The Senate's final vote for the new financial regulation bill passed Thursday afternoon as it approved the conference report. With the House passing the measure a few weeks ago, the effort in Congress is all wrapped up. The bill will shortly find itself on President Obama's desk, where he is eager to sign the legislation and make law the most aggressive new regulation the financial industry has seen since the aftermath of the Great Depression.
The vote wasn't exactly a bipartisan story. It narrowly escaped filibuster, as it had precisely the 60 votes needed for cloture. Just three Republicans voted in favor, including Scott Brown (MA), Olympia Snowe (ME), and Susan Collins (ME). One Democrat, Russell Feingold (WI) voted against, not believing the legislation went far enough.
While it's hard to summarize a 2,300-page bill of complicated new regulation, here are some of the big highlights along with positives and negatives that could result from each:
Systemic Risk Council: The bill establishes a systemic risk council consisting of the chairs of major financial regulators. It hopes to spot looming financial risks and take action to prevent potential crises before they strike.
The Good: If the council's foresight, cooperation, and actions prove successful, it could preempt future economic catastrophes.
The Bad: Some people are skeptical that the group will manage to spot growing problems or have the audacity to stop them before they strike.
Non-Bank Resolution Authority: The legislation provides the council the ability to recommend that the FDIC wind down large non-bank financial firms when they run into trouble. The intent is to prevent future bailouts, while ensuring that big firms can fail without causing a huge market shock.
The Good: If the resolution plans that firms create do the trick, then the government won't need future bailouts to maintain economic stability when giant firms fail.
The Bad: The big institutions that are subject to this regulator could have a competitive advantage over others, since their creditors might feel they'll be treated better than in bankruptcy court if these firms fail.
Consumer Financial Protection Bureau: A new regulator will have the power to ensure that consumers are treated fairly by banks and finance companies.
The Good: Until now, there has been no regulator with the sole purpose of acting as an advocate for consumers. It should crack down on predatory lending and improve disclosure.
The Bad: New regulations could cause banks to deny credit to some consumers on the margins and make it more expensive for everyone else. The bill also has some exemptions, including auto dealers, which will put some loans out of the bureau's reach.*
Derivatives Rules: The bill would require most derivatives to be cleared and put on exchanges. It would also forbid banks to market certain types of derivatives unless they create a separately capitalized subsidiary.
The Good: More derivatives cleared should be good for financial stability. More on exchanges could improve transparency.
The Bad: Derivatives will likely become more expensive, as smaller players might be subject to collateral calls to qualify for clearing. There's also some concern that clearing houses could become too big to fail. Additionally, discouraging banks from marketing some derivatives could make them even riskier.