Sen. Chris Dodd, chief author of the bill and chairman of the Banking, Housing and Urban Development Committee, said he settled disputes over language with his committee's ranking Republican, Seb. Richard Shelby, R-Ala. The two were working on the too-big-to-fail concept and agreed on changes that they think eliminate the idea from future governmental dealings with Wall Street. The ensuing amendment -- which tosses out the controversial industry-paid resolution fund -- passed 93-5. "Because whether they pay in advance or after the fact, these costs will be paid by Wall Street and not taxpayers, I have no objection to dropping that provision," Dodd said. Bottom line: The bill "will continue to eliminate the ability of the Federal Reserve to prop up failed institutions like AIG," according to Dodd.
Insurers, however, had already been exempted from that $50 billion fund idea. They were more interested in what amounted to a backstop of that fund in which financial firms would be charged fees to pay for company failures that deplete the entire fund. That will still be the case, with major financial companies assessed fees to cover the winding down of failed businesses, though the amendment clarifies the failed companies' creditors and investors would be hit first.
Blain Rethmeier, spokesman for the American Insurance Association, said the post-event resolution assessment mechanism "is the same, except property/casualty insurers will now have a buffer made up of companies that directly benefitted."
The Dodd/Shelby amendment would limit regulators' ability to aid failing companies but would lend federal agencies greater authority to dismember the businesses. Also, regulators can "ban culpable management and directors of failed firms from working in the financial sector," Dodd said.
Another amendment, filed by Sen. Patrick Leahy, chairman of the Judiciary Committee, resurrects a portion of the health reform debate: the removal of health insurers' antitrust exemption. The Vermont senator couched the amendment in terms that tried to relate it to the financial crisis: "The recent economic crisis showed all of us that corporations do not act responsibly without adequate oversight," he said in a statement. "We can surely agree that health insurers should not be allowed to collude to fix prices and allocate markets."
Though this idea had initially been a component of health reform legislation in the House, it didn't make it into the final reforms now being implemented. Health insurers have opposed removal of this decades-old exemption, but America's Health Insurance Plans has said it's not a major issue. And in another amendment, pushed by Sen. Jeff Merkley, D-Ore., the proposed federal insurance office's authority to represent the U.S. insurance market in international negotiations would be weakened. The amendment would make it more difficult for the office to pre-empt state laws that get in the way of potential international deals. Most of the insurance industry has supported this international role for the potential new office.
The National Conference of Insurance Legislators sent a letter to Dodd and Shelby in opposition of a possible amendment that would allow federal veto power over health insurer rate increases. "State insurance regulators, attorneys general, legislators, and governors work together in the states to ensure that health insurance rates are appropriate and that inappropriate rate increases are short-lived," NCOIL President Robert Damron wrote in the letter. This potential amendment "would upset this balance of responsibility and accountability by allowing unelected bureaucrats to unilaterally determine the future of rate oversight," he argued.
Senate Majority Leader Harry Reid has said he intends for the vote on financial reforms to happen by May 14. If it passes the Senate, a final version would still have to be worked out in a compromise with the House, which passed its financial reform bill late last year. a