Senate greenlights Wall St overhaul

The US Senate passed the biggest overhaul of financial-industry regulation since the Great Depression, sending a bill inspired by the 2008 credit crisis to the White House for President Barack Obama's signature.

Senators voted 60-39 yesterday in favour of the top-to-bottom rewrite of rules governing Wall St firms, ending a year of partisan wrangling over protections for consumers and investors.

The bill aims to prevent a repeat of an economic collapse that led to the failures of Lehman Brothers Holdings and Washington Mutual and a US$700 billion ($970 billion) bailout for companies including American International Group Inc and Citigroup.

"Never again, ever again should we have to go through what we did in the fall of 2008 to ask the American taxpayer to write a cheque for US$700 billion to bail out a handful of financial institutions that frankly, in many cases, helped create the mess we were in," Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat and a lead architect of the bill, said after the vote.

The bill will create a mechanism for liquidating failing financial firms whose collapse could roil markets, a council of regulators to police firms for threats to the economic system and a consumer bureau at the Federal Reserve to monitor banks for credit-card and mortgage lending abuses.

It also expands oversight of executive compensation and derivatives, contracts whose value is derived from stocks, bonds, loans, currencies and commodities.The House of Representatives approved the bill on June 30.

Obama will likely sign the legislation toward the end of next week, White House spokesman Robert Gibbs said yesterday.

"We cannot continue to operate using the same rules that got us into the recession," Gibbs said. "This will be a vote Democrats will talk about through November."

Most Senate Republicans voted against the measure, saying it doesn't go far enough to prevent future taxpayer-funded bailouts of Wall St firms and creates an unnecessary new bureaucracy in the consumer bureau.

Measured against Wall St excesses that nearly toppled the global financial system two years ago, some analysts saw the bill as tinkering at the edges of banking practices rather than forcing fundamental changes to the industry.

"There is little in this legislation that will fundamentally change the way that Wall St does business," said Dean Baker, co-director of the Centre for Economic and Policy Research in Washington.

"There is probably no economist who believes that this bill will end the risks of too-big-to-fail financial institutions.

"The six largest banks will still enjoy the enormous implicit subsidy that results from the expectation that the federal government will bail them out in the event of a crisis."

To others, such as Douglas Elliott of the Brookings Institution, the bill named for Dodd and House Financial Services Committee chairman Barney Frank empowers regulators to curb risk-taking and protect consumers in a way that will mitigate, if not prevent, the next financial crisis.

"I am confident that the vicious recession we just lived through would have been much milder if the Dodd-Frank bill had been in place a few years ago," said Elliott, a former investment banker with JPMorgan Chase & Co.

"The bill will not eliminate financial crises, but it will make them less frequent and considerably milder."

Regulators will be responsible for implementing the legislation by writing hundreds of rules for financial firms.

- Bloomberg