Despite Delay New Financial Regulations Ahead

Health care may dominate congressional news, but lawmakers have not forgotten about drafting new rules for Wall Street. Democrats and Republicans on the Senate Banking Committee are working on a plan, with the hope of unveiling it this week.

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Even as health care is grabs the headlines, Congress is drafting new rules for Wall Street. The House passed a bill late last year to change financial regulations. And now in the Senate, Democrats and Republicans are working together to come up with legislation. A draft is expected this week. NPR's Audie Cornish reports.

AUDIE CORNISH: Banking Committee Chairman Christopher Dodd came up with a Democratic plan last fall, but it didn't fly. So he went back to the drawing board to write new rules for Wall Street - this time, with Republican help. That plan's been stuck on the drawing board for three months. The committee's top Republican is Senator Richard Shelby of Alabama.

Senator RICHARD SHELBY (Republican, Alabama): What we're trying to do is get over a hurdle and try to see if there's any way we can work out our differences dealing with the consumer finance fate. And if we can work that out, I think we can move onto other things.

CORNISH: There are half-a-dozen proposals in the reform effort, including new rules for the derivatives market and the Federal Reserve. Senators working on those issues says they've made progress, but that consumer financing Shelby's refereeing to is a core part of the Obama administration's goals for financial reform. It's in the House bill. It would create an independent agency to police consumer products like mortgages and credit cards.

In the Senate, GOP lawmakers say another regulator is adding unnecessary bureaucracy. Negotiations between Senators Dodd and Shelby were at an impasse until a week ago. In fact, Dodd's been spending his time negotiating with a junior Republican on the committee, Bob Corker of Tennessee. Now, Shelby is back, but Dodd says things are tentative.

Senator CHRISTOPHER DODD (Democrat, Connecticut): There's talking, but there's also talking (unintelligible). I dont think it ought to be exaggerated, the level of the conversation at this juncture.

CORNISH: On consumer protection, senators agree with the House that federal regulators have not done a good job, but senators are not sure how much power to give a consumer-oriented agency. And instead of making it independent, they're talking about housing it in another department, like the Treasury.

It's telling that the easiest part of the bill to explain to the public has become the most difficult to work out. Economist and MIT Professor Simon Johnson.

Professor SIMON JOHNSON (Economics, MIT): What it tells you is that the momentum behind financial reform, which was never strong because the administration didn't push hard enough back last year, this momentum is basically almost completely expired.

CORNISH: Another sticking point has been what to do about financial firms deemed too big to fail. Some committee lawmakers want to give special powers to regulators to dissolve such firms. But many Republican believe a special bankruptcy code could do the job.

Lawmakers are trying to avoid anything that looks like the recent bank bailouts. They're wary of created unintended consequences in the financial markets, and finding the right balance takes time, says Columbia Business School Profess Charles Calomiris.

Professor CHARLES CALOMIRIS (Columbia Business School): I wouldn't say that this is some sort of just political bickering or, you know, oh, Washington is at it again. These are really difficult issues. People are coming to these issues - not just politicians, but economists - and are hashing them out. And it's not so easy to come up with a solution that's workable.

CORNISH: Even when there's bipartisanship.

Audie Cornish, NPR News, the Capitol.

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