WASHINGTON -- Congressional Democrats Wednesday ripped a GOP bill to delay a key Wall Street reform, raising the stakes of what Republican leaders had expected to be an easy vote into a political showdown.
At issue is a bill that would grant banks a two-year reprieve from part of the Volcker Rule, itself an element of the 2010 financial reform bill that bars banks from using taxpayer funds to speculate in securities markets.
Late Tuesday, House Republicans scheduled a vote on the provision for Wednesday. The bill is being considered under special procedures that require a two-thirds majority for passage, which would indicate that GOP leaders expected dozens of Democratic votes.
But liberals assailed the legislation soon after it made headlines.
"One day into the new Congress, House Republicans are picking up right where they left off: trying to gut Wall Street reforms so that big banks can make more risky bets using taxpayer-backed money," Sen. Elizabeth Warren (D-Mass.) said. "This is yet another big bank giveaway that makes our economy and middle class families less safe."
House Minority Leader Nancy Pelosi (D-Calif.) was even more blunt, calling the bill "a brazen attempt to dismantle essential Wall Street reforms and sneak through a New Year's present to big banks" in a written statement.
"With their latest Wall Street giveaway, it is clear where Republicans' true priorities lie," Pelosi added.
The standoff is a significant test of the Democratic Party's resistance to financial deregulation, coming less than a month after President Barack Obama and then-Senate Majority Leader Harry Reid (D-Nev.) urged lawmakers to vote for a government funding bill that included a government subsidy for risky Wall Street derivatives trading. That bill resulted in a dramatic standoff between House Democrats and Obama, which only broke after the White House and JPMorgan Chase CEO Jamie Dimon began lobbying lawmakers to back the bill.
Wednesday's bill, by contrast, is not attached to any piece of must-pass legislation. The Volcker Rule provision is one of 11 revisions to the 2010 Dodd-Frank financial reform law included in Wednesday's bill. It would allow banks to hold risky debt securities known as collateralized loan obligations, or CLOs, for an additional two years. The House approved similar bills to delay the Volcker Rule's CLO provisions into July 2017 twice last year. While the Senate never took up the bills, the Federal Reserve responded by delaying the rule until mid-2017. Wednesday's bill would delay the Volcker Rule into July 2019.
"We begin the new Congress the same way the last dysfunctional Congress ended -- Republicans are distorting House procedures to ram legislation through Congress that benefits their cronies," said Rep. Keith Ellison (D-Minn.). "This is not how our Democracy was intended to function."
Financial experts are increasingly worried about the corporate debt market. The Office of the Comptroller of the Currency, an important bank regulatory agency, warned banks in December that the market is becoming dangerous.
CLOs are complex contracts similar to the mortgage securities that crashed the economy in 2008. To create a CLO, banks package dozens of risky corporate loans together and sell slices to investors.
Banks with at least $50 billion in assets essentially have a lock on the CLO market. According to an April letter from five federal regulators, such firms hold between 94 percent and 96 percent of the domestic market, valued at $84 billion to $105 billion.
"This bill will allow three -- only three -- of our Wall Street firms to control 75 percent of our collateralized loan obligations," Rep. Michael Capuano (D-Mass.) said on the House floor. "It's inappropriate and we should not be voting for this bill."
Senate Republicans likely have the votes to approve the House bill should it pass, although President Barack Obama has the power to veto it -- The White House did not respond in time for publication Wednesday. Republicans enjoy a broad majority in the House, but Democrats in the lower chamber have the power to defeat the bill, since GOP leaders have brought it up under a process that requires a two-thirds majority for passage.
Dozens of House Democrats have supported such a provision in the past. In September, a bill to delay the Volcker Rule's CLO prohibition passed the House 320 to 102, with 95 Democrats voting in favor and just one Republican, Rep. Walter Jones (R-N.C.) voting against it.