JURIST - Paper Chase: US Senate approves financial reform legislation

[JURIST] The US Senate [official website] on Thursday passed the Restoring American Financial Stability Act of 2010 [S 3217 materials], focused on increasing regulation in the financial sector following the recent economic crisis [JURIST news archive]. The bill creates a new regulatory council to monitor financial institutions in order to prevent the companies from becoming "too big to fail." It also gives the Federal Reserve [official website] the power to supervise the largest financial companies and report to the government any risks the firms may pose to the economy at large. Additionally, a new consumer protection division will be established within the Federal Reserve to enforce rules against certain business practices like abusive mortgage lending and some credit card practices. As a final protection against future bailouts, the government will have the ability to seize and liquidate failing financial institutions before their collapse can have an adverse affect on the entire economy. US President Barack Obama [official website] praised the reform [press release], stating, "[o]ur goal is not to punish the banks, but to protect the larger economy and the American people from the kind of upheavals that we've seen in the past few years. And today's action was a major step forward in achieving that goal." Opponents of the bill, however, expressed concern that its passage will stifle the economy. Senator Judd Gregg (R-NH) [official website] stated [press release], "[i]n its current form, the bill will do considerable damage to our competitiveness as a nation, not to mention harming job growth and our economic recovery." The Senate bill has to be reconciled with the bill passed last December [JURIST report] by the US House of Representatives [official website] before Obama can sign it into law.

Thursday's passage of the bill marks the end to a long struggle in the Senate over financial reform. The Senate Banking Committee [official website] proposed a bill [text, PDF; JURIST report] in 2009 that was met with resistance and resulted in the committee's development of the current bill. One provision in the bill that has been the source of much debate is the creation of a consumer protection agency. The US House Financial Services Committee [official website] had approved a bill to create the agency in October, after originally delaying [JURIST reports] it at the behest of financial industry leaders in July. The creation of the agency is a key step in achieving the Obama administration's stated goal of tightening financial industry regulations. Last June, the administration proposed a broad series of regulatory reforms [press release; JURIST report] aimed at restoring confidence in the US financial system.