After Months of Horse-Trading, Congress Reaches Deal on Financial Overhaul

Friday, June 25, 2010

Sen. Christopher Dodd (D-CT) (C) speaks with an aide while participating in a Senate-House Conference Committee meeting on Capitol Hill, June 22, 2010 in Washington, DC. (Getty)

It's an historic morning in America, as the House and Senate reached a deal on a bill that will be the most ambitious change in financial regulation in nearly eighty years. Congress is expected to pass the bill next week and will send it to President Obama to sign by July 4th.  

The most sweeping overhaul of Wall Street rules since the Great Depression didn't come to fruition easily. A conference committee of House and Senate members were holed up for 20 hours while lawmakers hammered out an agreement on the bill, finally coming to a consensus at 5:39 this morning. Senate Banking Committee Chairman Christopher Dodd hailed the bill as a great success. "We found a way to end too big to fail bailouts," the Connecticut Democrat said in a statement, "ensuring that no financial institution will ever be capable of bringing down the economy."

As expected by political observers, the issue of derivatives proved to be the most divisive. Derivative trading by banks is widely seen as one of the main causes of the collapse of the financial system nearly two years ago that sent the global economy into a tailspin it still has not recovered from.  

After seven hours of debate, the committee came to a compromise when Senator Blanche Lincoln (D-AR) accepted weaker derivative regulation than she initially wanted. The final agreement restricts banks from trading for their own benefit, and requires banks and their parent corporations to segregate derivative trading into a separately capitalized subsidiary.

The legislation would also create a new Consumer Financial Protection Bureau. The new regulatory tentacle will limit the number of fees debit-card companies can charge consumers, give the government the power to break up failing financial firms, and force transparency of the $600 trillion derivatives market.

Also notable was the inclusion of the "Volcker rule" in the legislation. Named for former Fed chairman Paul Volcker, the rule restricts FDIC-insured banks from trading for their own benefit.

A new tax on banks and hedge funds that will raise $19 billion to pay for the bill was decried by Republicans as a "dead-of-night levy," and another example of the expansion of government.

Business interests and the banking industry plunged hundreds of millions of dollars into opposing any new regulatory efforts, however their efforts were slightly tempered by the palpable public outrage toward Wall Street. Still, lobbyists succeeded in blocking several notable provisions that the White House wanted in the bill, including exempting auto loans from being under the protection of the to be created Consumer Financial Protection Bureau.

To give us a full rundown on the bill, the overnight drama that led to its creation, and what it all means for Americans, Takeaway Washington correspondent Todd Zwillich and Louise Story, of The New York Times, join the program.

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