Nearly two years after a Wall Street meltdown left the economy reeling, the House on Wednesday passed a massive overhaul of financial regulations that would extend the government's reach from storefront thrifts to the executive suites of Manhattan.
Senate support for the far-reaching bill remained in flux, however. The Senate was forced to delay its vote to mid-July, denying President Barack Obama a victory before Independence Day. Democrats struggled to secure the votes of a handful of Republican senators even after meeting their demands and backing down on a $19 billion tax on big banks and hedge funds.
The legislation, swelling to more than 2,000 pages, would rewrite the nation's regulatory books. Simple supermarket purchases and exotic derivatives trades would be subject to new laws. And the entire financial system would be placed on a risk watch in hopes of thwarting the next threat of a financial crisis.
Obama hailed the vote as "a victory for every American who has been affected by the recklessness and irresponsibility that led to the loss of millions of jobs and trillions in wealth."
The 237-192 House tally broke largely along party lines but attracted more support than in December when no Republicans voted for the House version of the bill. The new legislation combines the House bill with one passed by the Senate last month.
"Today, I rise with a clear message that the party is over," House Speaker Nancy Pelosi declared. "No longer again will recklessness on Wall Street cause joblessness on Main Street. No longer will the risky behavior of the few threaten the financial stability of our families, our businesses and our economy as a whole."
Republicans portrayed the bill as a vast overreach of government power that would do little to prevent future bailouts of failing financial institutions. They complained that it failed to place tighter restrictions on Fannie Mae and Freddie Mac, the mortgage giants forced into huge federal bailouts after their questionable lending helped trigger the housing and economic meltdowns.
"This legislation is a clear attack on capital formation in America," said Rep. Eric Cantor of Virginia, the second-ranking House Republican. "It purports to prevent the next financial crisis, but it does so by vastly expanding the power of the same regulators who failed to stop the last one."
Only three Republicans voted for the bill: Joseph Cao of Louisiana, Mike Castle of Delaware and Walter Jones of North Carolina. Nineteen Democrats voted against it, eight fewer than in December.
As predictable as the House vote may have been, the Senate was a study in unpredictability.
House and Senate negotiators were forced to reconvene Tuesday to remove a $19 billion tax on large banks and hedge funds, hoping to overcome objections from Sens. Scott Brown, Susan Collins and Olympia Snowe, all Republicans who voted for the Senate version last month.
Democrats inserted the tax late last week as they assembled a combined House-Senate bill, catching big banks by surprise. Brown was the first to complain and threatened to vote against the bill if the tax remained in the final measure.
Desperate to hold at least 60 votes to beat back procedural hurdles, House Financial Services Committee Chairman Barney Frank, Senate Banking Committee Chairman Chris Dodd and Obama administration officials scrambled to drop the tax and devise another means of financing the bill's cost.
In the end, House and Senate negotiators, voting along party lines, agreed to pay for the bill with $11 billion generated by ending the unpopular Troubled Asset Relief Program — the $700 billion bank bailout created in the fall of 2008 at the height of the financial scare.
They also agreed to increase premium rates paid by commercial banks to the Federal Deposit Insurance Corp. to insure bank deposits. The increase would not affect banks with assets under $10 billion.
On Wednesday, Collins issued a statement saying she was now inclined to vote for the bill.
But Brown remained uncommitted, saying he needed Congress' weeklong July 4 recess to examine the details of the bill. He did credit Dodd for "thinking outside the box" in finding an alternative.
Snowe late Wednesday said she, too, wanted to review the bill, but said that the last-minute change put the bill "in a much better position."
The American Bankers Association denounced the bill, and its president and CEO, Edward Yingling, vowed to continue to make the industry's case to the Senate.
"Many small banks are telling us they will simply have to sell out to larger institutions that have the staff to deal with the massive volume of new reports and rules," Yingling said in a statement.
The administration and House and Senate lawmakers have worked for more than a year to forge a bill. It has prompted a backlash from the financial industry and a populist cry from Congress to punish banks for the freewheeling practices that contributed to the 2008 meltdown.
The easy margin of victory in the House belied Frank's need to navigate the bill through the competing interests of New Yorkers, moderates and liberals. Frank, who will share the bill's official title with Dodd, credited Pelosi and the Democratic leadership for being "therapists, counselors, advisers — muscle when I needed it."
The legislation creates a new federal agency to police consumer lending, it sets up a warning system for financial risks, forces failing firms to liquidate and maps new rules for instruments that have been largely uncontrolled.
The legislation requires bank holding companies to spin off their derivatives business into self-funded subsidiaries. Banks would be allowed to keep less risky derivatives operations.
It sets new standards for what banks must keep in reserve to protect against losses, though lobbyists carved out a grandfather exception for banks with assets of less than $15 billion.
Commercial banks would not be permitted to trade in speculative investments, but they could invest no more than 3 percent of their capital in hedge funds and private equity funds.
At a consumer level, lenders would have to disclose more information and require proof that borrowers have the ability to pay off their mortgages. Even retail purchases would be affected — merchants could end up paying lower fees to banks for debit card purchases by their customers.
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