US LEGISLATORS yesterday approved the most far-reaching package of financial reforms since the Great Depression.
The Wall Street reform package will face a final vote in the House of Representatives and Senate as early as next week, and President Barack Obama hopes to sign it into law before the July 4th holiday.
The agreement strengthened Mr Obama as he left for the G20 summit in Canada. “This weekend in Toronto, I hope we can build on this progress by co-ordinating our efforts to promote economic growth, to pursue financial reform, and to strengthen the global economy,” the president told reporters before boarding a helicopter from the south lawn of the White House.
Details of the compromise Bill were hammered out in a 20-hour session of a conference committee that ended at dawn. It was named the Dodd-Frank Bill, after Senator Chris Dodd and Representative Barney Frank, the heads of the banking and financial services committees.
Alluding to the G20 summit, both Mr Dodd and Mr Frank said they hoped the agreement would enable the US to lead international efforts to harmonise financial reform.
“We’ve put in the hands of the president a very powerful set of tools for him to reassert American leadership in the world,” Mr Frank said.
Mr Obama said the agreement reached early yesterday “represents 90 per cent of what I proposed when I took up this fight”.
The president said US economic growth depends on “a strong, robust financial sector” and promised to continue “to foster and support a dynamic private sector”. The reforms “will hold Wall Street accountable so we can help prevent another financial crisis like the one we’re still recovering from”, he said.
The conference committee began work on the most difficult issue, Senator Blanche Lincoln’s proposal to ban trading in derivatives, after midnight. The amendment was opposed by the White House and legislators from the financial capital, New York.
Under a compromise proposed by the Democratic representative Collin Peterson, banks will be forced to spin off only the most risky derivatives trades, including credit default swaps – complex bets on the failure of transactions – that worsened the financial crisis.
Mr Obama said the Wall Street reform package will “bring trades in a $600 trillion derivatives market into the light of day”.
The Volcker Rule, named after the former Federal Reserve chairman Paul Volcker, was to have banned proprietary trading, that is to say banks from trading with their own assets. It was supported by the administration, but the rule was softened to win over Senator Scott Brown of Massachusetts, which is a hub of the asset management industry.
Senators Carl Levin and Jeff Merkley engineered a provision that will ban certain types of proprietary trading, but forbid banks from betting against their own clients. Banks will be allowed to invest in private equity and hedge funds, on condition they do not own more than 3 per cent of the fund’s capital.
Mr Obama presented the law in the simplest possible terms, saying it provided “the toughest consumer financial protections in our history”. The law will establish a new consumer protection bureau in the Federal Reserve, but operating with independent funding and oversight.
Lawmakers disappointed consumer advocates by exempting 18,000 automobile dealers from oversight by the consumer protection bureau.
In his weekly radio address, to be broadcast this morning, Mr Obama will speak of “unfinished business . . . a fee on the banks that were the biggest beneficiaries of taxpayer assistance . . .”