Yesterday, Senate Republicans circulated a brief summary of the Financial Regulatory Improvement and Taxpayer Protection Act, a Republican substitute to the Restoring American Financial Stability Act of 2010 (S.3217) previously passed by the Senate Banking Committee along party lines, and which has failed to reach the Senate floor for debate following three failed cloture motions by Senate Majority Leader Harry Reid (D-NV), including today's 56-42 rejection of the motion.
Based on the brief summary of the Republican proposal, below are several key differences from the pending Democratic bill:
- Liquidation Authority/Orderly Liquidation Fund - While both the pending Democratic bill and the Republican proposal would provide for an orderly liquidation authority, the Republican proposal would require the Treasury Secretary to obtain a court order to appoint the FDIC as the receiver of a financial company in default or in danger of default, while the Democratic bill would require Treasury to obtain approval from a panel of three bankruptcy judges from the U.S. Bankruptcy Court for the District of Delaware. In addition, there would be no orderly liquidation fund under the Republican proposal, as compared to the proposed $50 billion fund contemplated by the Democratic bill. Under the Republican proposal, the FDIC would have to recoup from creditors any amounts that a creditor had received in excess of what it would have received in bankruptcy, thereby "ensur[ing] that the FDIC is not bailing out creditors."
- Consumer Protection - The Republican proposal would provide for an independent Council for Consumer Financial Protection, rather than a Bureau of Consumer Financial Protection housed within the Federal Reserve as proposed in the Democratic bill.
- Derivatives - The Republican proposal would allow financial institutions to continue to trade in swaps. A bill passed by the Senate Agriculture Committee would effectively force banks to spin off their derivatives-trading business has gained traction and is expected to be included as a substitute amendment in the pending Senate bill.
- Government Sponsored Enterprises - The Republican proposal would create a Special Inspector General within the Treasury Department with the responsibility for investigating and reporting to Congress on decisions made regarding the conservatorships of Fannie Mae and Freddie Mac. In addition, the Republican proposal would re-impose prior federal funding limits ($200 billion per institution) and mandatory portfolio reductions (10% of prior year's holdings).