Senate Democrats

The Nuts & Bolts of Wall Street Reform Legislation

Last evening the Senate approved comprehensive Wall Street reform, intended to prevent the 2008 economic crisis from ever happening again. Congress is now poised to pass the most dramatic transformation of financial regulations since the Great Depression. Following the vote, Democratic senators held a joint press conference to discuss the impact this legislation will have on the lives of Americans across the country.

"After the darkest days of the depression, Franklin Roosevelt summoned the courage of the American people to stand up again to believe in the future. But he also summoned the courage of Congress to pass important legislation to make certain that we would never go down that path again as a nation. It was an historic moment when that New Deal Congress addressed the causes of the Great Depression and passed the legislation which has carried us to this day. Tonight is another historic moment. It’s an historic moment when this President summoned us in the House and the Senate to rise to this occasion again to make certain that we learned the lessons of this recession and made the changes so that we wouldn’t revisit the horros that we’ve lived through."

— Senator Dick Durbin, May 20, 2010

Consumer advocates who have pushed Congress to pass tough Wall Street regulations praised the bill’s passage last evening. "No bill that deals with big issues is ever perfect," said Elizabeth Warren, head of the Congressional Oversight Panel. "But the Senate’s Wall Street reform package will go a long way toward preventing the kinds of abusive practices that brought our economy to its knees." 
Here is a look at several of the major components of the bill:

  • Too Big To Fail. After witnessing large financial firms nearly bring this country to its knees in 2008, the government will now have the ability to seize and shut down large, failing firms as a result of this bill. A new council of regulators can recommend that large companies hold more capital to cover potential losses and limit borrowing. 

  • Consumer Protections. In the past, regulators were responsible for prioritizing consumers with mortgages, autor loans and credit cards, but all too often, consumers took a back seat. Congress sought to force regulators to make consumers a top priority again through this legislation. A new Consumer Financial Protection Bureau will now be set up at the Federal Reserve to safeguard borrowers. 

  • Reign in Risky Bets. Derivatives — complex financial instruments also known as ‘risky bets’ — lacked any oversight leading up to the 2008 economic crisis. With so much of the derivatives industry cloaked in secrecy, investors panicked because they didn’t know whether parties on either side of these bets would be able to pay what they owed. This legislation requires that nearly all derivatives deals be conducted through central clearinghouses. In addition, most derivatives will be traded on public exchanges now.

  • Financial Watchdog. Prior to the 2008 economic meltdown, there was no agency charged with monitoring the financial system and pinpointing potential problems. As a result public and private sector actors were blindsided by the meltdown of AIG, for example. This bill sets up a Financial Services Oversight Council made up of several existing regulators and chaired by the Treasury secretary.

  • Regulator Shopping. Financial firms have, in the past, been able to shop around for a regulator that gives them the best bang for their buck. Unfortuntaely, there are cases where regulators don’t have the necessary expertise or appropriate staffing to oversee the firms who have selected them. As a result of this legislation, the Federal Reserve, FDIC and Office the Comptroller of the Currency will each have authority over different types of banks.