Senate Banking Committee

Although all of the public attention and drama has focused on the health care legislation, there is news about the financial-reform bill as well.

Yesterday, March 22, the Senate Banking Committee voted in favor of the bill formulated by Christopher Dodd, of Connecticut, the commitee's chair. The Committee was split along party lines, 13 to 10.

The bill is similar to one the House of Representatives passed in December 2009, also with a split along party lines.

One important addition that this bill has and that one didn't is the Volcker rule: the prohibition of certain activities for banks that accept retail deposits. In some sense this is a return to the old Glass-Steagal Act. But not really.

Glass-Steagal created a wall between banks on the one hand and brokerage activities on the other. That is the wall that came crumbling down in the late Clinton period and this bill would not attempt to erect it anew. It would make some what more discriminating bans than that. Still, whether it would work, toward its presumed goal of limiting systemic risk, and how it would work, in specific administrative terms -- these are not easy questions to answer.

Interestingly, the Obama administration itself was late to pick up on the cause of the "Volcker rule." It showed no interest in the matter until after Scott Brown won his election in Massachusetts. Thereafter, it wanted to re-assert its populist cred, and this seemed to be an easy way to do that.