Sun, Jun 27, 2010 page11

• US lawmakers finalize Wall Street bill

  DONE DEAL New regulations will see the establishment of a financial consumer watchdog, a protocol for splitting troubled firms and higher bank capital standards

  • REUTERS
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  US lawmakers hammered out a historic overhaul of financial regulations as dawn broke over the nation’s capital on Friday, handing US President Barack Obama a major domestic policy victory on the eve of a global summit devoted to financial reform.

  In a marathon session of more than 21 hours, congressional negotiators agreed to a rewrite of Wall Street rules that may crimp the industry’s profits and subject it to tougher oversight and tighter restrictions.

  The bill, the most sweeping financial rules revamp since the 1930s, is headed toward final congressional approval next week although implementation will be bogged down for months in regulatory rule-making.

  The legislation would set up a new financial consumer watchdog, create a protocol for dismantling troubled financial firms and mandate higher bank capital standards, all in an effort to avoid a repeat of the credit crisis that hammered the economy and triggered taxpayer bailouts of floundering firms from 2007 to last year.

  To secure agreement, ­lawmakers reached deals in the final hours on the most controversial sections, which restrict derivatives dealing by banks and curb their proprietary trading to shield taxpayer-backed deposits from more risky activities.

  Banks will be allowed to keep most swaps dealing activity in-house, although the riskiest trading would be pushed out to an affiliate. They will also be permitted small investments in hedge funds and private equity funds.

  The concessions could lessen the impact on bank profits.

  The reforms must still win final approval from both chambers of Congress before Obama can sign them into law. Quick approval is expected.

  Democrats had raced to complete their work before Obama left for a weekend meeting of the G20 economic powers, where he can tout the changes as a blueprint for other countries.

  “Just as economic turmoil in one place can quickly spread to another, safeguards in each of our nations can help protect all nations,” Obama said at the White House shortly before departing.

  Despite last-minute deals, the bill has actually gotten tougher in its yearlong journey through the halls of Congress. Democrats rode a wave of public disgust at an industry that awarded itself rich paydays while much of the country struggled through a deep recession.

  “They tried to water it down, but still there’s enough regulation in there that it’s going to affect banks, it’s going to affect their profitability,” said Chris Hobart, founder of Hobart Financial Group in Charlotte, North Carolina.

  Passage of the bill will give Democrats an important legislative victory, alongside healthcare reform, ahead of congressional elections in November. As part of the package, financial institutions would have to pay US$19 billion to cover the estimated cost of the bill.

  The bill would dramatically ­reshape the US financial landscape. The industry is already turning its sights on how it might influence implementation by regulators.

  “We need to hold the course,” Federal Deposit Insurance Corp Chairman Sheila Bair, one of the regulators who would be charged with putting the reforms in place, told reporters. “We cannot let ourselves forget what happened in October of 2008” when the financial system risked breaking down.

  The legislation sets up a new agency within the Federal Reserve charged with protecting ­consumers of financial products. It also gives regulators new power to seize troubled financial firms before they harm the broader economy.
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