Congress’s Approval of Finance Bill .....

Congress’s Approval of Finance Bill Shifts Focus to Regulators

By Alison Vekshin

July 16 (Bloomberg) -- U.S. Senate approval of the biggest overhaul of Wall Street oversight since the Great Depression will shift the financial industry’s focus to the regulatory agencies charged with writing rules to implement the measure.

The Senate vote that sent the bill to President Barack Obama’s desk yesterday ended a year of partisan wrangling among lawmakers over new protections for consumers and investors in the wake of the 2008 credit crisis. Obama’s signing of the measure, which may come next week, is likely to launch a new round of efforts to reshape the rules to the industry’s liking.

“Implementation of this legislation will be challenging for regulators, and we stand ready to work with them to ensure that they have the information they need to make certain that the regulatory process is carried out as effectively and efficiently as possible,” Edward Yingling, president of the American Bankers Association, said in a statement yesterday that expressed his group’s disappointment with the bill.

The 2,300-page measure will create a mechanism for liquidating failing financial firms whose collapse could roil markets, a council of regulators to police firms for threats to the economic system and a consumer bureau at the Federal Reserve to monitor banks for credit-card and mortgage lending abuses. Some provisions require study and interpretation by regulators that could take years to complete.

‘Supervisory Framework’

Rob Nichols, president of the Financial Services Forum, a trade group representing the chief executive officers of the largest financial firms, said in a statement yesterday that his group plans to work with regulators “to create a financial supervisory framework that ensures institutional safety and soundness and systemic stability, while also fostering the conditions necessary to fuel economic growth and job creation.”

“There’s always that possibility” that Wall Street lobbyists will succeed in weakening the bill’s provisions during the rule-making process, Senate Banking Committee Chairman Christopher Dodd, who helped write the legislation, said at a news conference yesterday. Dodd, a Connecticut Democrat, said he will hold hearings to have regulators explain how they will implement the new rules.

Senate approval of the legislation completed a victory for Obama, who proposed the regulatory overhaul last year in response to the 2008 financial crisis sparked by the collapse of the U.S. mortgage market. The House of Representatives approved the bill on June 30.

‘Wall Street’s Mistakes’

The legislation contains “the strongest consumer-financial protections in history,” Obama said yesterday at the White House. “The American people will never again be asked to foot the bill for Wall Street’s mistakes.”

Obama will likely sign the measure into law toward the end of next week, White House spokesman Robert Gibbs said.

The bill aims to prevent a repeat of an economic collapse that led to the failures of Lehman Brothers Holdings Inc. and Washington Mutual Inc. and a $700 billion bailout for companies including American International Group Inc. and Citigroup Inc.

Senate passage came less than two hours before the U.S. Securities and Exchange Commission announced that Goldman Sachs Group Inc., which got $10 billion in bailout funds, will pay a record $550 million to settle claims it misled investors in collateralized debt obligations linked to subprime mortgages.

Tinkering

Some analysts saw the bill as tinkering at the edges of banking practices rather than forcing major changes to the industry in response to Wall Street excesses that nearly toppled the global financial system two years ago.

“There is little in this legislation that will fundamentally change the way that Wall Street does business,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington. “There is probably no economist who believes that this bill will end the risks of too-big-to- fail financial institutions. The six largest banks will still enjoy the enormous implicit subsidy that results from the expectation that the federal government will bail them out in the event of a crisis.”

To others, such as Douglas J. Elliott of the Brookings Institution, the bill named for Dodd and House Financial Services Committee Chairman Barney Frank empowers regulators to curb risk-taking and protect consumers in a way that will mitigate, if not prevent, the next financial crisis.

“I am confident that the vicious recession we just lived through would have been much milder if the Dodd-Frank bill had been in place a few years ago,” said Elliott, a former investment banker with JPMorgan Chase & Co. “The bill will not eliminate financial crises, but it will make them less frequent and considerably milder.”