WASHINGTON — Top Democratic House and Senate negotiators who worked out a deal on a sweeping overhaul of financial regulations regrouped Tuesday to eliminate a $19 billion fee on banks that had threatened to derail the legislation.
Eager to salvage one of President Barack Obama's legislative priorities, lawmakers replaced the bank fee with budget adjustments involving the $700 billion bank bailout and increased premiums on bank deposit insurance.
The bill's fate was thrown into doubt this week following the death of Sen. Robert Byrd, D-W.Va., and after Republican Sen. Scott Brown of Massachusetts vowed to abandon his support for the bill if it retained the assessment on large banks and hedge funds. The money would be used to pay for the costs of the legislation.
Uncertainty surrounding the bill raised doubts about Congress' ability to complete the bill this week — a target both the White House and Democratic leaders. The House was still expected to vote on the bill Wednesday, but the Senate likely would take up the bill in two weeks following a recess.
The legislation would rewrite financial regulations by putting new limits on bank activities, creating an independent consumer protection bureau and adding new rules for largely unregulated financial instruments.
Besides Brown, Republican Sens. Olympia Snowe and Susan Collins of Maine, both of whom also voted for the Senate bill last month, said they, too, had qualms about the bank assessment that negotiators inserted into the bill last week.
Without Byrd's vote, the support of the three Republicans would be crucial to overcome 60-vote procedural hurdles that could defeat the legislation.
Seeing nearly a year of work crumbling, Senate Banking Committee Chairman Chris Dodd, D-Conn., proposed Tuesday to replace the bank fee and pay for the bill with $11 billion that would be freed by ending the government's authority to use the $700 billion bank bailout fund.
Under that plan, the balance of the cost could be covered by increasing premium rates paid by commercial banks to the Federal Deposit Insurance Corp. to insure bank deposits. The additional FDIC premium would be paid by banks with assets greater than $10 billion.
The bailout fund, known as the Troubled Asset Relief Program or TARP, was scheduled to expire in October. The new proposal would end TARP when the bill is enacted, essentially cutting Congress' spending authority from $700 billion to $475 billion. That creates an accounting adjustment that would help cover the bill's costs.
Senate Republicans on the House-Senate conference committee angrily denounced Dodd's proposal as "smoke and mirrors" that violated Congress' intent to devote TARP repayments to reducing the deficit.
"The American taxpayer should be affronted by this little bit of sleight of hand and gamesmanship," said Sen. Judd Gregg, R-N.H. "What a piece of misleading, misdirected financial management this is."
The House Financial Services Committee chairman, Rep. Barney Frank, D-Mass., who said the new proposal was worked out with Brown, Collins and Snowe, said he preferred the bank fee, which would be assessed on banks with assets greater than $50 billion and hedge funds of more than $10 billion.
"I'm getting caught in the middle of an intra-Republican debate here," he said. "The criticism by the Republican senators was aimed at a provision aimed at satisfying Sens. Snowe, Collins and Brown."
He added: "Why anyone would think that the large financial institutions should not pay the administrative costs, I don't know, but apparently you couldn't get 60 senators."