Brown, Democrat of Ohio, one of its most liberal ones, to demand the provision's removal.
"If Wall Street banks want to gamble, Congress should force them to pay for their losses and not put the taxpayers on the hook for another bailout," the two wrote on Thursday to House and Senate leaders.
With a midnight deadline, Republican leaders postponed a scheduled vote on the spending bill on Thursday afternoon, trying to round up votes. Late Thursday night, the spending Bill passed the House, 219 to 206. The Bill now goes to the Senate.
Before the vote, the White House lamented the inclusion of a Wall Street measure that would "weaken a critical component of financial system reform aimed at reducing taxpayer risk," but not enough to oppose the overall bill.
The fierce Democratic opposition over the Dodd-Frank rollback provision created the odd spectacle of President Obama and Vice President Joseph R Biden Jr calling Democrats to muster support for the spending Bill over the opposition of Pelosi.
"I love the American political system, I really do, but the ability to sneak in substantive policy measures and make it take it or leave it, I think it's appalling," said Simon Johnson of the Massachusetts Institute of Technology's Sloan School of Management and a former chief economist at the International Monetary Fund, who is a prominent critic of the nation's big banks.
The push-out legislation assumed outsize importance, not only because of what it does but because the biggest Wall Street companies have fought it since it was proposed.
The language in the spending bill was inserted by Representative Kevin Yoder, Republican of Kansas, but he did not write it. Citigroup did. In 2013, the bank and its allies were able to corral a bipartisan vote to pass the rollback out of the House Financial Services Committee. In an analysis by The New York Times of Citigroup emails, more than 70 lines of the committee's 85-line rollback bill came from Citigroup's recommendations.
The banking industry strongly supports the rollback measure. James C Ballentine, an executive vice-president at the American Bankers Association, said financial instruments like credit deferred swaps are used to mitigate risk, not bolster it. To force their trading into units unprotected by federal taxpayers would be onerous, he argues.
"The push-out requirement to move some swaps into separate affiliates makes one-stop shopping impossible for businesses ranging from family farms to energy companies that want to hedge against commodity price changes," Ballentine said.
Tony Fratto, a former official in the Bush Treasury and White House, called the opposition "a lot of hyperbole" around "an incremental common-sense regulatory improvement."
Johnson said the evocation of family farms and mom-and-pop banks was specious. The four largest banks conduct more than 93 per cent of all derivatives trading in the United States. The repeal push is for them, he said.
Such banks can still deal in derivatives and credit-deferred swaps in units uninsured by the federal government, but they could charge clients a considerably higher premium if they could keep that federal backstop.
"In 2008, we learned the economic consequences of conducting derivatives trading in taxpayer-insured banks," said Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corporation, calling the repeal Congress is contemplating "illogical."
©2014 The New York Times News Service
