In their first demonstration of their new clout following the election of Scott Brown (R-Mass) to the U.S. Senate, Republicans on Monday were able to stop legislation designed to reform financial services regulation in the wake of the crippling financial crisis. The GOP opposition was joined by one Democrat, Sen. Bill Nelson of Nebraska.
Sixty votes were needed to take up the reform bill under a procedural "cloture" vote held this afternoon but only 57 senators voted to take up the bill, while 41 voted against it. All Republicans voted against the bill. Not voting were Sens. Christopher Bond, R-Mo., and Robert Bennett, R-Utah, who were absent. They would likely have voted against taking up the bill.
Senate Majority Leader Harry Reid, D-Nev., voted against cloture as a procedural matter so that the bill could be reconsidered later under Senate rules. Proponents of a bill will have to go back to work to draft a bill that can garner 60 votes needed to move ahead.
Speaking immediately after the vote, Sen. Mark Begich, D-Alaska, expressed his disappointment at the results. "It's amazing... They're drafting some bill somewhere in some dark room. I don't know if it's in the Capitol or up on Wall Street."
White House Had Urged Action
Earlier Monday, the White House issued a statement calling on Congress to pass the Restoring American Financial Stability Act. The legislation would "create clear rules of the road and can be consistently and systemically enforced, thus creating a more stable financial system with better protection for consumers and investors," the statement said.
The administration urged the Senate "to resist pressure from those who would preserve the status quo and to stand up for long overdue reform that will protect American families and the long-term health of the nation's economy."
On Sunday, Senate Banking Committee member Bob Corker, R-Tenn., who negotiated to try to come up with a bipartisan compromise agreement on the bill, reiterated his opposition to the bill, which was approved last month by the Banking Committee on a party-line vote.
Addressing Systemic Risks
Corker expressed hope that a bipartisan agreement can be reached, but he said "fundamental omissions" in the legislation must be addressed. He spoke on ABC's "This Week" television program.
While the bill, authored by Senate Banking Committee Chairman Christopher Dodd, D-Conn., addresses systemic risk, liquidation of large firms, consumer protection and derivatives regulation, "There are still many changes that need to occur before we move to debate the bill on the floor," Corker said. He said he plans to introduce a series of amendments to address omissions in the legislation.
"At the core of the financial crisis were home loans that should never have been written because the borrowers could not repay them," he said. Minimum loan underwriting standards need to be established requiring appropriate down payments and verification of borrowers' ability to pay for the life of the loan. That is not in the bill currently.
More Disclosure Sought
In addition, investors who bought mortgage-backed securities had no way of enforcing the representations and warranties made by the sponsors because they lacked access to underlying data or a third-party opinion, Corker said. Instead they relied on the securitizer or credit rating agencies that had conflicts of interest in reporting that the securities were sound because they were paid by the issuer. Corker wants mandated disclosures and more transparent information about such securities.
If a financial firm fails and must go through a resolution process, compensation and bonuses received by upper-level executives and board members should be used to repay the firm's creditors, Corker said. He wants to require the Federal Deposit Insurance Corp. to execute a "clawback" provision as part of liquidation proceedings.
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