You are using an outdated browser.
Please upgrade your browser
and improve your visit to our site.

UPDATED, 12.12: Wall St. Reform Bill Passes the House

Looks like it passed with almost everything intact--consumer protection agency, resolution authority, systemic risk provisions, etc. The only thing that looks slightly ominous to my eyes is the derivatives piece. Per the Times:

In preliminary votes ahead of the measure’s approval, lawmakers scaled back the bill’s ambitions slightly in ways that may increase its chances of overcoming objections from powerful financial interests.

They agreed to relax some proposed new controls on trading in financial derivatives.

I wrote a few weeks ago about how progressives and regulatory hawks had spent the last two months trying to tighten the derivatives measure. It would be a real shame if it got loosened back up again late in the process. I'll have more over the weekend, and probably again (after some phone calls) early next week.

Update: I should clarify--the derivatives piece is the only thing that looked slightly ominous from the initial write-ups. I'm sure we're going to find at least a few outrages in there. It's just inevitable on a piece of legislation that the banks were crawling all over. 

On the other hand, my sense is that the banks were saving most of their fight for the Senate, so the House version could be relatively unspoiled.

Update II: Okay, I think I've read most of the news accounts now (though I still haven't talked to anyone close to the process). Some more relevant thoughts/details:

1.) It looks like the bill would empower the newly created council of systemic risk regulators (composed of existing regulators like the Fed, FDIC, etc.) to prevent big banks--Goldman, JP Morgan, Citi, etc.--from engaging in proprietary trading, which basically means speculating for their own account, if it threatens the financial system. It's a great idea--I've written about it before--but it's hard for me to believe this is going to: a.) survive the Senate or b.) amount to much even if it somehow becomes law. The big banks make gobs of money from proprietary trading. As long as there's some discretion involved (which there would be), they're going to find a way to prevent some member of the systemic risk council to blink. On the other hand, it's possible that this provision will give Senate Democrats a bargaining chip they can use to, say, impose stiffer capital requirements, which would be a decent outcome so far as I'm concerned.

2.) On derivatives, it sounds like the legislation is mostly okay, except that the so-called "end-user exemption"--basically, an exemption for companies that use derivatives to hedge risk rather than speculate (see here for my piece on the issue)--appears to include most hedge funds, which is probably a little more porous an exemption than we'd like.  

3.) It sounds like Sheila Bair and the FDIC did well for themselves in the House bill. This summer, when the Obama administration released its plan for winding down overgrown financial institutions, it looked like Bair and her agency were going to take a junior role. But this Bloomberg story makes it sound like she's going to be in the middle of any "resolution" process.

4.) Ron Paul's Fed-auditing amendment passed by an overwhelming margin, even though Paul himself voted against it. I've said it before and I'll say it again: If Ben Bernanke doesn't start defusing the populist outrage aimed at the Fed by acceding to some sensible reform measures, then he's going to find himself losing both on those things and more nonsensical measures like the Paul amendment. He's really tempting fate here.

5.) There had been a provision in the bill allowing the government to impose a "haircut" of up to 20 percent on secured creditors of failing banks--the idea being that institutions (usually banks) that lend to other banks (which put up collateral) should bear some of the losses that taxpayers might otherwise get stuck with. That 20 percent ceiling is now down to 10 percent.

6.) Federal financial regulators have the authority to preempt state regulators, which are frequently more hawkish. This is a win for the banks, who hate the idea of being at the mercy of a bunch of state-level gunners with chips on their shoulders (how they see them, in any case). A group of New Dems, led by Illinois Rep. Melissa Bean, helped make this happen. For what it's worth, though, this looks like one of the few clear-cut wins for the banks in the House. On to the Senate...