WASHINGTON - The House of Representatives passed legislation Friday designed to bring the most sweeping rewrite of financial regulation since the New Deal era following the Great Depression.
The legislation would, among other things:
- Create a mechanism to dissolve huge globally interconnected banks
- Provide first-ever regulation of exotic financial instruments called derivatives
- Rein in excessive speculative investment on Wall Street
- Require banks to set aside more capital in reserve
- Eliminate the much-maligned Office of Thrift Supervision
- Tighten supervision over credit-rating agencies who sold out investors
The final vote of 223 to 202 didn't lack for drama. House members first narrowly beat back an amendment by conservative Democrat Rep. Walt Minnick of Idaho to gut a centerpiece of the legislation.
Minnick sought to water down President Barack Obama's proposed Consumer Financial Protection Agency, which would be a new stand-alone agency to regulate consumer credit products such as credit cards, mortgages and payday loans. This panel addresses most of the shortcomings in the housing market that led to a collapse in sales and prices.
This battle will be fought again in the Senate, where the Banking Committee is just beginning to vote this month on its version of a revamp for financial regulation.
The Senate is not expected to act on its version until early next year.
By a margin of 251 to 175, House lawmakers defeated a GOP amendment that would have substituted the main bill and offered a weaker version that represented more or less a status quo to the current regulatory structure. To make this substitute more attractive, Republicans included a number of provisions to bring the Troubled Asset Relief Program to an end.
The $700 billion TARP was created by the Bush administration in response to the near collapse of the global financial system in September 2008.
The TARP was slated to end this year, but Treasury Secretary Timothy Geithner announced this week that he would keep it alive until October 2010 as a precaution. He added that he expected the program to cost taxpayers $200 billion less than he anticipated.
"TARP has morphed into a $700 billion revolving bailout fund," said Rep. Jed Hensarling, R-Texas, in reference to the Obama administration's plans to use some of the remaining TARP money to help stimulate employment.
Geithner lauded the House vote, which he said moves Obama's plan closer to reality. He also called on the Senate to keep the same priorities.
"Comprehensive reform much establish clear rules of the road with strong enforcement for our nation's financial institutions and markets; end loopholes that allowed big Wall Street firms to escape supervisions; make it clear that no firm is 'too big to fail;' and provide strong consumer and investor protections for American families."
Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, said that Republicans were suggesting by closing down the TARP that the deepest economic crisis since the Great Depression is over.
"Will someone tell the minority leader that it ain't over until it's over on Main Street and throughout America?" said Frank, who crafted the legislation. He accused Republicans of doing the bidding of unpopular Wall Street banks. "Most of us know the emergency is not over."