Obama signs financial reform legislation

[JURIST] US President Barack Obama [official website] on Wednesday signed [statement] the Restoring Financial Stability Act [HR 4173 materials] into law. The legislation, which focuses on increasing regulation in the financial sector following the recent economic crisis [JURIST news archive], received final approval by the Senate last week after being approved by the House of Representatives [JURIST reports] earlier this month. The law will create 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. The so-called "Volcker Rule" is included in the legislation, but instead of prohibiting banks from owning hedge funds, banks will be permitted to invest up to 3 percent of their capital into hedge funds or private equity funds. The legislation also includes regulation of some derivatives, requiring that they be bought and sold through clearinghouses or exchanges. One little-noted provision included in the legislation is a regulation requiring US companies producing electronic equipment like cell phones and laptops, to divulge what steps are being taken to ensure their products do not contain "conflict minerals" from the Democratic Republic of Congo (DRC) [JURIST news archive]. The sale of "conflict minerals" have played a large role in ongoing violence [Washington Post report] in the DRC. When signing the bill, Obama called the reforms "the strongest consumer financial protections in history" and stated that because of financial reform, "the American people will never again be asked to foot the bill for Wall Street's mistakes."

The House and Senate reconciled their versions of the bill [JURIST report] last month but were forced to re-open negotiations, eventually removing a $17.9 billion tax on large financial institutions that was meant to cover the bill's costs. The Senate approved its version of the bill in May, after the House passed its version [JURIST reports] in December. 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 bill ultimately passed by the Senate. One provision in the bill that has been the source of much debate is the creation of a consumer protection agency. The 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 2009. 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.

 

About Paper Chase

Paper Chase is JURIST's real-time legal news service, powered by a team of 30 law student reporters and editors led by law professor Bernard Hibbitts at the University of Pittsburgh School of Law. As an educational service, Paper Chase is dedicated to presenting important legal news and materials rapidly, objectively and intelligibly in an accessible format.

© Copyright JURIST Legal News and Research Services, Inc., 2013.