Reply #8: Senate Passes Bill Designed to Prevent Worst U.S. Collapse [View All]

The U.S. Senate, bringing Congress to the brink of passing the most comprehensive regulation of the financial industry since the Great Depression, approved a bill that imposes restrictions on proprietary trading by banks and creates a consumer protection agency designed to prevent lending abuses that triggered the housing collapse and the worst unemployment in almost three decades.

The legislation, approved by a 59-39 vote yesterday and requiring reconciliation with a bill passed by the House of Representatives in December, provides a mechanism for liquidating financial institutions, until recently considered too big to fail, a council of regulators monitoring threats to the economy and specific restraints on the trading of so-called derivatives, which spawned the toxic debts that seized up the credit markets in 2007 and 2008 and prompted the Federal Reserve to make trillions of dollars of loans to banks on the brink of insolvency.

Prohibiting financial institutions from trading derivatives -- contracts whose value is derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or the weather -- is especially controversial and opposed by Wall Street lobbyists and by some regulators, including Fed Chairman Ben S. Bernanke. The proposed consumer protection bureau, which the Senate has placed inside the Fed, would have powers to write and enforce rules banning lending considered abusive.

Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, said the bill is “hardly perfect” and will be improved in the House-Senate negotiations.

Dodd said he planned to consider strengthening language to ban proprietary trading by U.S. banks. The issue was raised in an amendment offered by Democrats Jeff Merkley of Oregon and Carl Levin of Michigan that wasn’t considered during debate of the bill on the Senate floor.

http://preview.bloomberg.com/news/2010-05-21/u-s-senate-approves-wall-street-financial-overhaul-bill-after-59-39-vote.html