The U.S. House of Representatives has approved legislation that would create new regulatory powers to oversee the financial system. Despite some changes, the House measure would provide more security for investors in the wake of the 2008 financial system and capital markets meltdown and, if approved by Congress and signed by President Barack Obama, it would represent the most sweeping regulatory changes since the "New Deal" reforms instituted after the Great Depression.
House approval of the Wall Street Reform and Consumer Protection Act by a vote of 223 to 202 follows months of congressional hearings and negotiations over new regulatory powers aimed at averting a repeat of the crumbling of credit markets that helped plunge the U.S. into the worst recession since the 1930s.
It would create a new Consumer Financial Protection Agency to oversee credit cards, mortgages, and thousands of other financial products and services, and empower government regulators to better assess systemic risk.
There would be substantial new regulation of complex investment instruments known as derivatives and "credit default swaps" at the heart of the financial meltdown. Regulators would get new powers to dismantle companies whose collapse would de-stabilize the economy.
Republicans unanimously opposed the legislation, saying it would suppress economic growth, unnecessarily increase costs for the financial industry, expand bureaucracy, and lead to more job loss at a time of severe recession.
House Republican leader John Boehner said "All of us recognize there are shortcomings in our financial regulatory system. But I do believe that the over-reach by my Democrat[ic] colleagues on this bill is really beyond imagination."
The House, with its strong Democratic majority, rejected a Republican effort to eliminate the new consumer protection agency, a Republican alternative, and a separate, last ditch opposition effort to completely scrap the legislation.
Majority leader Steny Hoyer said Americans paid a high price for what Democrats call eight years of anti-regulatory policies under former President George W. Bush.
Using a sports analogy, Hoyer said Republican policies had removed the referee from the financial playing field and he responded this way to Republican complaints about the cost of new regulations. "The cost of doing nothing, the cost of not having a referee on the field, skews the game so badly that the little guys, the guys that sent us here, the guys who asked us to protect them from those over which they have no power, they said protect us and that's what this debate is about," he said.
Massachusetts Democrat Barney Frank, who chairs the House Financial Services Committee, challenged the Republican's assertion that Americans want no further restraints on Wall Street. "I disagree vehemently that the American people think that the status quo with the financial industry was a good one," he said.
Even with its strong provisions, the bill's bank-related regulatory aspects were substantially softened, and an effort by Democrats to include mortgage relief was rejected by a vote of 241 to 188. But the legislation does authorize the transfer of $3 billion from the $700 billion Troubled Assets Relief Program (TARP) to provide emergency loans to people facing possible home foreclosure.
A number of banking, financial industry and business organizations, including the U.S. Chamber of Commerce opposed the bill, while consumer organizations supported it.
House approval nonetheless marks a major victory for President Obama. But with the U.S. Senate occupied perhaps through Christmas with another major presidential priority, health care reform, the president will have to wait well into the new year before he has an opportunity to sign any final bill.