Lawmakers agree on Wall St overhaul

Congressional negotiators today approved the most sweeping overhaul of US financial regulation since the Great Depression, reshaping oversight of Wall Street.

Lawmakers from the House of Representatives and Senate worked through the night in a 20-hour session to reach deals on a ban on proprietary trading by banks and oversight of the derivatives market. This month, they have also agreed on measures to wind down big firms whose collapse might shake markets, to keep tabs on hedge funds and to make it easier for investors to sue credit rating companies.

“This is going to be a very strong bill, and stronger than almost everybody predicted that it could be and that I, frankly, thought it would be,” House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, had said to reporters on Thursday (June 23), as lawmakers prepared for the final round of talks.

A committee of lawmakers from the House and Senate spent two weeks reconciling the bills passed by each chamber. The legislation still needs to be approved by the full House and Senate. Congressional leaders aim to hold those votes next week and present it for President Barack Obama’s signature by July 4.

The bill seeks to protect consumers, curb risks, boost surveillance of emerging threats to markets and give regulators more emergency powers to avoid future taxpayer-funded bailouts of too-big-to-fail firms.

“They are huge accomplishments,” Senate Banking Committee Chairman Christopher Dodd had said on June 23. Whether the legislation — now named the Dodd-Frank bill — takes the right steps, or goes far enough, is still a matter of debate.

What follows are the scope, impacts and impetus for some of the major provisions, based on the language lawmakers agreed to as of early this morning in Washington.

The Obama administration’s proposal to ban banks from proprietary trading, nicknamed the Volcker rule after former Federal Reserve chairman Paul Volcker, was softened by Senate negotiators.

Banks will be allowed to invest in private equity and hedge funds, though they will be limited to providing no more than 3 per cent of the fund’s capital. Banks also can’t invest more than 3 per cent of their Tier-1 capital.

The change, offered by Dodd, alters language in a bill the Senate approved in May, which would have barred banks from sponsoring or investing in private equity and hedge funds.