The Senate voted 60-39
Thursday to pass a Democratic financial reform bill,
which would put in place broad federal authority to oversee Wall Street and attempt to prevent practices like those that led to the 2008 crash of the financial markets. It now goes to President Obama, who is expected to sign it next week.
Congressional Republicans have staunchly opposed -- even temporarily filibustered
-- the bill, but Sen. Scott Brown of Massachusetts, along with his Republican colleagues Sen. Olympia Snowe and Sen. Susan Collins of Maine, cast deciding votes in favor. In the House, only three Republicans supported the measure.
Sponsored by Sen. Chris Dodd and Rep. Barney Frank, both Democrats, the bill has been heralded as a breakthrough in Washington's ability to hold Wall Street accountable. The Obama administration has called it
the greatest restructuring of the financial system since the government took aggressive measures after the Great Depression. At 2,500 pages, it is a veritable mountain of paper. While some argue, like they did during the health care debate, that lawmakers don't know what they are passing
, the broad provisions of the bill are clear:
Increased federal oversight authority.
The federal government will have new oversight of banks, hedge funds, insurance companies, and even car dealers, in the hope of cracking down on the risks and highly leveraged transactions that defined the financial sector in the decade before the economic crisis. A new 10-member Financial Stability Oversight Council will monitor underlying risks in the system and seize failing banks. Banks will be required
to hold more capital against their debt to provide them with a larger safety net if investments go bad.
Create a consumer protection agency.
A new bureau under the Federal Reserve, led by a presidential appointee, will oversee financial products that directly impact consumers -- credit cards, bank fees, mortgages, car loans, pawn brokers -- and weed out predatory practices
. Currently, the work of protecting consumers is spread across various bank regulators. Existing regulators would enforce new rules
on community banks.
The Volcker Rule.
Named after former Federal Reserve chairman Paul Volcker, this provision
would prevent banks from making speculative investments that are not in the interests of their customers. If a bank's deposits are federally insured
, it will be restricted
from trading for its own benefit.
The reform bill will institute new regulation of derivatives
, the risky, intangible financial products that were at the heart of the 2008 financial crisis
and caused companies like AIG to lose billions of dollars. Trading of derivatives will now take place in a regulated exchange, and financial institutions will be required to spin off their derivatives divisions from their main operations. In theory, that would keep a few employees trading derivatives, like those in AIG's financial products division
, from bringing down entire corporations.
Shareholders of publicly owned companies will now vote
on how much to pay their CEOs, though companies can ignore the vote if they choose. The Federal Reserve will also issue non-binding guidelines for executive pay intended to corral the astronomical salaries and competitive environment that could lead Wall Street bankers to take potentially devastating risks. Companies could also ignore those recommendations, but the Fed will now have authority to step in if it sees a situation that is out of control.