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Wall Street Reform Bill Passes Senate

This article was written by in Economy. 6 comments.


In December of last year, the House of Representatives passed a bill designed to reform the financial industry, introducing more consumer protection and more regulation of Wall Street firms and other financial businesses. The Senate also tackled the controversial topic of financial reform, passing its own version of the bill yesterday.

Though not an attractive acronym, the Restoring American Financial Stability Act of 2010 (S. 3217) has a number of goals. Several hundred amendments have been introduced and passed since the bill was introduced to the Senate on April 15, so some of these details may have changed. The full text of the bill in its current form is not yet available, but I will update this article throughout the remaining process as more details become available, culminating with the President signing a compromise bill into law.

Here are some of the highlights of the bill recently passed by the Senate.

Establish new regulatory bodies and rearrange responsibilities

A Financial Stability Oversight Council will identify systemic risks to financial stability of the United States, promote market discipline, and respond to financial threats. An Office of Financial Research will support the oversight council from within the Department of the Treasury. The Federal Reserve Board will now have the power to oversee non-bank financial companies and bank holding companies, a significant increase of scope.

The FDIC will be able to be appointed as a receiver for any financial company in default or in risk of default, not just banks. This will provide a way for large banks to be orderly dismantled before they damage the economy in significant terms. There would theoretically be no more “too big to fail” banks. The FDIC will also take on some functions of the Office of Thrift Supervision (OTS), which will be abolished.

Regulation of other financial products

Hedge funds will be required to register, insurance companies will receive a new oversight body (the Office of National Insurance), and there will be new regulations for reinsurance contracts. Credit card banks and industrial loan corporations will no longer qualify for FDIC insurance. The SEC and CFTC will receive new power to regulate derivative financial products including security-based swaps.

Rating agencies will face new regulation to ensure accountability and transparency and a new organization will be created to protect investors.

Risk management

Financial companies sold mortgage-backed securities as a way to pass the risk of default onto another party, but they weren’t sold as risky investments. The bill seeks to ensure companies require the securitizer to retain risk when asset-backed securities are created, packaged, and sold.

Consumer protection

The Federal Reserve will contain a Bureau of Consumer Financial Protection, and three other organizations will be created: the Office of Fair Lending and Equal Opportunity, the Office of Financial Literacy, and the Consumer Advisory Board.

The government will issue grants and other assistance to ensure low income families will have access to establish accounts in FDIC insured banking institutions, and at those banks, will have access to accounts with “reasonable terms.”

While the summary above doesn’t hit on every aspect contained within the bill in its current form, the summary does target the potentially biggest changes to the financial industry and the more significant consumer protections. A few lawmakers who voted against the bill believe the changes to the industry do not go far enough to ensure a stable financial system, while others believe the industry needs no additional regulation.

Now that similar bills have passed both the Senate and the House of Representatives, a small team of Democrats and Republicans will meet to work out differences between the two versions. Before long, a final bill will be presented to the President and will undoubtedly be signed into law.

What’s your take on the proposed law to further regulate Wall Street? Is it necessary to ensure consumer protection or a roadblock on the way to profit?

Photo: David Paul Ohmer

Published or updated May 21, 2010. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 6 comments… read them below or add one }

avatar tom

I don’t know enough about it to make any intelligent comments, but I did read that 5 Republicans voted for it. While I don’t think that means it’s a bi-partisan bill, I do think it’s a start. I also think it’s good that of the 12 senators that will reconcile this with the House bill, 5 are Republican. I don’t know who the 5 are, I hope a couple of them did not vote in favor.

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avatar Candide

The fact that 5 Republicans voted for it confirms my belief that it’s nowhere near strong enough.

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avatar Financial Samurai

I don’t think anything will really change. Bills are too confusing for the average person to understand. The only thing we can understand is that the gov’t is extending their control over more and more people and institutions. Is this good? Only if the gov’t is good!

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avatar Monevator

I’m just surprised you guys have already implemented your reform bill, Flexo. Here in the UK the new coalition Government has kicked it into the long grass for 12 months.

Wonder which will be the best approach in the long term? London was racing ahead of New York up until the boom, and it won’t want to lose its footing…

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avatar Lorne M.

Here in Canada regulators have been always strict guys and we have the soundest bank system in the world *according to World Economic Forum). However I believe it’s mainly about mentality – the change has to come from the bottom. US consumers have been using large credits as a mean of living. However my feeling is that after this large shock, people’s (at least whats my experience of reading US web and meeting my friends across the lake…) attitude towards debt changed and that’s good. If new regulators will be on any help – I don’t think so. Some things will go better, some worse (what about flexibility of capital markets?).

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avatar Kim | Money and Risk

I haven’t had a chance to read the bill in its entirety yet but I’ve been preparing for the past months for it and other regulations that has been phasing in.

The main issue that I have with the bill is that it does not address or fix the core cause of the latest collapse. Mortgage lending criteria. That has been the base for the last three collapse, except for 2001 which had an added caveat of internet bubble.

This time, we suffered more because of the repeal of the Glass Steagal Act which allowed banks to step outside of their normal business practice. I haven’t really checked how much of that was put back.

Here’s the reality, the stuff that really needs to be controlled and monitored won’t be executed much after lobbyists are done. The things that need to be fixed aren’t addressed. And more regulations on normal stuff that will hurt consumers in the end run.

We don’t need another govt agency and more cost. Use one of the thousands already in existence. Streamline them so they talk to each other and actually can see patterns.

I don’t get this one at all: “The government will issue grants and other assistance to ensure low income families will have access to establish accounts in FDIC insured banking institutions, and at those banks, will have access to accounts with “reasonable terms.”

I started blogging because of the new regulations. Instead of providing free advice to employees of my clients, I now will be telling them, “we can’t answer your questions anymore because we manage your 401K plan and we get paid. You now need to figure things out yourself and here’s a website that’s open to the public that you can look at.” Most of these people are blue collar and have a hard time with English. They will have to wait until I can finish getting articles translated into multiple languages and podcast. We had multilingual staff visiting companies twice a year and sat down for 15 mins/per person and answered questions if requested.

In the future, we may even have to ask people to leave the firm because there is a regulation pending that will prohibit us from working with anyone who’s in a 401K plan that we manage. I’m not even sure how to address this as I have people who worked with me for 20 years and the business owners are not happy about having to choose which relationships to remove and what would be riskier for them if things go wrong with a different firm.

Here are some things to analyze. How is the bill going to affect the mutual funds and their trading practices. Funds that were strategic and market neutral by doing shorts, collars, and derivatives to mitigate risks will no longer be allowed to do so. If their only option is cash, how will it affect them. Many people hedged and did really well during the downturn with those funds. How will it affect investments in people’s 401Ks.

What will loss of derivatives do to your existing annuities guarantees if they can’t share loss exposures. What insurance companies are going to be at risk of performance because of their portfolios. Money market funds uses derivatives. How will that affect their rate of returns.

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