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Senate Liberals Push for Strict Financial RulesBy DAVID M.
HERSZENHORN<http://topics.nytimes.com/top/reference/timestopics/people/h/david_m_herszenhorn/index.html?inline=nyt-per>

WASHINGTON — Liberal Democrats in the Senate, emboldened by a wave of
populism, are trying to make financial regulatory legislation far tougher on
Wall Street, potentially restricting or breaking up the biggest banks and
financial companies.

Normally such efforts might attract little concern among Senate leaders or
the White House. But the confluence of a high-stakes election year and a
pervasive anti-Wall Street sentiment after the
recession<http://topics.nytimes.com/top/reference/timestopics/subjects/r/recession_and_depression/index.html?inline=nyt-classifier>
has
given liberals unusual muscle in the debate. It has also raised the prospect
that they could succeed in reshaping the bill.

The liberal amendment that could be hardest to defeat — and is among the
most deeply dreaded by Wall Street — also has some of the purest populist
appeal: a proposal by Senator Sherrod Brown of Ohio and Senator Ted Kaufman
of Delaware to break up the nation’s biggest banks by imposing caps on the
deposits they can hold and limits on other liabilities.

“Look at what we did to
AT&T<http://topics.nytimes.com/top/news/business/companies/at_and_t/index.html?inline=nyt-org>,
look at Standard Oil, basically what you do is you just split it apart,” Mr.
Kaufman said in an interview. “If we don’t do that, we have got too big to
fail, because when you look at these big complex entities, you cannot
resolve them in a major financial
crisis<http://topics.nytimes.com/top/reference/timestopics/subjects/c/credit_crisis/index.html?inline=nyt-classifier>
.”

Already, antibank rhetoric dominates the debate, which began in earnest this
week. Odd as it might seem, liberal Democrats are aligned with conservative
Republicans on some issues, further lifting the chances of amendments like
one by Senator Bernard
Sanders<http://topics.nytimes.com/top/reference/timestopics/people/s/bernard_sanders/index.html?inline=nyt-per>,
independent of Vermont, to audit the Federal
Reserve<http://topics.nytimes.com/top/reference/timestopics/organizations/f/federal_reserve_system/index.html?inline=nyt-org>
.

After President
Obama<http://topics.nytimes.com/top/reference/timestopics/people/o/barack_obama/index.html?inline=nyt-per>
rallied
the charge for weeks for tough new rules on Wall Street, the strong push by
liberal Democrats is forcing the administration to prevent the bill from
getting too tough. It has also shifted the lobbying strategy for financial
companies, putting them squarely on the defensive.

Some of the liberals view the financial regulatory legislation as a
once-in-a-lifetime opportunity to slap handcuffs on big banks that they have
long viewed as greedy.

“I have been a reformer and a watchdog all of my life,” Senator Barbara A.
Mikulski<http://topics.nytimes.com/top/reference/timestopics/people/m/barbara_a_mikulski/index.html?inline=nyt-per>,
Democrat of Maryland, said in an impassioned floor speech. “I have a deep
suspicion of how big banks treat the little people and what they do with the
little people’s money.”

“We bailed out the whales,” Ms. Mikulski continued. “We bailed out the
sharks, and we have left the people in the community, the little minnows, to
swim upstream and be on their own.” She added, “Now is the opportunity to
pass real financial reform.”

On Tuesday, Senator Richard J.
Durbin<http://topics.nytimes.com/top/reference/timestopics/people/d/richard_j_durbin/index.html?inline=nyt-per>
of
Illinois, the No. 2 Democrat, announced that he would support the
Brown-Kaufman proposal, which would require some of Wall Street’s heaviest
hitters, including
Citigroup<http://topics.nytimes.com/top/news/business/companies/citigroup_inc/index.html?inline=nyt-org>
andGoldman Sachs<http://topics.nytimes.com/top/news/business/companies/goldman_sachs_group_inc/index.html?inline=nyt-org>,
to shrink in size. On Wednesday, the majority leader, Harry
Reid<http://topics.nytimes.com/top/reference/timestopics/people/r/harry_reid/index.html?inline=nyt-per>,
called the proposal “intriguing.”

White House officials noted that the administration supported some of the
liberal amendments, though perhaps not in the precise form in which they are
being offered, and would have ample opportunity to shape the final
regulatory package when the Senate bill was melded with the version adopted
by the House of Representatives last December.

But in a preview of the legislative pirouettes that the administration may
yet have to perform, the
Treasury<http://topics.nytimes.com/top/reference/timestopics/organizations/t/treasury_department/index.html?inline=nyt-org>
secretary, Timothy F.
Geithner<http://topics.nytimes.com/top/reference/timestopics/people/g/timothy_f_geithner/index.html?inline=nyt-per>,
signaled in Congressional testimony on Tuesday that the White House would
work to scale back a provision by Senator Blanche
Lincoln<http://topics.nytimes.com/top/reference/timestopics/people/l/blanche_lambert_lincoln/index.html?inline=nyt-per>,
Democrat of Arkansas, that would require big banks to spin off most of their
lucrative derivatives business.

Mrs. Lincoln, who is facing a difficult re-election campaign this year
including a primary challenge by a more liberal Democrat, put forward a much
tougher restriction on derivatives than the White House had anticipated.

In response to a question, Mr. Geithner said he was not prepared to take a
formal position on Mrs. Lincoln’s proposal but he said, “You would not make
the system more stable by taking functions that are integral and central to
banking and separating and putting them somewhere else. That will create a
less stable system.”

Another case in point is the proposal by Mr. Sanders, a self-described
socialist, who is feeling bullish about his amendment requiring a public
audit of the Fed. Mr. Sanders’s idea is opposed by the Fed and the White
House, which view it as an encroachment on the central bank’s traditional
independence.

Conservative Republicans like David
Vitter<http://topics.nytimes.com/top/reference/timestopics/people/v/david_vitter/index.html?inline=nyt-per>
of
Louisiana also support the idea, and Mr. Sanders says he believes he can win
the 60 votes needed to attach his proposal to the bill.

That, in turn, has the White House and the banking committee chairman,
Senator Christopher J.
Dodd<http://topics.nytimes.com/top/reference/timestopics/people/d/christopher_j_dodd/index.html?inline=nyt-per>,
Democrat of Connecticut, scrounging for ideas for a so-called side-by-side
amendment — an alternate proposal on the Fed that would give senators
something to support while offering them cover to vote down the Sanders
measure.

The Senate on Wednesday approved the first amendments to the bill, including
one that represented a deal between Mr. Dodd, and Senator Richard C.
Shelby<http://topics.nytimes.com/top/reference/timestopics/people/s/richard_c_shelby/index.html?inline=nyt-per>
of
Alabama, the senior Republican on the banking committee, intended to prevent
future taxpayer-financed bailouts of failed banks.

But while that proposal was approved by a vote of 93 to 5, some liberals
said it did not go far enough. And the decision by Senator Byron L.
Dorgan<http://topics.nytimes.com/top/reference/timestopics/people/d/byron_l_dorgan/index.html?inline=nyt-per>,
Democrat of North Dakota, to join four conservative Republicans in
opposition to the amendment underscored the potential for cooperation of the
left and the right in the days ahead.

Other proposals that could win bipartisan support is one that would impose
the so-called Volcker Rule, barring banks from proprietary trading. Another
would reinstate the Glass-Steagall
Act<http://topics.nytimes.com/top/reference/timestopics/subjects/g/glass_steagall_act_1933/index.html?inline=nyt-classifier>,
approved after the Great
Depression<http://topics.nytimes.com/top/reference/timestopics/subjects/g/great_depression_1930s/index.html?inline=nyt-classifier>,
which maintained a firewall between commercial banking and investment
banking until Congress repealed it in 1999.

Mr. Kaufman said that he was motivated not by populist politics, but by a
desire to protect American markets from increased competition overseas. “I
am not coming at this as a populist,” he said. “I am going at this as, ‘How
do we protect our capital markets?’ ” He added, “God does not guarantee that
the U.S. be the center of all capital markets.”

Other senators acknowledged that they were driven by years of conviction
that tougher rules were needed for big banks and Wall Street.

“It is time that we pull the sharks out of the tank,” said Ms. Mikulski, who
is one of six senators still in office who voted against repealing
Glass-Steagall in 1999. “Make sure the whales do not crush the little guy,
and make sure that the minnows get a chance and that we have an economy that
is swimming.”

Edward Wyatt contributed reporting from Washington.
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Eric D. Schwerin
Rosemont Seneca Partners
(202) 333-1880
[email protected]