Shifting the Balance of Power in the Senate: What is the Impact to the Financial Reform?

The surprise Republican victory of Massachusetts Senator Scott Brown gives the GOP 41 votes and changes the game on Capitol Hill, as the Democrats have lost their super majority in the Senate.  All eyes are focused now on how this news may delay or torpedo Healthcare reform, with the consensus that financial reform will move up to the top of the list if Healthcare goes into cardiac arrest.  Before you get too excited that the shift to the right in the Senate could shelve financial reform, it is unlikely that the OTC derivative portion of the reform is going to go away as there is bi-partisan consensus that regulation is required.  More likely, the sweeping financial reform goals would be slimmed down with issues like the Consumer Protection Agency, taxing banks and creating a new bank regulatory body being brought into question.

On the OTC derivative reform, there are still two major steps that need to happen on the Senate side.  First, Senate Agriculture Chairman Blanche Lincoln (D-AR) is putting together her own bill.  Meanwhile, retiring Senator Christopher Dodd (D-CT), Chairman of the Senate Banking Committee, is trying a bi-partisan approach of having Senator Judd Gregg (R-NH) and Senator Jack Reed (D-RI) work on the derivatives portion of his sweeping financial reform bill proposed this past December.  Senator Gregg has been an outspoken supporter of not penalizing non-financial corporate end-users of derivatives while Senator Reed’s bill did not recognize any end-user exemptions. Reed also has been a proponent of as much clearing and exchange trading as possible.

The message from voters is dissatisfaction with progress, despite the massive amounts of money being thrown at the various problems.  So while the Right may have moved the needle to have less regulation, Main Street voters are still not happy with Wall Street, and the financial reform will have to be passed soon so that Democrats up for re-election this fall can tout something.