Finance reform details finished
Regulatory overhaul awaits Congress’ OK
WASHINGTON – Almost two years after the worst financial crisis since the Great Depression, congressional negotiators completed work Friday on landmark legislation designed to prevent a recurrence by dramatically expanding the government’s oversight of the financial industry.
The regulatory overhaul, expected to get final approval by the House and the Senate next week, would affect all aspects of the financial system, from the pennies banks charge merchants each time they swipe a customer’s debit card to the multitrillion-dollar market for complex derivatives.
The final details, hashed out in a marathon 20-hour session, ended a yearlong process that saw Wall Street companies and major business groups lobby aggressively against new regulations.
The legislation – about 2,000 pages long – would create a new agency to protect consumers in the financial marketplace, empanel a council of regulators to monitor the financial system for major risks, impose tough regulations on complex financial derivatives, and grant the government power to seize and dismantle teetering companies whose failure would pose a danger to the economy.
The bill also outlaws some of the riskiest mortgage lending practices that led to the housing bubble, including loans written with no documentation of the borrowers’ income.
Lawmakers on a joint conference committee labored until dawn to reconcile House and Senate versions of the legislation in time for President Barack Obama to brief foreign leaders on the completed deal at the Group of 20 economic summit in Canada.
“Our economic growth and prosperity depend on a strong, robust financial sector, and I will continue to do what I can to foster and support a dynamic private sector,” Obama said Friday. “But we’ve all seen what happens when there’s inadequate oversight and insufficient transparency on Wall Street.”
Wall Street stands to take a major hit under new rules that would limit the risks they take, force them to spin off parts of their lucrative derivatives operations and give shareholders more say in executive compensation.
The bill also threatens to overwhelm small banks with costly new regulations, said Edward Yingling, president of the American Bankers Association.
“This bill will, in the end, add well over a thousand pages of new regulations for even the smallest bank,” Yingling said. “As a result of this volume and the new restrictions, many small banks are telling us they will simply have to sell out to larger institutions that have the staff to deal with the massive volume of new reports and rules.”
Consumer advocates said the bill’s establishment of a powerful watchdog agency was a major step forward.
The depths of the financial crisis and the deep recession it triggered helped supporters overcome the army of lobbyists deployed by the industry, said Ed Mierzwinski, consumer program director of U.S. Public Interest Research Group, a consumer advocacy federation.
“It’s not just some complicated thing in Washington. You see it when your neighbor’s house is boarded up or you’re laid off and you open up your 401(k) and … it reads like a Stephen King novel,” he said. “The public was affected deeply by this crisis.”
Lawmakers are racing to meet Obama’s July 4 deadline for passing his top legislative priority heading into November’s midterm elections.
To pay for the increased oversight of the financial industry, lawmakers in their last move on the bill Friday agreed to impose a $19billion tax on the largest financial institutions. The money would cover the costs of the legislation for the next 10 years.
The conference committee’s final vote split along party lines. Republicans, who sharply criticized the legislation as an unwarranted government intrusion into the private sector, all voted against the final bill, which will be sent to the House and Senate for approval.