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Latest update: 16/07/2010
- finance - financial crisis - USA - Wall Street
US Congress passes sweeping financial reforms
Two years after the most serious financial crisis since the Great Depression, the United States Congress has overhauled the country’s financial regulatory system, introducing more protection for consumers and tighter control of banks.
In a bold effort to repair the damage from the 2008 financial crisis, the United States Congress passed sweeping economic reform legislation Thursday that will touch almost every aspect of the American financial system. The bill cleared its final hurdle on Thursday with a 60-39 vote in the Senate, and will now makes it way down Pennsylvania Avenue to the White House where President Barack Obama will sign it into law.
Broad new government powers
The bill’s passage marks another key victory for President Obama and his Democratic
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party who had spent much of the past two-years battling for financial reform package on this scale. Supporters argue the new law will go a long way to preventing a recurrence of the near economic meltdown that brought on the worst recession since the Great Depression of the 1930s. "I regret I can't give you your job back, restore that foreclosed home, put retirement monies back in your account," said Democratic Senator Christopher Dodd, one of the bill's chief authors. "What I can do is to see to it that we never, ever again go through what this nation has been through." The new law's main provisions include:
- A new council of regulators led by the Treasury Secretary to monitor economic risks
- New rules to protect consumers from risky financial products
- New rules to govern how banks trade in high-risk financial products such as credit derivatives that were among the main causes of the 2008 market crash.
- Increased oversight of credit ratings agencies including Moody’s and Fitch who will now be subject to greater liability.
- The Securities and Exchange Commission (SEC) will have new powers to regulate the hedge fund industry.
- Large banks will face tighter scrutiny over their cash reserves that are used to offset against bad loans.
Republican objections
This was a hard-fought victory for the president who faced formidable opposition from Republicans and a massive lobbying effort on the part of the American financial industry. They sought to restrain the bill’s far reach that aims to reign in an industry that had become increasingly de-regulated over the past half-century. “It creates vast new bureaucracies with little accountability and seriously, I believe, undermines the competitiveness of the American economy,” complained Alabama Senator Richard Shelby who echoed the disappointment felt among conservatives. “Unfortunately, the bill does very little to make our system safer,” he added.
Republicans were not alone in their opposition. Former regulators, bankers and many leading economists are among those worried that the new legislation would do little in the event of another financial crisis. Former FDIC Chairman William Issacs told the Wall Street Journal he does not expect the new law to have much impact. He said it was a mistake to give the US Treasury department so much new authority, "they do not have the personnel. And they do not have the political independence to handle a crisis properly" he said.
The White House said on Thursday President Obama is expected to sign the legislation next week. Other perspectives on the new financial reform law:
- The American Bankers Association: the central lobby group for the US financial industry wrote a brief on how the new law will affect banks.
- Americans for Financial Reform: coalition of 100 pro-labour and union groups supporting changes to financial regulatory system.
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Comments (1)
financial reform
What the bill really did was give more power to the Federal Reserve, a private group of bankers. Derivatives continue and the bankers control the regulatory panel. A defeat for the American people dressed up like a victory.
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