WITH THE backing of at least three Republicans a landmark financial regulation Bill should this morning clear a key hurdle in the US Senate to proceed to President Obama’s desk for signing. It will mark, in the wake of his success on healthcare, a second major legislative achievement for a president otherwise having a most difficult time – recent polls have shown six out of ten saying they have no faith in him.
The legislation, mooted first by Mr Obama in June 2009 in response to the financial crisis and seen as the most important reformulation of financial regulation since the 1930s, had initially garnered bipartisan support but as the autumn’s mid-term elections loomed Republicans saw a political opportunity. Insisting they still want to see tighter regulation of the banks and the financial sector, the Republican leadership has attacked the reconciled House and Senate Bill as overextending the reach of government and even as “socialist”.
The Bill strengthens the power of regulators to monitor systemic risk in banks and gives them the power to seize, break up, or require sell-offs of parts of financial institutions that appear to pose a threat to the financial system. It will also create a consumer watchdog attached to the Federal Reserve and a new regulatory framework for trading in the derivatives market which was so central to the 2008 crash. The Stock Exchange Commission will also get new powers to oversee credit rating agencies, hedge funds and private equity companies. And banks’ ability to invest customers’ funds in risky deals will be limited.
The vote will see the defection of one of the Democrat’s most prominent and expert authorities on the financial system, Wisconsin’s Senator Russ Feingold, who says the Bill is not sufficiently interventionist. But the votes of centrist Republicans have been secured by dropping a plan for a tax on the big banks and hedge funds that would have raised $20 billion over five years to pay into an insurance fund, the Federal Deposit Insurance Corporation (FDIC), to guarantee deposits in failing banks. The tax was replaced by a plan to redirect $11 billion repaid from the federal bank bailout, and changes to the FDIC rules that will raise more revenue.
Ordinary Americans, like their Irish counterparts, have paid a heavy price for irresponsible deregulation by legislators and reckless risk-taking by the financial institutions. This Bill represents a welcome and important first step to reducing that risk-taking and protecting consumers and rebuilding a sound regulatory framework.