~Finance Reformed

President Obama Signs Wall Street Reform: "No Easy Task"

Posted by Jesse Lee on July 21, 2010 at 02:22 PM EDT 

It has now been two years since the collapse of Bear Stearns and more than a year since the financial crisis peaked. Trillions of dollars in household wealth were erased and over 8 million jobs were lost, in large part, because of failures in our financial system. That failed regulatory system will now come to an end.

The Obama Administration has made Wall Street reform a top priority since day one, and it will now become a reality.  Wall Street Reform will hold Wall Street accountable, protect and empower American consumers with the strongest consumer protections ever, increase transparency in financial dealings -- including in the derivatives market -- and end taxpayer bailouts once and for all.

1. Holding Wall Street Accountable

The financial crisis was the result of a fundamental failure from Wall Street to Washington. Wall Street took irresponsible risks that they didn’t fully understand and Washington did not have the authority to properly monitor or constrain risk-taking at the largest firms. When the crisis hit, they did not have the tools to break apart or wind down a failing financial firm without putting the American taxpayer and the entire financial system at risk.
Taxpayers Will Not Have To Bear The Costs Of Wall Street’s Irresponsibility. If a firm fails in the future it will be Wall Street – not the taxpayers – that pay the price.
“Proprietary Trading” Will Be Separated From The Business of Banking. The “Volcker Rule” will ensure that banks are no longer allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers. Responsible trading is a good thing for the markets and the economy, but firms should not be allowed to run hedge funds and private equity funds while running a bank.
Ending Bailouts. No firm should be “Too Big To Fail”. Reform will constrain the growth of the largest financial firms; restrict the riskiest financial activities; and create a mechanism for the government to shut down failing financial companies without precipitating a financial panic that leaves taxpayers and small businesses on the hook.

2. Protecting American Families From Unfair, Abusive Financial Practices

Too many responsible American families have paid the price for an outdated regulatory system that left our financial system vulnerable to collapse and left families without adequate protections. We must protect and empower families with the strongest consumer protections ever.
An Independent Bureau of Consumer Financial Protection Will Set And Enforce Clear, Consistent Rules For The Financial Marketplace. A single consumer bureau will set clear rules of the road and ensure that financial firms are held to high standards. For example:

• For families who want to buy a home: The piles of forms needed for a regular mortgage can be overwhelming, and many brokers have taken advantage of that confusion to give borrowers loans they didn’t need or couldn’t afford. The new consumer financial protection bureau will take steps to consolidate and simplify with plain language two overlapping and sometimes inconsistent federal mortgage forms. The bureau will, for the first time, provide ongoing federal oversight of both nonbank companies and banks in the mortgage market and protect borrowers from unfair, deceptive or other illegal mortgage lending practices.
• For families with credit cards: The new consumer financial protection bureau will enforce the new credit card law signed by President Obama that bans rate hikes on existing balances and other unfair practices. For families who have used credit cards to get by when times are tight, the law will give them clarity on the interest rates they are charged.
• For families caught by unexpected overdraft fees: Many households have been automatically enrolled in expensive overdraft programs. These programs can hit consumers with costly overdraft fees for even the smallest purchases. For example, the FDIC found that the average overdraft charge for a single purchased item—like a $2 cup of coffee—is $30 at banks with assets more than $1 billion. The new consumer financial protection bureau will enforce new rules that give consumers a real choice as to whether to join expensive overdraft programs so that they are not unknowingly charged unnecessary fees. [FDIC, “FDIC Study of Bank Overdraft Programs” (November 2008) at Table IV‐3]

Until Now, There Have Been Seven Different Regulators With Authority Over The Consumer Financial Services Marketplace. Accountability has been lacking because responsibility is diffuse and fragmented. In addition, many mortgage lenders and mortgage brokers were almost completely unregulated. All that will change..

3. Closing The Gaps In Our Financial System

We desperately needed to modernize our financial system and take the necessary steps to close the gaps in our system and eliminate regulatory arbitrage.
Reform Will Address the Gaps that led to Regulatory Failure – At Its Peak, The “Shadow Banking System” Financed About $8 Trillion In Assets. In the lead-up to the financial crisis, our regulatory system as a whole failed. One of the greatest weaknesses of our financial system was the risk that built up in the “shadow banking” system where there was explosive growth in a range of financial firms that acted much like banks – but operated without oversight.
Market Discipline Was Not Enough. Relying on market discipline to compensate for weak regulation and then leaving it to the government to clean up the mess was not a good strategy for economic growth nor financial security.
Our Financial System Will Have Clear Accountability. There is no substitute for vigorous, consistent enforcement of the laws governing the financial system. But each regulator should have a clear mission and the authority to execute that mission.

• Gaps and loopholes that allowed large firms like AIG to avoid strong, comprehensive federal oversight will be eliminated.
• To achieve accountability, one entity will have the responsibility and the authority to supervise the most complicated firms.

4. Reform is Critical to Market Certainty and Stable Growth

Reform is central to providing a foundation for stable growth. Our financial system is most competitive when our system is stable, resilient and transparent.

Reforms Will Make The Financial Industry And The Markets They Operate In Stronger, Safer, And More Competitive.

• Clearer accountability in supervision and regulation so that financial firms can operate under a coherent set of rules and expectations without the current regulatory arbitrage opportunities that allow some firms to “game the system.”
• Stronger capital buffers to increase the ability of financial companies to weather the ups and downs of financial markets.
• Lesser concentration of risk among the largest financial firms so that any one firm can fail without creating a domino effect throughout the entire financial system that jeopardizes jobs, family savings and the entire economy .
• Greater transparency in the derivatives market that will make the system safer by providing regulators with the data they need to manage systemic risk and help ensure the integrity of financial markets so we can prevent future AIG-like disasters.

Comprehensive Reform Will Help Generate Innovation And Economic Growth. A key test of a strong financial system is whether or not it effectively channels savings to finance future innovation. The old system produced waves of credit bubbles and real estate booms followed by severe financial shocks and damage. Under reform, the financial system serve not only short-term profits, but long-term growth, entrepreneurship, and savings.
Leading the Way on International Financial Reform. We have worked in parallel with our international partners to make sure that as we move to reform and strengthen our financial system at home, the G20 is moving to implement reforms to achieve a level playing field.


Read the Transcript  |  Download Video: mp4 (149MB) | mp3 (14MB)

This morning the President signed yet another landmark piece of legislation putting the middle class above the special interests that for so long had a stranglehold on America's government.  To get an entertaining overview of what's involved in Wall Street Reform, from ending bailouts and holding Wall Street accountable to the strongest consumer protections ever, take a few minutes to watch our entertaining animated video or get into the nuts and bolts on our Wall Street Reform page.

At the signing ceremony, the President laid out the historical perspective as well as the perspective focused on our common future:
Passing this bill was no easy task.  To get there, we had to overcome the furious lobbying of an array of powerful interest groups and a partisan minority determined to block change.  So the members who are here today, both on the stage and in the audience, they have done a great service in devoting so much time and expertise to this effort, to looking out for the public interests and not the special interests.  (Applause.)  And I also want to thank the three Republican senators who put partisanship aside -- (applause) -- judged this bill on the merits, and voted for reform.   We’re grateful to them.  (Applause.)  And the Republican House members.  (Applause.)  Good to see you, Joe.  (Applause.)
Now, let’s put this in perspective.  The fact is, the financial industry is central to our nation’s ability to grow, to prosper, to compete and to innovate.  There are a lot of banks that understand and fulfill this vital role, and there are a whole lot of bankers who want to do right -- and do right -- by their customers.  This reform will help foster innovation, not hamper it.  It is designed to make sure that everybody follows the same set of rules, so that firms compete on price and quality, not on tricks and not on traps.
It demands accountability and responsibility from everyone. It provides certainty to everybody, from bankers to farmers to business owners to consumers.  And unless your business model depends on cutting corners or bilking your customers, you’ve got nothing to fear from reform.  (Applause.)
Now, for all those Americans who are wondering what Wall Street reform means for you, here’s what you can expect.  If you’ve ever applied for a credit card, a student loan, or a mortgage, you know the feeling of signing your name to pages of barely understandable fine print.  What often happens as a result is that many Americans are caught by hidden fees and penalties, or saddled with loans they can’t afford.
That’s what happened to Robin Fox, hit with a massive rate increase on her credit card balance even though she paid her bills on time.  That’s what happened to Andrew Giordano, who discovered hundreds of dollars in overdraft fees on his bank statement –- fees he had no idea he might face.  Both are here today.  Well, with this law, unfair rate hikes, like the one that hit Robin, will end for good.  (Applause.)  And we’ll ensure that people like Andrew aren’t unwittingly caught by overdraft fees when they sign up for a checking account.  (Applause.)
With this law, we’ll crack down on abusive practices in the mortgage industry.  We’ll make sure that contracts are simpler -– putting an end to many hidden penalties and fees in complex mortgages -– so folks know what they’re signing.

With this law, students who take out college loans will be provided clear and concise information about their obligations.

And with this law, ordinary investors -– like seniors and folks saving for retirement –- will be able to receive more information about the costs and risks of mutual funds and other investment products, so that they can make better financial decisions as to what will work for them.
So, all told, these reforms represent the strongest consumer financial protections in history.  (Applause.)  In history.  And these protections will be enforced by a new consumer watchdog with just one job:  looking out for people -– not big banks, not lenders, not investment houses -– looking out for people as they interact with the financial system.