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US Senate approves biggest overhaul of financial regulation in decades

Friday, July 16th 2010 - 03:46 UTC
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A huge congressional victory for President Obama but too complicated for Main Street A huge congressional victory for President Obama but too complicated for Main Street

United States Senate has given final approval to the biggest overhaul of US financial regulation in decades. The reforms are intended to avert a repeat of the 2008 crisis that brought the world economy to the brink of collapse.

The Senate vote is a major victory for President Barack Obama and comes after months of political wrangling. Speaking afterwards, Mr Obama said the new regulation would give the strongest consumer protection in history.

He said the American people would never again be asked to foot the bill for Wall Street's mistakes.

After long months of debate, the US Congress has finally given President Obama what he wants - the most sweeping financial reforms since the Great Depression. After healthcare reform, it represents another significant legislative victory for Obama.

Eyeing the US mid-term elections, the White House said “this will be a vote that Democrats will talk about through November”. But the party in power may struggle to make political capital out of a 2,300 page bill, stuffed with 533 new regulations.

An Ipsos Public Affairs poll found that 38% of Americans had never heard of the bill, while another 33% knew almost nothing about it.

Given this apparent lack of understanding about a bill which one of its authors, Senator Chris Dodd, said would ensure that Americans “never, ever again go through what the nation has been through”, the polling suggests the connection between arcane Washington politicking and Main St reality is simply too wide.

Senators approved the reform bill by 60 votes to 39. It was passed by the US House of Representatives earlier this month. The reforms are designed to reduce the risks that banks take and to boost protection for consumers. They include new government powers to break up any company that becomes so big its failure could threaten the economy.

Mr Obama said it would bring an end to “shadowy deals”. He added “even before the financial crisis that led to this recession, I spoke on Wall Street about the need for common sense reforms to protect consumers and our economy as a whole”.

“But the crisis came, and only underscored the need for the kind of reform that the Senate passed today. The kind of reform that will protect consumers when they take out a mortgage or sign up for a credit card, reform that will prevent the kind of shadowy deals that led to this crisis, reform that would never again put taxpayers on the hook for Wall Street's mistakes.”

Moments after the vote, Federal Reserve Chairman Ben Bernanke said: “The financial reform legislation approved by the Congress today represents a welcome and far-reaching step toward preventing a replay of the recent financial crisis.”

The legislation has been described by US Treasury Secretary Tim Geithner as “the most sweeping set of financial reforms since those that followed the Great Depression”.

The legislation creates a new federal agency designed to oversee consumer lending and outlines new regulations for complex financial instruments. To this end, it will set up a powerful consumer financial protection bureau, with powers to clamp down on abusive practices by credit card companies and mortgage lenders.

Large banks will also be required to increase the amount of capital they hold in reserve against loans going bad. However, they will only be forced to do so after five years, as the government is keen that banks do not hold back on lending money during the economic recovery.

The bill also introduces the so-called Volcker rule - named after the former Federal Reserve chairman Paul Volcker, who proposed it. Banks will be banned from what is called proprietary trading - effectively taking bets on financial markets using its own money.

They will also be limited to investing a maximum of 3% of their capital in speculative businesses such as hedge funds or private equity funds. (BBC).-

Categories: Economy, Politics, United States.

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