House Passes Far-Reaching Bill Tightening Financial Rules

House Passes Far-Reaching Bill Tightening Financial Rules
By CARL HULSE
Copyright by The New York Times
Published: December 11, 2009
http://www.nytimes.com/2009/12/12/business/12regulate.html?_r=1&hp


WASHINGTON — The House on Friday approved a Democratic plan to significantly tighten federal regulation of Wall Street and the financial sector, advancing a far-reaching Congressional response to the financial crisis still reverberating through the economy.

After three days of floor debate, the House voted 223 to 202 to approve the measure. It creates a new agency to oversee consumer lending, establishes new rules for transactions that contributed to the meltdown, and seeks to reduce the threat that one or two huge companies on the verge of collapse could bring down the economy.

“As we have seen over the past year, our financial system is broken and we can no longer afford to maintain the status quo,” said Representative Ed Perlmutter, a Colorado Democrat and member of the Financial Services Committee, which spent months assembling the measure. The Senate has made less headway in drafting a companion bill.

The vote is the most significant legislative act to confront the financial crisis that exploded last year since the vast and costly bailout that was rammed through Congress at the peak of the emergency. It was an effort to address comprehensively what many of the bill’s supporters have called the underlying causes of the collapse — reckless risk-taking unrestrained by regulation.

The bill’s principal provisions establish a process for dismantling large, failing financial institutions; set up a council to identify and regulate firms that are so big, interconnected or risky that they need heightened supervision to keep them from bringing down the whole financial system; create a new consumer financial-protection agency to squelch unfair and abusive practices; and for the first time, regulate over-the-counter derivatives markets. The bill also contains provisions on executive pay, investor protection, credit ratings, hedge funds and insurance.

Despite the House action, final legislation is not imminent. The Senate is still developing its own measure for debate early next year and any Senate bill is likely to have substantial differences from the House measure, necessitating further negotiations.

House Republicans harshly criticized the Democratic legislation, saying it could restrict the availability of credit, cause job losses and necessitate future bailouts of troubled businesses.

“This bill will have severe negative consequences on our financial sector and economy as whole,” said Representative Leonard Lance, Republican of New Jersey.

In an important preliminary vote, the House earlier in the day rejected a Democratic-led effort to replace the new consumer protection agency with a council of existing regulators. Conservative and moderate Democrats, joined by Republicans, argued that the new agency represented an unnecessary bureaucratic approach that would give the federal government excessive control over mortgages, credit cards and other financial products.

“How many new government agencies are necessary to accomplish this task?” asked Representative Dan Boren, Democrat of Oklahoma.

In preliminary votes ahead of the measure’s approval, lawmakers scaled back the bill’s ambitions slightly in ways that may increase its chances of overcoming objections from powerful financial interests.

They agreed to relax some proposed new controls on trading in financial derivatives. On a bipartisan vote, House members also rejected an effort to allow bankruptcy judges to restructure mortgage payments, a plan that has passed the House before but has been unable to win Senate approval.

The overhaul of Wall Street regulation is a top domestic priority of the Obama administration, which supported the House bill. And most Democrats agreed that heightened regulation of the financial services industry was warranted by the events leading up to the financial crisis.

The House majority leader cited a lack of adequate regulation during the administration of President George W. Bush as a central reason for the economic collapse in the first place.

“We got way off track,” said the Democratic leader, Representative Steny H. Hoyer of Maryland.

The argument in the House centered on the Democratic plan that would assess large financial companies a fee to create a $150 billion fund to cover the costs of dissolving companies that pose a threat to the economy. Democrats said the fund would not be used to keep companies afloat but would lead to a more orderly shutdown of businesses.

Republicans, trying to capitalize on public frustration with financial bailouts, said that failing firms should instead go through normal bankruptcy proceedings.

“If bankruptcy is good enough for American citizens, if it is good enough for small businesses, if it is good enough for 99.9 percent of American corporations, it ought to be good for the largest, ‘too-big-to-fail’ institutions,” Representative Spencer Bachus of Alabama, senior Republican on the Financial Services Committee, said.

Democrats said Republicans, in resisting the measure, were ignoring the need to more strongly police Wall Street in the aftermath of the events of recent years.

“We need this law to create a new squad of financial cops whose sole job is to protect taxpayers from others’ greed,” said Representative Lloyd Doggett, Democrat of Texas.