WASHINGTON – More than a year after the near-collapse of Wall Street plunged the economy into crisis, a divided House on Friday approved the most sweeping overhaul of the nation’s financial regulatory system since the Great Depression.
“We are sending a clear message to Wall Street: The party is over,” House Speaker Nancy Pelosi, D-Calif., said after the 223 to 202 tally, which failed to attract a single Republican vote.
The bill’s passage marks a milestone in the Obama administration’s efforts to rein in the abuses that contributed to the crisis and to prevent similar failures in the future. President Obama has called financial reform one of his top priorities, alongside health care and climate change. In a statement Friday, he said the legislation “brings us another important step closer to necessary, comprehensive financial reform,” and he urged the Senate to act as quickly as possible.
The 1,279-page House bill would create a new federal agency dedicated to consumer protection, establish a council of regulators to police the financial landscape for systemic risks, initiate oversight of the vast derivatives market and give the government power to wind down large, troubled firms whose collapse could endanger the entire financial system. The legislation also would give shareholders an advisory say on executive compensation, increase transparency of credit-ratings agencies and set aside billions of dollars to aid unemployed homeowners.
Rep. Barney Frank, D-Mass., who guided the bill through the House Financial Services Committee, compared the legislation to efforts in previous generations to expand oversight of private enterprise.
“Innovation is generally a good thing. But in the absence of sensible regulation, it can cause abuses,” he said. “And so I think this is, frankly, of the historic dimensions of what Theodore Roosevelt and Woodrow Wilson did, and what Franklin Roosevelt did.”
House Republicans were unanimous in their opposition, saying that the bill would amount to an egregious overreach of government powers and leave unresolved many of the problems that led to the recent crisis. They argue that it would create unnecessary layers of bureaucracy and stifle financial innovation.
“We are left with a perpetual Wall Street bailout bill,” Rep. Jeb Hensarling, R-Texas, said during Friday’s debate. “We are left with a bill that will crush job creation at a time when our nation needs to be creating jobs. We have a bill that assaults the fundamental economic liberties of every American citizen.”
Pelosi praised Frank on Friday as a “maestro” for the way he navigated the various legislative landmines. The maestro looked more disheveled than usual after three days of intense debate. He emerged from the House floor to handshakes and hugs from fellow Democrats, his belt pulled sideways, his shirt coming untucked, his eyes bleary. He thanked his staff and wound down a press conference saying, “I’m sure you’re as worn out as we are.”
Despite Friday’s victory for administration officials, the elation won’t last long. While Frank has done his part, the fate of regulatory reform remains in jeopardy.
“It’s probably the third inning of this game,” said Robert Litan, an economist and senior fellow at the Brookings Institution. “This is not going to be the bill that finally passes. Not all of it will survive.”
By all accounts, the Senate presents a much tougher ballgame. There, financial lobbyists have said they plan to target a handful of moderate, business-friendly Dem- ocrats who have expressed skepticism about parts of the president’s proposals in hopes of reshaping the final legislation next year.
One indication of the delicate road ahead came Friday in the waning moments of the House debate. An amendment from Rep. Walt Minnick, D-Idaho, to eliminate the proposed Consumer Financial Protection Agency and replace it with a council of existing regulators failed, but not before it garnered more than 30 votes from moderate Democrats.
Consumer groups rejoiced at the defeat of Minnick’s attempt to kill the consumer panel.
“This agency would crack down on lenders and banks that abuse their customers, and it would provide information consumers need to make informed financial decisions,” Jim Guest, president of the Consumers Union, publisher of Consumer Reports magazine, said in a statement.
The U.S. Chamber of Commerce thinks otherwise. It ran television ads and heavily lobbied against the consumer panel, arguing alongside financial institutions that tougher regulation of mortgages and other credit products could result in higher costs for consumers.
The Senate Banking Committee only recently began to consider a 1,136-page bill by its chairman, Sen. Chris Dodd, D-Conn. It differs in significant ways from Frank’s legislation and the administration’s original vision, bulldozing the existing regulatory establishment, stripping power from agencies including the Federal Reserve and the Federal Deposit Insurance Corp., and erecting a triumvirate of new regulators with sweeping, unprecedented powers.
Edward Yingling, president of the American Bankers Association, said his group assumed that Frank would get a bill through the House despite industry opposition. But he and other financial industry lobbyists expect that final legislation would look quite different. “There is a possibly of getting a bipartisan bill in the Senate, but it will entail compromise. I think it would have to be modified significantly,” he said.