Lawmakers guide Wall Street reform into homestretch
Nearly two years after tremors on Wall Street set off a historic economic downturn, congressional leaders greenlighted a bill early Friday that would leave the financial industry largely intact but facing a more powerful network of regulators who could impose limits on risky activities.
The final bill took shape after a 20-hour marathon negotiation between House and Senate leaders seeking to reconcile their separate versions. The legislation puts a lot of faith in the watchful eye of regulators to prevent another financial crisis. New agencies would police consumer lending, the invention of financial products and the trading of exotic securities known as derivatives. Bank supervisors would have the power to seize large, troubled financial firms whose collapse could threaten the entire system. The bill calls for banks to hold more money in reserve to weather economic storms but leaves the details to regulators.
But with a few exceptions, the measure avoids dictating to Wall Street what it can and cannot do. The bill does not break up big banks or ban the trading of derivatives. Nor does it significantly streamline the confusing array of financial regulators in Washington.
The House and Senate are set to vote on the legislation next week, and administration officials said President Obama could sign it into law before July 4.
The action capped a surprisingly good week for Wall Street. On Thursday, Democrats failed to pass a separate bill that would have raised taxes on some of the country's wealthiest financiers. On Friday, stocks of financial firms jumped when trading opened in New York. Many analysts said the markets breathed a collective sigh of relief that the regulatory reform talks were over and that the results could have been much worse for the financial industry.
One firm that is likely to face more oversight is Goldman Sachs, which has become emblematic of the excesses of Wall Street. Regulators would more carefully track the firm's riskiest activities. In the coming year, a regulatory council could force the bank to shed its sizable hedge funds and private-equity activities. It also could be banned from making financial trades for its own profit instead of for clients, shaving roughly 10 percent from the firm's revenue. But after those changes, Goldman Sachs and a few other financial titans will still dominate the financial system, the analysts said.
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