Well folks hold on to your wallets the Democrats have finally reached a compromise in creating financial reform. In the wee small hours of the night House and Senate conferees drafted a 2000 plus page document which transform the way flow through the economy. The Senate and House will vote on the new piece of legislation next week. President Obama will sign the bill on Independence Day.
The bill puts restrictions on which would limit the ability of federally insured banks to trade derivatives a provision produced by Sen. Blanche Lincoln(D-AR):
Banks, however, would have to set up separately capitalized affiliates to trade derivatives in areas lawmakers perceived as riskier, including metals, energy swaps, and agriculture commodities, among other things.
The bill creates the so-Volcker Rule named after Former Federal Reserve Chairman Paul Volcker which bar bank from making risky hedging bets with their own monies:
To win support from Sen. Scott Brown (R., Mass.), Democrats agreed to allow financial companies to make limited investments in areas such as hedge funds and private-equity funds. The move could require some big banks to spin off divisions, known as proprietary-trading desks, which make bets with the firms’ money.
From the Wall Street Journal:
The bill is expected to have enough support to become law. Both chambers plan to vote next week. The margin in the House and Senate will likely be close because most Republicans are expected to oppose the measure.
If the bill passes, President Barack Obama is expected to sign the package into law by July 4. Thursday’s agreement also gives the president leverage going into a weekend summit of world leaders in Canada, where he will prod other nations to rewrite their rules.
“This is about as important as it gets, because it deals with every single aspect of our lives,” said Sen. Christopher Dodd (D., Conn.), a chief architect of the compromise.
Democrats hailed the agreement as a tool to prevent the kind of taxpayer-funded bailouts that stabilized the economy in 2008 but left divisive scars
Republican largely opposes the bill because it would make it harder business and consumers to get credit:
“My guess is there are three unintended consequences on every page of this bill,” Rep. Jeb Hensarling (R., Texas) said of the nearly 2,000-page bill.
Other provisions of the bill includes:
It would erect a new consumer-protection regulator within the Federal Reserve, give the government new powers to break up failing companies and assign a council of regulators to monitor risks to the financial system. It would also set up strict new rules on big banks, limiting their risk and increasing the costs.
The legislation gives the Securities and Exchange Commission new powers to regulate Wall Street and monitor hedge funds, increasing the agency’s access to funding. The Commodity Futures Trading Commission would also have new powers under the bill, which would try and force most derivatives to face more scrutiny from regulators and other market participants.
Where will the money to pay for the new legislation comes from:
To pay for some of the new government programs, the bill would allow the government to charge fees to large banks and hedge funds to raise up to $19 billion spread over five years. The assessment is designed to eventually pay down a part of the national debt.
There is one glaring omission: The reforming of Fannie Mae and Freddie Mac. Democrats refuse to reform theses two government sponsored entities which gave us the financial crisis in the first place. So much for Financial Reform.