After nearly 20 hours of back-and-forth negotiations, financial regulatory reform (henceforth to be known as the Dodd-Frank Act) is on its way to a vote in Congress.
The body is expected to vote on its passage in the next week.
Some players are pleased, some are disillusioned, most are tired. The actual text of the bill isn't available yet, but here's a sample to keep you interested. So, what will the bill do?
-- New regulatory authority: A new council of regulators will be established to monitor systemic risks. The Fed will have new authority over failing financial companies. It will be able to liquidate those troubled companies, which taxpayers won't have to pay for. The Office of Thrift Supervision will be absorbed into Office of the Comptroller of the Currency.
-- Consumer protection: A newly-created regulator will be housed within the Fed to protect consumers when it comes to mortgages and checking accounts. State regulators will see their powers increase.
-- Derivatives: Derivatives will get federal regulation for the first time. Deals will need to be conducted through a clearinghouse and traded on public exchanges. Banks would have to spin off the riskiest derivatives businesses -- a watered-down version of Lincoln amendment. Banks can still keep operations for swaps on interest rates, foreign currency, and gold and silver.
-- Proprietary trading: The Volcker rule will prevent banks from using their money to speculate, but they will be allowed to have small stakes in investment funds. This measure could lead to the departure of traders to smaller firms.
-- Mortgage-related products: Originators will be required to retain portion of the risk in mortgage-backed securities and loans they originate. There is a ban on compensation to brokers who steer them toward expensive loans.
-- Ratings agencies: Investors can now sue them. A new oversight office will be established under the SEC's wing that will be able to fine agencies.
Reuters columnist Felix Salmon is happy enough with the changes, writing that "it's a great day," and the package passed "not a day too soon."
Huffington Post writer Shahien Nasiripour isn't as convinced. He writes that "many of the measures that offered the greatest chances to fundamentally reshape how the Street conducts business have been struck out, weakened, or rendered irrelevant." He is annoyed that both the Volcker rule and the Lincoln amendment were changed drastically to reach a compromise.
Some notable reforms that didn't make it into the bill? At the last minute, Congress decided to reject self-funding for the SEC, which many securities lawyers had hoped for. A new $100 million reserve fund will be created, however, for the SEC to access to pay for technology upgrades.
Perhaps most importantly, the bill doesn't address the Fannie and Freddie problem. Their issues needed to be set aside for another time. The merging of the CFTC and the SEC was also thrown out, as was the notion of consolidating banking regulators, which was seen as a way to cut red tape.
President Obama is expected to sign the bill, if passed, into law July 4. It's doubtful that Jamie Dimon or any other bankers will want one of the commemorative pens he uses.
Email Julie Steinberg
