The House of Representatives just voted 223-202 to approve the Wall Street Reform and Consumer Protection Act of 2009. The Senate still has to approve its own financial reform plan, and once that happens (if it happens), there will be all sorts wrangling and compromising and sneaky inserting of provisions that hardly anybody will understand until long after the bill becomes law.
Still, from the perspective of three or four months ago, when financial reform seemed dead in the water, this is a pretty big deal. The House bill would, among many other things, make it possible for the FDIC to take over and sell off or shut down systemically important financial institutions other than banks. This new authority would be financed with a $150 billion “systemic dissolution fund” that “large, interconnected financial companies” would have to contribute to. The bill would create a Consumer Financial Protection Agency. It would bring regulation of over-the-counter derivatives. It would shut down the Office of Thrift Supervision. It would create a new oversight council in charge of monitoring systemic risk in the financial system.
And so on, and so on. The bill was 1279 pages long even before House members began tacking amendments onto it today. I don’t think anybody, even Barney Frank and his staffers on the House Financial Services Committee, really knows what all is in it and what impact it will have. So it scares me. It also doesn’t have much in the way of simple, straightforward fixes—like a Glass-Steagallish separation of risky financial activities from essential ones. But I do think the legislation would add enough unpleasantness and cost to being a large, interconnected financial company to create incentives for financial giants to break up. So that’s a positive. And maybe the Consumer Financial Protection Agency will actually protect consumers in a way that the bank regulators have not.
Anyway, we’ll see. It’s still going to be months before we know what’s in the final legislation, if there even is final legislation.