Reporting from Washington — Scrambling to meet an end-of-the-week deadline, House and Senate negotiators worked into early Friday in a marathon session to complete the most far-reaching rewrite of financial rules since the Depression.
Lawmakers were on the verge of agreeing on the creation of a new agency to protect consumers in the financial marketplace, although most auto dealers would be exempt from its oversight.
Members of the joint House and Senate conference committee also agreed to limit risky investments by banks, a provision known as the Volcker rule. And lawmakers closed in on a compromise on derivatives regulations.
The decision on auto dealers was a major loss for the Obama administration, which, along with some key congressional Democrats, pushed hard to have dealer financing covered by the new agency, known as the Consumer Financial Protection Bureau.
The powerful independent agency, which would be part of the Federal Reserve, is the centerpiece of the sweeping overhaul of financial rules that the congressional committee is working to complete.
In addition to crafting the final structure and powers of the consumer agency, lawmakers worked on the toughest remaining issue — regulation of complex financial derivatives — as they raced to finish work in time for President Obama to brief world leaders on the final bill this weekend at the Group of 8 economic summit in Canada.
The sticking point on derivatives was a controversial provision that would force banks to spin off their derivatives businesses, as part of new regulations of the complex financial instruments.
Just after midnight, House Agriculture Committee Chairman Collin C. Peterson (D-Minn.) announced a compromise. The proposal would limit the types of derivatives banks could trade, including those dealing with interest rates, foreign exchange rates, gold and silver and hedging a bank's risk.
Other derivatives could only be traded by a bank affiliate.
The leading proponent, Senate Agriculture Committee Chairwoman Blanche Lincoln (D-Ark.), negotiated with Peterson, White House officials, centrist Democrats and members of the New York congressional delegation, all of whom have concerns about overly restrictive derivatives regulations.
House Financial Services Committee Chairman Barney Frank (D-Mass.) said he intended to try to add a provision to the bill to raise up to $19 billion over 10 years from large financial institutions to help pay the additional costs of the legislation. The levy, to be assessed by the Federal Deposit Insurance Corp. on financial institutions with more than $50 billion in assets and hedge funds with more than $10 billion in assets, also would provide less than $3 billion to help unemployed homeowners avoid foreclosure.
The Volcker rule would limit so-called proprietary trading — investments of the bank's funds for its own profit instead of for its clients'— as well as investments in hedge funds and private equity funds.
Late Thursday, the conference committee accepted a proposal by Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.), strengthening the Volcker rule's language while also allowing some exceptions.
The provision would mandate a ban on risky investments instead of simply allowing regulators to implement such a ban after a study. But it also would allow banks to make small investments in hedge funds and private equity funds, limiting such investments to 3% of a bank's capital.
Auto dealers and their allies — Republicans and some Democrats — fought back aggressively against the provision that would have put dealerships under the purview of the new bureau, saying the additional oversight wasn't needed and would raise the prices of cars while hurting the struggling auto industry.
"We concede on our side … that there will be no consumer [agency] role for autos," said Frank, who had tried to keep auto dealers under the new agency's authority.
"Buy here, pay here" auto dealers that lend their own money to customers would be covered by the agency.
But under the legislation, the vast majority of auto dealers would not be covered by the consumer agency if they only arrange loans through banks, credit unions and industry financing companies such as GMAC. Instead, under the compromise offered by the House, the Federal Trade Commission would retain its oversight of auto dealer activities, but would have new powers to enact regulations more quickly.
Democrats from states with a strong auto industry presence joined with Republicans on the committee last year to try to exempt auto dealers from the agency's oversight.
The White House opposed the exemption, and this year the Pentagon made an unusual public plea to senators to subject the dealers to the bureau's oversight. Top Defense Department officials said young members of the military often were victims of unscrupulous auto deals.
