New law to regulate Wall Street and banks

The US House of Representatives passed a new legislation to tighten federal regulation of Wall Street and banks, advancing a far-reaching response to the financial crisis that rocked the economy.

After three days of floor debate, the House voted 223 to 202 to approve the measure.

It would create an agency to protect consumers from abusive lending practices, set rules for the trading of some of the sophisticated financial instruments that fuelled the crisis, and take steps to reduce the threat that the failure of one or two huge banks or investment firms could topple the entire economy.

Whether all of those measures will become law, however, is uncertain because the Obama administration wants certain revisions and the Senate will not take up its version of the legislation until next year.

Significant step

The Democratic authors of the House legislation hailed the bill as the biggest change in oversight of Wall Street since the Great Depression, and said they believed they had struck a careful balance between protecting the public and the economy while not stifling economic growth and market forces.

“We have a set of rules in place that will allow the most productive parts of the free market economy, and particularly the financial system, to play the role they should play, but with much less chance of abuse,” Representative Barney Frank, Democrat of Massachusetts and a main architect of the measure, said after the vote.

The approval of the bill is the most significant step lawmakers have taken to confront the financial crisis since the $700 billion bailout package was rammed through Congress at the peak of the emergency more than a year ago.

The bill represents an attempt to address comprehensively what many of its supporters have called the underlying causes of the collapse — reckless risk-taking unrestrained by regulation.

No Republican voted for the measure, and 27 Democrats, most from more conservative districts, broke ranks with their party. Republicans strongly criticised the Democratic legislation, saying it could restrict the availability of credit, cause job loss and lead to future bailouts of failing businesses.

“The array of new regulations and taxes on consumers, investors and businesses will destroy jobs and further undermine the fragile economy,” Representative Spencer Bachus of Alabama, the senior Republican on the Financial Services Committee, said.

The bill would create, at a cost that could run into the billions, a Consumer Financial Protection Agency in an attempt to head off the kinds of lending practices that led many homeowners to take on mortgages they could not afford.

The bill would bring regulation for the first time to a portion of the over-the-counter market for derivatives.

It would create a process for dealing with troubles at very large financial institutions that might pose a risk to the financial system and the economy, and require large firms to contribute to a fund to help with an orderly dissolution of those institutions if they are in danger of failing.

And the bill includes a number of other provisions to address executive compensation, investor protections and regulation of hedge funds.