WASHINGTON, (Reuters) – The U.S. Congress yesterday approved the broadest overhaul of financial rules since the Great Depression and sent it to President Barack Obama to sign into law.
By a vote of 60 to 39, the Senate passed a sweeping measure that tightens regulations across the financial industry in an effort to avoid a repeat of the 2007-2009 financial crisis.
Wall Street had fought bitterly to derail the legislation, which leaves few corners of the financial industry untouched. It establishes new consumer protections, gives regulators greater power to dismantle troubled firms, and limits a range of risky trading activities in a way that would curb bank profits.
“Unless your business model depends on cutting corners or bilking your customers, you have nothing to fear from this reform,” Obama said. He is expected to sign the bill into law next week.
The Senate vote caps more than a year of legislative effort after Obama proposed reforms in June 2009. The House of Representatives approved the legislation last month. Financial markets showed little reaction yesterday as investors had already factored in the bill’s impact.
Although Obama originally had hoped for bipartisan support for reform, only three Republican senators voted in favor of the bill, joining 55 Democrats and two Indepen-dents. One Democrat opposed it.
With Republicans poised for big gains in the November congressional elections, Democrats are eager to show voters that they have tamed an industry that dragged the economy into its deepest recession in 70 years.
“I regret I can’t give you your job back, restore that foreclosed home, put retirement monies back in your account,” said Democratic Senator Christopher Dodd, one of the bill’s chief authors. “What I can do is to see to it that we never, ever again go through what this nation has been through.”
JPMorgan Chase & Co, the second-largest U.S. bank, said the bill would not compromise its business model but might hurt profitability. “We’ll have some effect on revenues and margins and volumes,” its chief executive, Jamie Dimon, said on a conference call.
As the largest U.S. derivatives dealer, JPMorgan could have the most to lose from the bill, which aims to curb lucrative trading in risky over-the-counter derivatives and force banks to end trading for their own profits.
Along with the health-care overhaul, Democrats can now point out that they have passed two far-reaching reform efforts that will likely shape American society for generations.
It is not clear whether that will impress voters.
The public’s understanding of the regulatory revamp is very low, according to an Ipsos online poll released yesterday. Of those polled, 38 percent had never heard of the reform, while 33 percent had heard of it but knew nothing about the bill. Other polls show the public divided about its merits.
And even as Democrats hope the regulatory crackdown will help them win support in the November elections, many voters remain angry at lawmakers for spending hundreds of billions in taxpayer dollars to prop up Wall Street while Main Street struggled amid a deep recession.
The legislation has also won Democrats few friends on Wall Street as wealthy donors have started to steer more campaign contributions to Republicans.
Under the 2,300-page bill, mortgage brokers, student lenders and other financial firms will have to answer to a new consumer-protection authority, though auto dealers will escape scrutiny.
Regulators, who scrambled to contain the damage from failing firms like Lehman Brothers in the last crisis, will have new authority to dismantle troubled firms if they threaten the broader economy.
A council of regulators will monitor big-picture risks to the financial system and many large banks will have to set aside more capital to help them ride out tough times.
Large private-equity and hedge funds will face more scrutiny from federal regulators, and credit-rating agencies could potentially see their entire business model upended.