Lawmakers Compromise On Wall Street Bill

House and Senate negotiators have reached agreement on a sweeping overhaul of financial regulations. The bill is designed to address many of the causes of the financial meltdown that occurred in 2008. It seeks to limit speculative trading by banks and other financial institutions, and close regulatory gaps by creating new agencies and tightening the rules that govern the financial markets. The bill is not expected to gain many Republican votes. John Ydstie

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From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

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And I'm Michele Norris.

And we begin this hour with an all-nighter. House and Senate negotiators spent last night and this morning ironing out the details of a historic reshaping of the financial system. The goal: to make sure the meltdown of 2008 never happens again. Final approval of the bill is expected in the Senate and House next week.

NPR's John Ydstie reports now on what's in the bill and on the final hours of the horse trading that produced it.

JOHN YDSTIE: It was a bleary-eyed group of lawmakers who heard the clerk read the vote count to Banking Committee chairman Christopher Dodd just before 6 a.m. this morning.

Unidentified Woman: Mr. Chairman, the votes are seven aye, five nay. The bill is passed.

Senator CHRISTOPHER DODD (Democrat, Connecticut; Chairman, Banking Committee): I thank my colleagues immensely.

(Soundbite of applause)

YDSTIE: The vote came as a great relief for Democrats. There had been tense disagreements within the party over whether federally insured banks should be allowed to continue trading derivatives and investing in hedge funds. At one point, northeastern Democrats threatened to bolt. In the end, a compromise emerged that sharply restricts bank involvement with derivatives and hedge funds.

Later in the morning at the White House, President Obama touted another big element of the reform: the creation of a new consumer financial protection bureau.

President BARACK OBAMA: Through this agency, we'll combine, under one roof, the consumer protection functions that currently are divided among half a dozen different agencies. Now there will be one agency whose sole job will be to look out for you.

YDSTIE: Consumer advocates like Ed Mierzwinski of U.S. PIRG were ecstatic about the new consumer bureau.

Mr. ED MIERZWINSKI (Consumer Advocate, U.S. PIRG): Without a doubt, it's a landmark reform.

YDSTIE: Mierzwinski says it will be able to protect consumers in their dealings with banks and almost everywhere else they get their financial products.

Mr. MIERZWINSKI: Everything from mortgage companies to payday lenders. The only exception that's of any size is that the new bureau does not have authority over car loans.

YDSTIE: The politically powerful auto dealers fought hard for that exemption. But they didn't escape altogether. The bill subjects auto dealers to tougher oversight by the Federal Trade Commission. Wall Street didn't do as well trying to avoid restrictions. Banks will be less free to take on certain kinds of risk. And they'll have to hold more capital as a cushion against losses. Ultimately that means less profit, says Scott Talbott of the Financial Services Roundtable.

Mr. SCOTT TALBOTT (Senior Vice President for Government Affairs, Financial Services Roundtable): We're concerned about the ability of banks to continue to lend. We're concerned about the U.S.'s competitiveness in a global marketplace.

YDSTIE: But Talbott says this morning's vote on the largest overhaul of financial regulations since the Great Depression does remove some uncertainty from the markets, which is a good thing. He says he has no doubt the bill will pass next week in the House and Senate. The bill also creates a new financial stability council to try to anticipate financial crises. The council will have the power to seize and break up large failing financial firms. The cost of winding down failing firms would be borne by shareholders, creditors and the banking industry, not taxpayers.

But despite the cries of never again from members of Congress after the near collapse of the financial system 18 months ago, there will be future financial crises. That's the view of Doug Elliott, a former investment banker who's now a fellow at the Brookings Institution.

Mr. DOUG ELLIOTT (Fellow, Brookings Institution): The bill will not prevent financial crises. You can't do that, unfortunately. The financial system's run by humans and we make mistakes both individually and collectively. What it will do, though, is it will significantly decrease the frequency and the pain from those financial crises.

YDSTIE: Democratic negotiators will probably go to bed early tonight, smiling with satisfaction. After all, they've handed President Obama most of what he asked them for a year ago. They've also provided evidence of U.S. progress on financial reform that the president can tout at the G20 summit in Toronto this weekend.

John Ydstie, NPR News, Washington.

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