Senate leaders this week appointed the Senate's members of the House-Senate conference committee that will hammer out a final version of the administration's financial-regulatory overhaul legislation. House conferees are not expected to be appointed until after Congress returns from its Memorial Day recess.

Of the seven Democratic conferees, most are not generally considered supporters of the banking industry. They include Sen. Blanche Lincoln, of Arkansas, chair of the Senate Agriculture Committee, who authored a provision in the Senate bill—opposed not only by many bankers but also by the White House, by some regulators, and by legislators of both parties—that would force banks to spin off their derivatives-trading operations. Also appointed as conferees were two other Democratic members of the Agriculture Committee, Sens. Tom Harkin, of Iowa, and Pat Leahy, of Vermont, who are expected to join Lincoln in opposing efforts either to remove the derivatives ban from the final bill, or to alter it in ways that would limit its effect.

The other Democratic conferees are Banking Committee Chair Chris Dodd, of Connecticut, and Sens. Tim Johnson, of South Dakota; Jack Reed, of Rhode Island; and Charles Schumer, of New York. Johnson, considered likely to succeed Dodd as Chair of the Banking Committee, represents a state that is headquarters to a number of significant credit-card banks that are major employers in South Dakota, and he is regarded as a moderate on banking issues, and sensitive to industry concerns over the constricting burdens of excessive regulation.

The five Republican members appointed to the conference committee are headed by Sen. Richard Shelby, of Alabama, a former chair of the Banking Committee and now its ranking Republican. The others are Sens. Saxby Chambliss, of Georgia, the ranking Republican on the Senate Agriculture Committee; Bob Corker, of Tennessee; Mike Crapo, of Idaho; and Judd Gregg, of New Hampshire.

While Shelby and Corker, in particular, spent considerable time in recent months working with Democratic members of the Banking Committee, in efforts to reach compromises on key provisions of the bill that senators of both parties could support, none of those efforts succeeded, and all five of the Republican conferees voted against the bill.

Although the Senate bill that passed last week shares a great many elements in common with the House bill, passed in December, there are a number of significant differences between the two bills, and the task of the conference committee will be to find ways to reconcile those differences that will produce a final bill that can be enacted by both the Senate and the House.

In addition to Sen. Lincoln’s provision on banks' trading in derivatives, other differences between the bills that will need to be resolved include whether banks will be barred from "proprietary trading"; whether a new consumer financial protection agency that is provided for in both bills will be a stand-alone agency or a part of the Federal Reserve; whether the Fed will be given authority to regulate interchange fees on debit and credit cards; whether and under what circumstances federal financial regulators will be authorized to override state laws and state regulatory authorities; and what the bill will empower authorities to do to manage or resolve threatened failures, or other market dislocations that may result, when "systemically significant" companies—those that often are called "too big to fail"—experience financial distress.

Jones Walker will closely monitor the progress of the conference committee as it works its way through this critical and far-reaching legislation. For more information, please contact George A. LeMaistre, Jr. or Palmer C. Hamilton.