UPDATE 1-No margin for error in Wall St bill’s final test

* Senate aims to take up final bill this week

* Votes aren’t locked down, but passage still seen likely

* Full impact won’t be known for years
(Adds White House comment on Fannie, Freddie reforms in final
paragraphs)

By Andy Sullivan

WASHINGTON, July 11 (BestGrowthStock) – Democrats will have little
margin for error this week as they push for final U.S.
congressional approval of the most comprehensive rewrite of
financial rules since the Great Depression.

Senate Majority Leader Harry Reid hopes to take up the
sweeping legislation as Congress returns from a weeklong break,
even though he has not yet locked down the 60 votes needed to
clear a procedural hurdle in the 100-seat chamber.

The House of Representatives has already approved a final
version of the bill, which imposes a range of tough new
restrictions on the industry in an effort to avoid a repeat of
the 2007-2009 financial crisis. After a year and a half of
work, Democrats are eager to send it to President Barack Obama
to sign into law.

Passage of the bill would give them a second major
legislative achievement, alongside healthcare reform, to show
voters as they try to retain control of Congress in elections
this November.

In the Senate, Reid can count on 57 Democratic votes for
the measure, which would create new consumer protections and
saddle financial firms with tough new restrictions.

Republicans Susan Collins and Scott Brown have indicated
that they are inclined to support it as well.

But that still leaves Reid one vote short. Republicans
Olympia Snowe and Charles Grassley have backed the bill earlier
in the legislative process, but neither has said whether they
will support the final version.

Reid could pick up another Democratic vote if West Virginia
Governor Joe Manchin promptly appoints a successor to fill the
seat of the late Senator Robert Byrd.

While Manchin is expected to name a Democrat who supports
the Wall Street reform bill, it is unclear if he will name a
successor in time for a vote this week, in which case Democrats
may have delay action.

For a FACTBOX on the key players, click on [ID:nN30252924]

Analysts, however, expect Reid will ultimately get the
votes he needs to send the measure to Obama, as moderate
Republicans will be hard-pressed to justify a “no” vote after
winning a wide range of key concessions.

“I think everyone’s pretty comfortable that they have the
numbers,” said Jodi Lashin, a lawyer at Pryor Cashman who has
been tracking the bill closely.

Alan Lancz, president of Alan B. Lancz & Associates in New
York, said a failure to move the bill to a final vote would add
another layer to the concerns of investors.

“If it doesn’t pass, there will be a slight positive, but
there will be worry as to whether it will come back in a worse
form down the road,” Lancz said. “If it’s just delayed, it
might actually worry investors more as to what else is being
planned or added to the bill.”

Since hitting a 2010 high in April, the KBW Banks Index
(.BKX: ) has fallen nearly 15 percent as concern grew on how the
legislation would crimp industry profits.

COULD HAVE BEEN TOUGHER

With a nervous eye on the coming elections, Democrats
hammering out the sweeping bill rode a wave of public disgust
against Wall Street, perhaps the only address in America less
popular with voters than Capitol Hill.

Despite the best efforts of industry lobbyists, the
legislation actually got tougher over the past year as it moved
through the chambers of Congress.

Financial firms will face a range of new restrictions, from
increased scrutiny of consumer loans to limits on their trading
activities.

For a summary of the bill’s major provisions, click on
[ID:nN30261311]

But the industry managed to soften the impact of many of
the bill’s harshest provisions during a final all-night
negotiating session.

Banks would be barred from trading for their own profits
under a provision named after former Federal Reserve Chairman
Paul Volcker. But lawmakers softened the “Volcker Rule” to
allow banks to maintain small investments in hedge funds and
private-equity funds, and gave them further leeway by opting to
loosen the way they measure those stakes.

Though consumer loans will come under new scrutiny from a
consumer-protection authority, auto dealers — among the
largest players in this area — won a hard-fought exemption.

And while Wall Street banks will have to spin off much of
their lucrative swaps-dealing activity into separately
capitalized affiliates, lawmakers at the last minute allowed
banks to keep many types of swaps in-house.

Even when Obama signs the bill into law, its ultimate
impact will not be known until regulatory agencies put it into
an effect — a process that will take years.

“In broad and significant areas, (the legislation) endows
regulators with wholly discretionary authority to write and
interpret new rules,” lawyers at Skadden Arps wrote in a
research note.

The bill has been criticized for failing to make changes to
Fannie Mae (FNMA.OB: ) and Freddie Mac (FMCC.OB: ), the government
sponsored mortgage finance companies that have taken more than
$145 billion from taxpayers since being seized in 2008.

White House spokesman Robert Gibbs said Republicans should
not use that as an excuse to vote against the financial reform
bill. “We are going to reform Fannie Mae and Freddie Mac,”
Gibbs said Sunday on NBC’s Meet the Press. [ID:nN11147458]
(Reporting by Andy Sullivan; Additional reporting by Matthew
Lynley in New York and Corbett B. Daly in Washington; Editing
by Tim Dobbyn)

UPDATE 1-No margin for error in Wall St bill’s final test