Senate's Financial Reform Bill: Some Winners and Losers
NEW YORK - JANUARY 22: A tour bus passes the Wall Street bull in the financial district January 22, 2007 in New York City. In a study commissioned by New York City Mayor Michael Bloomberg and U.S. Sen. Charles Schumer (D-NY), it was determined that New York could lose its place as the financial capital of the world in as little as 10 years. (Photo by Spencer Platt/Getty Images)
The Senate on Thursday approved a bill that would overhaul the country's financial system and usher in new rules for Wall Street.
While last-minute changes are still possible, below are some of the likely winners and losers under the bill.
The Senate bill would still need to be reconciled with a separate measure already passed by the House of Representatives and the final legislation may be dramatically different.
Credit Rating Agencies — Lose
- Credit rating agencies would be subject to greater liability.
- The biggest rating agencies — Moody's , Standard & Poor's and Fitch Ratings —would face increased competition from the smaller competitors. Under the Senate bill, a credit rating agency board would be created to choose which rating agency would rate an issuer's debt.
Large Financial Firms — Lose
- Large financial firms such as Bank of America and Goldman Sachs could be prohibited from proprietary trading and investing in hedge funds and private equity funds.
- Large firms would also be forced to set aside billions of dollars in extra capital to ensure that they do not threaten the stability of the financial system.
- The Senate bill could force banks such as Goldman and JPMorgan Chase to spin off their profitable derivatives desks or risk losing access to the Federal Reserve's emergency funds.
- The firms' financial products such as mortgages and credit cards would be subjected to new rules from a newly created bureau designed to protect customers from risky products.
- Most derivatives would be forced on to exchanges or through clearinghouses, in an attempt to limit the effect that large, risky trades can have on the economy, another factor that could curb bank profits. Non-financial players such as manufacturers, however, would be exempt.
Small Banks — Win
- The Federal Reserve will continue supervising small banks. Small banks wanted to maintain a supervisory structure they were familiar with.
- The new consumer financial product bureau will not enforce rules for small banks' products. Their consumer financial products will continue to be enforced and overseen by prudential regulators.
US Federal Reserve — Win
- Gains powers to supervise systemically important financial firms.
- Retains authority to supervise banks of all sizes.
- Part of a "risk council" that would have authority to monitor risk in the financial system and decide whether a large complex company needs to divest assets.
- Becomes home for the new Consumer Financial Protection Bureau. Would have power along with other regulators to appeal consumer protection bureau's rules if deemed to hurt safety and soundness of banking system and stability of financial system.
- Democrats and Republicans originally wanted to strip the Fed of its powers to supervise banks and confine the central bank to setting monetary policy and acting as the lender of last resort.
Consumers — Lose
- New rules to protect consumers from risky financial products could be overturned by banking regulators if banking regulators believe the rules could threaten the financial system. The House bill and the original proposal from the Obama administration would not allow banking regulators to have input on consumer rules.
- The new Consumer Financial Protection Bureau will be housed in the Federal Reserve, which has been criticized for failing to rein in the risky lending that contributed to the financial crisis. Under both the House bill and the Obama administration proposal, the new consumer agency would have been fully independent.