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Critics Say Spending Bill Includes a Bonanza for Wall Street

Massive funding bill passes House 1:02

Tucked into a bill to keep the federal government open is a provision that opponents say amounts to a giveaway for the big banks that will raise the likelihood of a catastrophic replay of the 2008 financial crash.

The bill narrowly cleared the House on Thursday night despite a fight from liberal Democrats, most notably Rep. Nancy Pelosi of California, and conservative Republicans. The Senate could pass it as early as Friday afternoon.

Here’s what you need to know.

The history

Two years after the financial crash, and after taxpayers funneled hundreds of billions of dollars into the big banks to keep them solvent, Congress passed what’s commonly known as Dodd-Frank, a law that tightened regulation of Wall Street.

One of the provisions of the law says that if banks want to trade certain types of the risky, complex financial instruments known as derivatives, they must do so in a subsidiary that is not backed by federal deposit insurance.

As proponents of tighter financial regulation point out, repealing that provision makes it more likely that taxpayers will be on the hook for another bailout if the banks' risky bets on derivatives trigger big losses.

What does this have to do with a government shutdown?

Republicans slipped the change to Dodd-Frank into a spending bill that Congress had to pass to keep the government open.

Among those outraged was Sen. Elizabeth Warren, the most prominent bank critic in Congress, who said that a repeal would “let derivatives traders on Wall Street gamble with taxpayer money — and, when it all blows up, require the government to bail them out.”

She was joined in opposition by Sen. David Vitter of Louisiana, a Republican. In a open letter with Sen. Sherrod Brown, D-Ohio, Vitter wrote: “If Wall Street wants to gamble, Congress should force them to pay for their losses.”

What does the White House say?

President Barack Obama plans to sign the spending bill if it clears the Senate. And yet, in a statement, he fretted that the provision would weaken a component of financial reform that lowered taxpayer risk.

On Friday, he told reporters: “This, by definition, was a compromise bill. This is what’s produced when we have the divided government that the American people voted for. There are a bunch of provisions in this bill that I really do not like.”

What’s the argument on the other side?

Businesses use derivatives to protect themselves against risk. Farmers use them to protect against fluctuating prices for commodities, and airlines use them to smooth out spikes and dips in the cost of fuel.

The change “makes one-stop shopping impossible for businesses ranging from family farms to energy companies that want to hedge against commodity price changes,” said James Ballentine, executive vice president of the American Bankers Association.

Who stands to benefit?

Marcus Stanley, policy director for Americans for Financial Reform, which advocates for tighter regulation of Wall Street, said the big winners would be three large banks — Citigroup, JPMorgan Chase and Bank of America.

In fact, according to analysis by Mother Jones magazine and The New York Times, the legislative language of the rollback was written mostly by Citigroup itself.

“These derivatives markets are very lucrative,” Stanley said in an interview Friday. “And that safety net subsidy, that deposit insurance subsidy, gives you a very large advantage. There’s a lot of money involved in this.”