Wednesday September 30, 05:41 PM
UPDATE 2-US House inches ahead on watchdog, OTC derivatives
By Kevin Drawbaugh
WASHINGTON, Sept 30 (Reuters) - The U.S. House of Representatives on Wednesday edged closer to voting on proposals to establish a financial consumer watchdog and to regulate the over-the-counter derivatives market.
Both bills are backed by President Barack Obama as part of a broad effort to tighten regulation of banks and capital markets after the worst financial crisis in generations, with authorities worldwide pursuing similar reforms.
Obama's financial reform agenda is bogged down in Congress, with no legislation in sight in the Senate and leaders there still far apart on key issues. Progress has been made in the House, however, where Democrats hold a larger voting majority.
The House Financial Services Committee will draft and likely vote in mid-October on two key bills, said its Democratic Chairman Barney Frank, the Democrats' leading legislator on the financial reform initiative.
One of the bills proposes setting up a Consumer Financial Protection Agency, or CFPA, to answer criticisms that existing agencies, such as the Federal Reserve, have failed consumers.
'When it comes to consumer protection, I think they have demonstrably been at their weakest,' Frank said of the Fed at a hearing focused on the CFPA, first proposed by Obama in June.
Describing the committee's schedule, Frank said 'a markup ... will occur the week after next' on the CFPA bill.
He said the committee will also deal in mid-October with the second bill, which would move more OTC (Brussels: OTCB.BR - news) derivatives trading through exchanges, electronic platforms and clearinghouses.
'We'll have finished marking up certainly ... by late October,' Frank said at the opening of a hearing on the CFPA.
A & (Paris: FR0000075160 - news) apos;markup' in the U.S. Congress is a meeting in which a committee amends and typically votes on legislation.
FLOOR OUTLOOK UNCLEAR
Frank said Democratic leaders were still discussing a schedule for consideration of the bills on the House floor.
On CFPA, Frank last week pared back the scope and scale of the proposal in ways meant to help overcome fierce opposition and improve its chances of passage. The administration has expressed support for Frank's changes.
He last week killed an Obama-backed provision that would have forced banks to offer so-called 'plain vanilla' versions of financial products, such as mortgages.
He also called for exempting a wide range of businesses from CFPA oversight, such as accountants, lawyers, securities, commodities and investment and general insurance products.
Another issue in the CFPA debate is whether state governments could adopt and enforce even stricter rules. Little consensus emerged on that front at the hearing.
Otherwise, debate followed familiar lines. Republicans and bankers attacked the CFPA as an unneeded expansion of government that could hurt businesses.
The bill 'bestows vast and unprecedented powers on the new agency and unnecessarily imposes new burdens on banks and credit unions,' said Edward Yingling, president of the American Bankers Association in prepared committee testimony.
Democrats and consumer advocates said today's uncoordinated and weakly enforced protection system has left consumers vulnerable to unscrupulous subprime mortgage lenders, credit card companies and other financial businesses.
The bill offers Congress a chance to 'protect consumers from harmful and often predatory practices employed by banks to rake in billions and drive consumers into debt,' said Anna Burger, secretary-treasurer of the Service Employees International Union in prepared committee testimony.
(Editing by James Dalgleish) Keywords: FINANCIAL REGULATION/FRANK
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