Financial Reform Passes: How Wall Street Will Change

Pundits evaluate the just-approved bill

Congress has passed the financial regulatory reform bill, which it will send to President Obama to sign into law next week. Thursday's final vote in the Senate comes after several months of wrangling for votes, uncertainty about its chance for passage, persistent GOP opposition, and intense debate on provisions such as derivatives regulation and the Volcker rule. President Obama began his push for the bill with the stated aim of averting another financial crisis. Here's what observers have to say about why the bill matters--or doesn't--and what effect it will have.

• A New Era in Washington's Treatment of Wall Street The New York Times declares the bill to be "heralding the end of more than a generation in which the prevailing posture of Washington toward the financial industry was largely one of hands-off admiration." They call it "another landmark piece of legislation, following the enactment of the historic health care bill in March and last year's major economic stimulus program."

• Three Things It Will Do The Washington Independent's Annie Lowrey writes, "The bill contains three central provisions. First, it provides the government with new powers to identify risky banking institutions and to shutter them before they harm the broader financial system, via a new systemic regulator. ... Second, the Dodd-Frank bill makes banks less dangerous, forcing them to keep more capital on hand, banning them from making risky trades on their own behalf and keeping them from investing heavily in vehicles like hedge funds. ... Finally, it creates a new consumer financial protection bureau, which will have the power to create and enforce new rules regarding financial products like home-equity loans and credit cards."

• Historic 'Roosevelt Moment' For America Liberal economist Simon Johnson praises the "long overdue" Kanjorski Amendment, part of the bill. "Once the bill becomes law, federal regulators will have the right and the responsibility to limit the scope of big banks and, as necessary, break them up when they pose a 'grave risk' to financial stability. This is not a theoretical possibility - such risks manifested themselves quite clearly in late 2008 and into early 2009. It remains uncertain, of course, whether the regulators would actually take such steps."

• How It Worsens 'Too Big to Fail' Risk The Atlantic's Daniel Indiviglio cautions that the "resolution authority" to dissolve large banks that pose a systemic risk actually worsen that risk by encouraging all institutions to become big enough to fall under that authority. "Imagine two insurance companies -- one large one that falls under the resolution authority's reach and another smaller one that doesn't. Each offers a comparable product that pays out if some condition is met. Which one would you rather do business with? Easy: the one under the government's resolution authority. That way, if it fails, in order to stabilize the financial system, you'll be treated more favorably than you probably would in bankruptcy court if the smaller one fails."

• Makes Financial Crises Less Likely Liberal blogger Matt Yglesias writes, "What is in the bill is a consumer protection setup that would be considered a major progressive win as a standalone item. What is in the bill is a 'resolution authority' that will let future regulators avoid the bailout-or-crisis dynamic that plagued us in 2008. What is in the bill are regulatory tools that even Simon Johnson likes. The bill clarifies lines of regulatory authority and responsibility and should cut down on abusive 'competitive regulation.' I don't think the bill means we'll never see an asset price bubble or a banking crisis again, but I also don't think it's possible to achieve that goal. It should, however, make crises less likely and make cleaning them up easier."

• 'Sets Up SEC for Failure' Bush-era SEC Chairman Harvey Pitt warns in the Daily Beast, "The legislation teems with unintended consequences. A case in point is the provision requiring the SEC to establish an investor advocate. Putting to one side the fact that this is the SEC's mandate, this provision unleashes an SEC adversary--someone who must express unfiltered judgments on the job performance of everyone else at the agency, including the five commissioners, giving this person an unlimited budget and allowing this person to hire outside counsel to sue the SEC or FINRA, if he or she disagrees with their actions! The bill sets the SEC up for failure."