Happy New Year, Wall Street: Congress Has Another Gift For You

01/06/2015 09:38 pm ET | Updated Jan 07, 2015
  • Zach Carter Senior Political Economy Reporter
  • Sam Levine Associate Politics Editor, The Huffington Post

WASHINGTON -- After stuffing Wall Street's stockings in December with subsidies for risky trading, the House of Representatives plans to wish big banks a happy New Year on Wednesday by hacking up and delaying the Volcker Rule.

The Volcker Rule is a key reform adopted after the 2008 financial meltdown that bans banks from gambling in securities markets with taxpayer money -- a tactic known as proprietary trading. But under legislation slated for a Wednesday vote, banks would be given a two-year reprieve from unloading some of their riskiest holdings -- known as collateralized loan obligations.

The deregulation measure is one of 11 changes to the 2010 Dodd-Frank financial reform law that Republicans will bring to the floor under a single bill Wednesday. The legislation can only pass the House if dozens of Democrats support it, since the bill will be brought up under special rules that require a two-thirds majority for approval. Rep. Keith Ellison (D-Minn.) will lead the opposition to the bill for Democrats on the House floor. Ellison will likely be opposed by House Minority Whip Steny Hoyer (D-Md.), who voted for a similar bill in April, and supported the bank subsidy in December.

Sen. Elizabeth Warren (D-Mass.) railed against the bill in a statement provided to HuffPost.

“One day into the new Congress, House Republicans are picking up right where they left off: trying to gut Wall Street reforms so that big banks can make more risky bets using taxpayer-backed money," Warren said. "This is yet another big bank giveaway that makes our economy and middle class families less safe.”

Other bank watchdogs are apoplectic about the bill.

"It's all about the bonus pool," said Dennis Kelleher, president and CEO of Better Markets, a financial reform nonprofit. "The attack on the Volcker Rule has been nonstop, because proprietary trading is about big-time bets that result in big-time bonuses. Wall Street has been fighting it from day one, and they're not going to stop."

"It's absurd," said Marcus Stanley, policy director at Americans for Financial Reform. "It's getting on five years after the passage of the Volcker Rule, and the banks have still not actually been required to stop doing anything that they want to be doing. And anytime we get close to the point where they could, somebody comes in with an extension."

Collateralized loan obligations, or CLOs, are complex contracts similar to the mortgage securities that crashed the economy in 2008. To create a CLO, banks package dozens of risky corporate loans together and sell slices to investors. The Office of the Comptroller of the Currency, a major bank regulatory agency, warned in December that the corporate debt market is overheating and becoming increasingly dangerous.

The nation's largest banks dominate the CLO market. According to an April letter from five federal regulators, banks with at least $50 billion in assets hold between 94 percent and 96 percent of the domestic market, valued at $84 billion to $105 billion.

A similar version of the bill was initially introduced by Rep. Andy Barr (R-Ky.) and cosponsored by Rep. Brian Higgins (D-N.Y.), passing the House by a voice vote in April. The legislation received another vote in September, when it passed the House 320 - 102, with 95 Democrats voting in favor and just one Republican, Rep. Walter Jones (R-N.C.) voting against it.

The Senate never took up the House bill, but the Federal Reserve offered banks a two-year extension on dumping their risky CLOs, good through 2017. The extension was widely attributed to the central bank's top lawyer, Scott Alvarez.

"Alvarez wants to kill the Volcker Rule, so it's being delayed until they can kill it. He made the decision to delay it until 2017, and this is consistent with that strategy," a frustrated Democratic aide told HuffPost.

Alvarez -- a bank-friendly holdover from the years when Alan Greenspan chaired the Fed -- in December delayed the moment of truth for a host of other risky bank investments through 2017. The Federal Reserve wasn't immediately available for comment after normal business hours.

The legislation slated for a Wednesday vote would allow banks to hold onto billions of dollars in CLO holdings until July 2019.

The flurry of activity on the Volcker Rule follows the December passage of a $1.1 trillion spending bill that included subsidies for risky Wall Street derivatives trading. The bill repealed a key section of President Barack Obama's 2010 financial reform legislation. Obama said that he opposed the plan, but didn't want to derail the broader spending bill over it.

If the latest bill to aid big banks clears the House, the Republican-controlled Senate likely has the votes to pass it as well, unless new filibuster rules provide Democrats with more leverage. Obama has the authority to veto the legislation, but bank watchdogs are wary of Obama after his support for the December spending bill that included the Wall Street subsidy.

CORRECTION: The caption of the photo above was updated to clarify Hoyer is House Minority Whip.

Article updated to include comments from Sen. Warren.

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