The Senate Thursday night approved a sweeping overhaul of Wall Street regulation that would strengthen oversight of derivative trading create a consumer protection agency and ban proprietary trading at banks.
Senators voted 59-39 in favor of the measure, which also creates a mechanism for liquidating failing financial firms and a council of financial regulators to monitor markets for threats to the economy. The move sends the legislation into negotiations designed to reconcile differences with the House bill approved in December.
“We've got a very strong, good bill,” Sen. Christopher Dodd, D-Conn., the Banking Committee chairman who offered the legislation, told reporters before the final vote. “There's still a conference probably to go and we're going to do some additional work.”
Congressional Democrats moved to overhaul governance of U.S. financial companies in response to the 2008 financial crisis that followed the collapse of the subprime mortgage market. The Senate and House measures aim to prevent a repeat of the $700 billion taxpayer-funded bailout that helped firms including American International Group and Citigroup weather the worst recession since the 1930s.
Republicans criticized the Senate bill, saying it failed to deal with government-sponsored enterprises Fannie Mae and Freddie Mac, which were seized by the government in 2008.
“The failure to address the GSEs is the most glaring omission in this legislation,” Sen. Richard Shelby, R-Ala., the banking committee's top Republican, said before the vote. “This bill will stifle innovation in consumer financial products and reduce small-business activity.”
The bill includes language offered by Senate Agriculture Committee Chairman Blanche Lincoln, D-Ark., that would require commercial banks to wall off their trading operations, one of the most contentious and difficult issues of the Senate debate.
The underlying legislation would push most of the $615 trillion in over-the-counter to be processed, or cleared, with a third party. The bill would push over-the-counter trades onto regulated exchanges or similar electronic systems, a measure that would raise margin costs on some transactions.
Derivatives have taken a central role in the debate after losing bets on swaps tied to mortgage-backed securities pushed AIG to the brink of bankruptcy when the housing market collapsed in 2008.
The overall bill adopts priorities President Barack Obama outlined last June for strengthening financial rules. It allows the FDIC to take apart large failing financial firms in an orderly way if their collapse could threaten the economy.
The regulatory bill would create a consumer financial-protection bureau at the Fed with powers to write and enforce rules banning abusive credit-card and mortgage lending practices. It calls for a one-time audit of the Fed's emergency actions since December 2007.