House passes massive financial regulatory overhaul
The House on Friday passed the biggest overhaul of the nation's financial regulatory system since the Great Depression, after beating back an attempt to strike from the bill a new consumer protection agency to guard against abusive and unfair home mortgages, credit cards and auto loans.
The chamber voted 223-202 for the package authored by Financial Services Committee Chairman Barney Frank, D-Mass., the result of a year's work and compromise between liberals, who pushed for consumer protections and constraints on Wall Street firms, and Democratic moderates under K Street pressure. Twenty-seven Democrats joined all Republicans in opposition.
It is also one of the top three legislative priorities for the Obama administration and now goes to the Senate, where Banking Commitee Chairman Christopher Dodd, D-Conn., is attempting to craft a bipartisan bill.
The measure would create a council of regulators to monitor threats to financial markets, including the power to take over at-risk firms and place them into receivership, and place new oversight of the multitrillion-dollar over-the-counter derivatives market. It also would curb the power of the Federal Reserve, requiring it to seek approval for emergency lending and giving the Government Accountability Office greater powers to audit the central bank.
The CFPA was strongly opposed by the banking lobby, which argued that it was unwise to separate consumer protection functions from the regulation of a firm's safety and soundness and that it would narrow credit availability.
Banks unsuccessfully backed a rival amendment by Rep. Walt Minnick, D-Idaho, which would create a 12-member council of regulators with rule-writing responsibilities for all financial products, as well as safety and soundness concerns. That amendment failed, 223-208, with 33 Democrats voting in support. The amendment was the biggest threat to the underlying Frank bill, given the lobbying by the banking industry.
But Frank was able to make deals with key panel moderates that partially narrowed the agency's reach within a scope that consumer activists could still accept. The bill would allow banks and credit unions with less than $10 billion in assets to keep their current regulators for examination and enforcement, with CFPA serving as a backup role. It also would allow pre-emption of state consumer laws if the Office of the Comptroller of the Currency determined it would prevent, significantly interfere, or materially impair a federally regulated institution to engage in the business of banking.
The House also shot down a rival GOP substitute sponsored by Financial Services Committee ranking member Spencer Bachus, R-Ala., 251-175. Instead of creating a resolution authority for the federal government to take over troubled financial firms, the Bachus measure would have established a streamlined bankruptcy process and end federal conservatorship for Fannie Mae and Freddie Mac, placing them into receivership or spinning them into the private market.