Senators will begin offering amendments this week to either strengthen or weaken provisions in the far-reaching legislation that would overhaul the federal financial regulatory system, Wall Street banking practices and the $600 trillion derivatives markets.

The debate could last two or more weeks. It’s unclear how many amendments will be proposed, but Senate Majority Leader Harry Reid (D-NV) will most likely whittle the number down to a manageable level. The chamber has a “long journey in front of us,”said Sen. Christopher Dodd (D-CT), chairman of the Senate Banking Committee and chief architect of the the broad reform bill that emerged from his committee in March.

Senate Democrats last week had a difficult time in scaling the first hurdle — bringing the bill up for debate. On three separate attempts, Democrats fell short of the 60 votes that were necessary to invoke cloture and begin debate. Reid and Senate Republican Leader Mitch McConnell of Kentucky eventually reached an agreement to let the debate start.

But other land mines could lie ahead for Democrats. Senate Republicans still could filibuster an amendment or delay passage of a final bill, said a Capitol Hill observer.

Negotiators on both sides said they failed to resolve contentious issues before the measure hit the floor. “Thus far [a] compromise has eluded us,” said Sen. Richard Shelby of Alabama, the ranking Republican on the Senate banking panel, referring to himself and Dodd. The 1,400-page bill will only get bigger, he noted, and will “tilt the political playing field” away from smaller companies.

Sen. Ben Nelson of Nebraska, the only Democrat to vote with Republicans against the bill, applauded the agreement between the two sides. “Now the Senate can hold a full and thorough public debate on the Senate floor, rather than negotiate behind closed doors,” he said.

Both Dodd and Reid have said they will welcome amendments from Republicans. But they run a risk here. If they allow too many GOP amendments, it could weaken the Democrat-sponsored bill. However, if Democrat leaders cut off the amendments from Republicans, they may not get the Republican support they will need to pass the bill in the end. It’s estimated that Democrats will need one or more Republicans to cross the aisle to vote with them.

“It is my hope that the majority’s avowed interest in improving this legislation on the Senate floor is genuine and the partisan gamesmanship is over,” McConnell said last Wednesday.

The bill before the Senate is a substitute amendment, which “takes the best of both [the Banking and Agriculture] committees’ products,” said Senate Agriculture Chair Blanche Lincoln (D-AR). Regulating the over-the-counter (OTC) derivatives market “is at the heart of financial reform,” she noted. Lincoln’s committee has jurisdiction over the Commodity Futures Trading Commission, which regulates OTC derivatives.

The broad financial regulatory reform bill was voted out of the Senate Banking Committee in March (see NGI, March 29). The OTC derivatives bill cleared the Senate agriculture panel in late April (see NGI, April 26).

While the substitute amendment generally agrees that the derivatives market needs to be reformed, there is significant disagreement by senators over the extent of the reforms that are needed — for example, the exemption from mandatory clearing and exchange trading for commercial traders who use derivatives to hedge the risk associated with trading of physical products; forcing large banks to spin off their lucrative derivatives trading operations; and margin requirements.

Shelby said he objected to the provisions to rein in derivatives trading, saying the bill “as currently drafted would have far-reaching and devastating effects on these businesses and our economy, increasing the cost of nearly every product we use and negatively impacting job growth.”

Senate Democrats’ legislation overhauling the financial regulatory system is “good” as far as it goes, but it needs “stronger” language, including a provision to break up the big banks, said an official with National People’s Action (NPA).

NPA Executive Director George Goehl’s remarks were made during a teleconference Friday — one day after more than 10,000 people marched on Wall Street to send a message that the time for reform is now.

“We will not back down against the big banks [that] have already poured millions of dollars into advertising and congressional lobbying to ‘water down'” the financial regulatory reform measure, said Heather Booth, director of Americans for Financial Reform, which includes 200 organizations composed of civil rights advocates, think tanks, small business and other groups.

“We’ve called this [a] showdown: Main Street vs. Wall Street,” she said. Booth estimated that Wall Street banks are spending $1.4 million a day and have more than 1,500 lobbyists whose goal is to weaken the reform legislation now on the Senate floor.

The nation has “come into the home stretch of the big fight” over financial regulatory reform, said Heather L. Slavkin, senior legal and policy advisor of the AFL-CIO Office of Investment. “We’re focused on amendments that would address some of the key issues that I find most egregious in the legislation.

“With regard to derivatives, we expect amendments to weaken the fiduciary duty to pension funds and municipalities, and to exempt pension funds and other entities from the transparency and safety and soundness [requirements] that exist in the bill currently. We’re concerned about any and all amendments that would weaken it [the bill], including the proposal that has been advanced by [financier] Warren Buffett.”

Buffett is seeking to grandfather existing derivatives contracts from the requirements in the reform measure. Buffett’s Berkshire Hathaway has a $63 billion derivatives portfolio, according to Barclays Capital. It’s unclear whether the Democratic bill includes a provision that would avert a financial hit for the Berkshire Hathaway conglomerate.

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