Sen. Bernie Sanders, the chief sponsor, struck a deal on the Senate floor to limit the scope of the audit to only the Fed’s emergency lending activities. | John Shinkle/POLITICO Wall St. plan clears two hurdles

Senate Democratic leaders cleared two major obstacles Thursday to winning passage of a Wall Street reform bill, beating back a Republican effort to curb the reach of a new consumer agency and striking a compromise on a watered-down bill to shine a light on Federal Reserve activities.

Democrats dispensed with the GOP's measure on a new consumer protection agency comfortably, bolstered by a statement from President Barack Obama that the Republican plan was "worse than the status quo."


But it took an aggressive last-minute lobbying effort by White House, Treasury and Federal Reserve officials to win a compromise on the Fed amendment. The original language called for a "comprehensive" audit of the Fed's activities, most of which historically have been kept from public view.

Sen. Bernie Sanders (I-Vt.), the chief sponsor, struck a deal on the Senate floor to limit the scope of the one-time audit to only the Fed's emergency lending to banks, allaying concerns that a review would have interfered with interest rate decisions.

"At a time when our entire financial system almost collapsed, we cannot let the Fed operate in secrecy any longer. The American people have a right to know," Sanders said. "This amendment is not a radical idea."

The Senate had been set to vote on the Fed amendment late Thursday but Republicans requested a delay until at least Tuesday.

Senate Majority Whip Dick Durbin (D-Ill.) said Republicans wanted to make sure Sen. Bob Bennett (R-Utah), who has been campaigning in his state ahead of a nominating convention Saturday, wouldn't miss the vote. But a Republican leadership aide disputed Durbin, saying Sen. David Vitter (R-La.) wanted time to draw up an alternative to the new Sanders amendment, which some in the GOP viewed as "gutted."

The original Fed amendment had gained broad support in the Senate - and a version is included in the House legislation. But if it had survived the Senate intact, Obama might have been forced to veto the entire bill.

Sanders told POLITICO Thursday night that the compromise included "very minor modifications, which in some ways strengthen the bill." He pointed to provision requiring an audit of Fed bank governance, including whether the bank directors effectively represent the public and whether the election of bank directors presents a conflict of interest.

But Rep. Ron Paul (R-Texas), who teamed up with Sanders on the issue, slammed the compromise on his Facebook page. Paul wanted the audit to include the Federal Open Market Committee, which sets interest rates.

"Bernie Sanders has sold out," Paul wrote. "We need to take action and stop this!"

Bernanke sent a letter to Dodd Thursday saying he had "deep concern" that expanding audit powers to the General Accounting Office would "seriously threaten monetary policy independence, increase inflation fears and market interest rates, and damage economic stability and job creation."

Paul Volcker, an economic adviser to President Barack Obama, also weighed in with a letter of opposition to senators. And Neal Wolin, a deputy Treasury Secretary, told reporters earlier Thursday that the administration opposed the original Sanders amendment, saying it would threaten the bank's independence from Congress.

But after Sanders agreed to modify the amendment, Wolin released a statement praising the compromise.

"We are confident that the revised amendment proposed by Senator Sanders strikes the appropriate balance: providing full transparency of lending programs while protecting the bedrock principle of central bank independence on monetary policy that has served our nation so well," Wolin said.

At a time when government is as unpopular as Wall Street, senators felt pressure to respond to suspicions among voters about the central bank's role in major policy decisions during the financial crisis. Even senators who voiced concern about Sanders' original amendment expressed support from the goal behind it - increasing transparency at the Federal Reserve.

The amendment drew support from one of the broadest coalitions seen on a measure in this Congress. Groups as disparate as labor unions and progressive advocacy organizations teamed up with the National Taxpayers Union and FreedomWorks, the conservative group that helped organize Tea Parties.

Senate Majority Leader Harry Reid (D-Nev.) signed onto the measure earlier Thursday. And immediately after Sanders agreed to limit the scope of the audit, Senate Banking Committee Chairman Chris Dodd (D-Conn.) agreed to cosponsor it - signaling that the compromise had passed muster with administration officials.

In another significant development, Democrats defeated a Republican plan to substitute its own version of a new consumer protection agency into the bill. It was voted down 38-61, with Republicans Chuck Grassley of Iowa and Olympia Snowe of Maine siding with the Democrats.

Democrats have proposed an independent consumer bureau within the Federal Reserve to write and enforce regulations on consumer financial products. It would be funded by taxpayers.

The Republican plan would have created an agency within the Federal Deposit Insurance Corp. to write and supervise consumer laws for banks, mortgage providers and other nonbank firms "only if they have a pattern and practice of violating consumer laws," said Sen. Richard Shelby (R-Ala.), an author of the plan.

Under the Republican plan, the FDIC would have had to sign off on the consumer rules, and funding for the division would come from fees assessed on nonbanks. And unlike the Democratic plan, Republicans would maintain federal pre-emption of state consumer protection laws, which would prevent the financial industry from having to beat back proposals in 50 different states.

Sen. Bob Corker (R-Tenn.) said Republicans would now focus on amendments that make "surgical" changes to the consumer protection provisions, starting perhaps with a measure to protect federal pre-emption of state laws.

Obama stopped short of pledging to veto a bill with weakened consumer protection provisions, but he tiptoed up to the line: "I will not allow amendments like this one written by Wall Street's lobbyists to pass for reform."

Wolin took the White House briefing room podium to add his criticism of the GOP alternative, saying, "The Republican amendment will not work." He also predicted the amendment wouldn't pass and called talk of a possible veto "premature."

But the sparring over the GOP plan pitted the two parties against each other over one of the more hotly contested aspects of the bill.

"We're just trying to make sure consumers have the tools and information to make sensible choices with their financial resources," said Sen. Jack Reed (D-R.I.). "But unfortunately, it appears the other side of the aisle wants to make it appear they are strengthening consumer protection when they are really doing not much but just enforcing the status quo.

Republican senators cast their plan as a more consumer-friendly, taxpayer-focused approach. They have spent the past week attacking the Democratic plan as a vast overreach of government powers, creating an agency free from congressional supervision and vague new consumer protections that would ensnare Main Street businesses.

"We're doing this to provide a more rational and constructive alternative to what our Democratic colleagues are trying to slip by the American people," Shelby said. "It will create a massive new bureaucracy whose power and autonomy has no current equivalent to anywhere in the federal government. It can do whatever it wants, whenever it wants without any supervision or real check on its authority."

Republicans and some business groups argue that the Democratic plan would regulate any small business that extends credit to customers. Democrats say their proposal applies only to firms in which extending credit makes up a significant portion of their business. Democrats acknowledge that auto dealers and department stores could fall under that umbrella but dispute that other small businesses such as dentists and florists would be affected.

The Society of American Florists was among 11 business trade organizations that signed a letter to the Senate Wednesday supporting the Republican plan.

"It is pretty unclear how this will affect retailers," said Drew Gruenburg, chief operating officer of the florists society, of the Democratic version. "We are just concerned about the possibility that the bill applies to retailers. This more a matter of clarity, trying to get some better definition of who will be affected."