In a swift move, the Senate passed Thursday, May 20, its version of financial services reform, S. 3217, shortly after invoking cloture on the legislation the same day. The Senate passed the bill by a 59-39 vote, with two Democrats voting against the bill, and four Republicans voting for it. The Senate and House will now go to conference to reconcile their versions of financial reform. President Obama wants a final bill to sign by early July.
Senate Banking Committee Chairman Christopher Dodd (D-Connecticut) and House Financial Services Committee Chairman Barney Frank (D-Massachusetts) were scheduled to meet with President Obama on Friday, May 21, to talk about the sweeping Wall Street reform bill. Frank said in a statement after the Senate bill passed that the House and Senate bills "are very similar, and the House is ready to go to conference to work out the remaining issues. I am confident that we can have a bill ready for President Obama's signature very soon."
After the cloture vote passed on the Restoring Financial Stability Act, Senate Majority Leader Harry Reid (D-Nevada) said, "It's been hard to get to this point. But it was a good debate."
Later Thursday, after the Senate passed the Restoring Financial Stability Act, Dodd said, "Covering four weeks and considering close to 60 amendments from members of both parties, represents the Senate at its best." For "the first time ever," Dodd continued, "there will be a Consumer Financial Protection Bureau to watch out for the average citizen in our country....We will have transparency and accountability for derivatives with mandatory clearing and exchange trading." A system will be in place, "so that when a giant company fails, it fails, its management is fired, its shareholders and creditors are wiped out, and never again will taxpayers be forced to bail them out." And, Dodd said, there will be "an advance warning system, so somebody is on the lookout for the next big problem in the economy before it's too late to do anything about it."
Of particular interest to advisors is whether the final bill that comes out of conference will include a fiduciary standard for brokers. The House bill includes a provision that will require brokers to adhere to a fiduciary duty, while the Senate bill does not; the Senate bill instead calls for an SEC study of broker and advisor obligations. None of the fiduciary amendments involving fiduciary duty were debated on the Senate floor.
Barbara Roper, director of Investor Protection for the Consumer Federation of America (CFA), said in statement after the Senate bill passed that CFA is "deeply disappointed that the bill does nothing to ensure that brokers have to put their customers' interests ahead of their own when they give investment advice." Roper went on to say that "...The least Congress can do is adopt a measure to ensure that those the financial professions investor rely on for advice cannot take advantage of their misplaced trust. Because the Senate failed to provide that protection, we will need to rely on House Financial Services Chairman Barney Frank to ensure that the House legislation's provision on this matter is included in the final bill."
Industry groups like the Securities Industry and Financial Markets Association (SIFMA) responded quickly to the Senate's passage of its version of financial reform. SIFMA President and CEO Tim Ryan said in a statement that SIFMA "opposed" the Senate's version because "there are several provisions in the current legislation that would undermine the original goals for reform by creating unintended consequences that could have a negative impact on our economy." Provisions like the so-called Volcker Rule, Ryan said, "would impose sweeping new restrictions on size and activities that were not a cause of the financial crisis."
Also, Ryan continued, "a number of the provisions in the derivatives section of the bill also remain problematic. Requiring banks to push out their derivatives businesses and limiting their ability to hedge their own risk exposures would not only deplete institutions of much needed capital, it will ultimately hurt consumers through higher mortgage and credit costs." SIFMA, he said, believes "that requiring financial institutions entering into swap contracts with state governments, pension funds or endowments to act as fiduciaries for their clients is legally unworkable and would limit these clients' ability to access to vital risk management tools."