Wall Street Reforms Gain Momentum
With a vote of 237 to 192, on Wednesday June 30 the House passed a comprehensive package of proposed reforms aimed at restructuring the way the financial system is regulated. This approval moves the bill to the Senate, which is likely to review it during the week starting July 12 before putting it to the vote. The bill represents a culmination of eighteen months of intense debate and negotiation.
Referring to the bill, House Speaker Nancy Pelosi (D-Calif) noted that it was the “toughest set of Wall Street reforms in generations”. Pelosi went on to note that the bill reflects transparency and accountability and would put an end to taxpayer bailouts, which she refers to as being an error. The votes against the bill came primarily from House Republicans who expressed concern that the bill is likely to result in government over-regulation that may suffocate credit availability and job growth. The bill may be in jeopardy if Republicans in the Senate feel the same way. President Barak Obama was outspoken in his criticism of Republicans opposing the bill, reportedly referring to them as being “out of touch with the struggles facing the American people”.
Some of the compromises made in an effort to garner Republican support include the scrapping of the proposal to tax big banks, which would have raised an estimated $19 billion in funds to be used for Wall Street reform, and rather using the remaining $11 billion from the Troubled Asset Relief Program (TARP) and repayments from TARP beneficiaries. Additional funds (an estimated $5.7 billion) will come from hiking premiums that the country’s biggest banks pay the FDIC for insurance on commercial deposits.
Features of the bill include the creation of a consumer agency to set and monitor rules to ensure protection from unfair practices in credit cards and consumer loans. In addition to qualifying for one free credit report annually, consumer will also be permitted an actual credit rating along with the report. Lenders will be obliged to verify a potential borrower’s income as well as his/her ability to repay the loan. Current homeowners who find themselves unemployed will be given the option of a low-interest loan in order to prevent foreclosure. The amount of $1 billion from untapped TARP funds has been proposed for this initiative.
With regard to financial firms, a new 10-member oversight council has been proposed to monitor systems and look out for major problems. This committee will consist of financial regulators, with the Treasury Secretary having the role of enforcing tougher regulations and being alert to systemic risk. This council will have veto power over rules proposed by the aforementioned consumer agency. Financial firms that may previously have been considered too-big-to-fail will be subject to the FDIC in the same way as smaller banks are. The bill gives regulators the authority to divide up large companies in the financial sector if they threaten to destabilize the financial system.
