Lawmakers racing to complete the biggest overhaul of the financial rulebook since the 1930s sat down on Tuesday with fresh deals in hand on consumer protection, debit cards and mortgages.
Members of a Senate-House of Representatives panel still have a lot of work to do to in order to meet a goal of completing a final package of regulatory reforms by the time President Barack Obama attends a meeting of the Group of 20 leading economic powers this weekend.
"If we are not able to finish by Thursday, then this bill cannot pass until the middle of July," said Representative Barney Frank, the Democrat who is chairing the panel writing the final legislation.
Frank and other Democrats still must resolve disputes that have billion-dollar ramifications for the financial industry, including derivatives regulation, the balance of state and federal regulation, and which banks should be required to post higher capital requirements to protect against potential losses.
As the panel reconvened at noon, lawmakers were still seeking compromises on proposals to force banks to spin off their lucrative swap dealing desks and to curb proprietary trading — risky business practices that have been blamed for contributing to the 2007-2009 financial crisis.
Though the final bill is likely to crimp the profits of the financial industry, lawmakers have softened some of its most onerous proposals as they push for a final version.
Enactment of the far-reaching Wall Street reform legislation, targeted to occur before July 4, would give Obama and the Democrats a major domestic policy victory to add to health-care reform going into November's general elections.
The reforms are meant to prevent a repeat of the 2007-2009 crisis that tipped the economy into a deep recession and triggered massive taxpayer bailouts of big banks.
On Capitol Hill, a swarm of bank lobbyists, often working closely with Republicans, has tried to block or water down the bill, but has faced an uphill battle amid deep voter anger with Wall Street.
This weekend's G20 meeting in Canada adds additional deadline pressure as the Obama administration hopes the bill will serve as a blueprint for other countries trying to coordinate global regulation of financial markets.
Deals on watchdog, debit fees
Working through the weekend, Democrats resolved several differences between the bills passed by the House and Senate.
They agreed to make a new consumer financial watchdog an independent unit within the Federal Reserve, instead of a stand-alone agency.
The move is a partial victory for banks, which had sought to kill the agency altogether and worried that an independent agency would have more clout.
Democrats also reached a deal that would limit fees that banks charge merchants on debit card transactions. Card networks like Visa Inc and MasterCard Inc would be largely untouched by the agreement, which would hit major card issuers like JPMorgan Chase & Co..
Retailers, restaurants and other merchants have long complained that card networks and issuers charge excessive fees to process transactions. Banks have lobbied hard to keep the provision out of the final bill but they looked unlikely to prevail.
In a third possible blow to banks, House Democrats called for beefing up a rule that would require mortgage lenders to carry on their books at least 5 percent of the risk from home loans that they make and then sell off as securities.
The 5 percent provision is in the base bill being considered by the Senate-House panel. But the Senate added an exemption for some low-risk residential mortgages.
House lawmakers want to drop that, along with a provision that would require regulators to consider other forms of risk retention for commercial mortgage-backed securities.
The final bill would need to win approval in the Senate and the House once more, then go to Obama to be signed into law.
Groups likely to take the hardest profit hits from the proposed reforms, taken as a whole, include Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America and Citigroup, according to analysts.
Carve-outs in Vlocker rule?
Some version of the so-called Volcker rule to limit banks' proprietary trading will be in the final bill, aides said.
Banks were pushing hard for limited exemptions to allow them to continue sponsoring or investing in private equity and hedge funds.
Some lawmakers were inclined to support the banks on this front, while others were not, with some looking to White House economic adviser Paul Volcker himself for guidance.
The former Federal Reserve chairman, who commands deep respect on Capitol Hill, has told lawmakers he does not want his proposed rule to end up so full of loopholes that it looks like "Swiss cheese," his office told Reuters.
Volcker is not opposed to all exemptions, however. He has endorsed proposals from Democratic senators Jeff Merkley and Carl Levin that include a carve-out to assist insurance companies and asset managers.
The Merkley-Levin measure also would give regulators less discretion to interpret the rules. It is expected to form the basis of the Volcker rule as included in the bill, aides said.