Conferees Approve Revised Report On Reform Package

June 30, 2010

CongressDaily

Bill Swindell, with Andy Leonatti and Dan Friedman contributing

Negotiators approved a revised conference report Tuesday for the financial regulatory overhaul by striking an almost $18 billion tax on large firms, and replacing it with a more politically palatable revenue generator: ending the maligned Troubled Asset Relief Program.

Conferees agreed to end the $700 billion TARP three months before it was slated to expire, and boost the minimum premiums that large banks have to pay into the FDIC's insurance fund to be able to comply with pay/go budget rules needed for House passage.

The change would benefit insurance firms and hedge funds from paying tens of millions of dollars in taxes.

The House Rules Committee will take up the measure today at 9 a.m.

Senate Banking Chairman Christopher Dodd was forced to revise the pay-for after Sen. Scott Brown, R-Mass., announced his opposition because of the bank tax, which was added at the last minute last week by House Financial Services Chairman Barney Frank, so the package could adhere to pay/go rules.

Brown provided key support for Senate passage on an earlier version, and his reversal, along with the death of Sen. Robert Byrd, D-W.Va., was potentially enough to sustain a GOP filibuster against the conference report.

Under the new language, TARP would be shut down immediately, with no additional funding that was not initiated prior to Friday. The program, passed in 2008 at the height of the financial crisis, was slated to end Oct. 3 and the Obama administration has been eager to tout its decreasing obligations to taxpayers with only $192 billion outstanding. The move would lower the program's borrowing authority, producing an accounting change of $11 billion in savings.

"That ought to be a very appealing proposal; you could do that immediately, except for existing obligations. People have been talking about that for a long time. This does that and you get a substantial amount of the money from that," Dodd said.

The new language would increase the minimum ratio of reserves to insured deposits from 1.15 percent to 1.35 percent, forcing banks to pay more in premiums. The agency's Deposit Insurance Fund ratio stood at a negative 0.38 percent for the first quarter of 2010.

Dodd said the change in the formula would not affect banks with less than $10 billion in assets, so that it would not trigger opposition from the Independent Community Bankers of America. He also noted FDIC Chairwoman Sheila Bair supported the change to bring more funding into the deposit fund.

In a letter to lawmakers, Bair wrote the 1.15 level was insufficient in "times of stress" and that the ratio needs to be increased. She added the ratio needs to be increased as the economy recovers and the banking system normalizes.

"So that is what we are talking about here; and by exempting the small banks and doing that, that makes up the difference and that is a very appealing alternative," Dodd said. The change would raise about $5.7 billion.

The changes should help alleviate concerns of Brown and other Republicans such as Sens. Olympia Snowe and Susan Collins of Maine.

They have all protested the insertion of the fee to close the hole in the bill, saying they were shocked to find out it was added by Frank in the waning hours of conference committee negotiations early Friday. The three, along with Sen. Chuck Grassley of Iowa, were the only Republicans to vote for the measure.

In his letter to Dodd and Frank, Brown called the levy a bank tax that likely would be passed along to consumers.

"It is especially troubling that this provision was inserted in the conference report in the dead of night without hearings or economic analysis," Brown wrote. "While some will try to argue this isn't a tax, this new provision takes real money away from the economy, making it unavailable for lending on Main Street and gives it to Washington. That sounds like a tax to me."

Dodd said he had met with Brown earlier Tuesday and showed him the specifics of the new pay-for but would not speculate on how he or any other member would vote.

He also said he thought it was "probably doubtful" that the bill would hit the Senate floor this week, due to services for Byrd. A Senate Democratic aide said that passage could be difficult with the funeral slated for Friday but still possible.

"[If] people want a few more days to digest it, we'll come back and the leaders certainly told me that this would be the first priority on the return from the July 4 break," Dodd said.

The CBO and Joint Committee on Taxation estimated the earlier conference report would be budget-neutral over a 10-year period, bringing in $26.9 billion while costing that amount.

The bank fee was estimated to bring in $17.9 billion between 2012 and 2015, which would be deposited in a Financial Crises Special Assessment Fund.

The assessments would have been levied on financial firms with more than $50 billion in assets, with a $10 billion threshold for hedge funds. It is estimated that up to 30 hedge funds, 35 banks and 32 other firms -- mostly in the insurance field -- would have been affected.

With the new language, insurance companies and hedge funds would be off the hook for any new assessments. "I think it is a mistake not to make them pay," Frank said of assessing hedge funds. The change does preserve the Obama administration's bid for a proposed $90 billion bank tax to help recoup TARP funds.

Republican conferees who oppose the overall package blasted the revenue changes. "It appears to me that Chairman Dodd is proposing a budget gimmick," said Banking ranking member Richard Shelby.

Sen. Judd Gregg, R-N.H., complained that Democrats were using unspent TARP funds on spending for the bill, rather than instead of paying down the debt. "This ranks right up there at the top of the list for pure deception relative to treating the American taxpayer in an inappropriate way," Gregg said.

A Gregg amendment to use unspent funds from the 2009 stimulus package as a new revenue source failed, 7-5.

Sen. Saxby Chambliss, R-Ga., was defeated in an amendment that he said would make sure end users that are exempted in the bill's derivatives title do not have to post margin requirements for swaps. Chambliss said it was a "huge mistake" in the bill. The amendment was defeated on a 6-6 tie with Senate Agriculture Chairwoman Blanche Lincoln voting with Republicans. Dodd offered a colloquy on the Senate floor to address the issue, saying he thought the language was clear.

Frank had said he would refuse to reopen any titles in the conference report except for the pay-for, so any Republican amendments in other sections would not be considered. He said Chambliss could address the issue in a subsequent measure that would correct technical matters.

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