WASHINGTON — Prodded by national anger at Wall Street, the Senate on Thursday passed the most far-reaching restraints on big banks since the Great Depression. In its broad sweep, the massive bill would touch Wall Street CEOs and first-time home buyers, high-flying traders and small town lenders.
The 59-39 vote represents an important achievement for President Barack Obama, and comes just two months after his health care overhaul became law. The bill must now be reconciled with a House version that passed in December. A key House negotiator predicted the legislation would reach Obama's desk before the Fourth of July.
The legislation aims to prevent a recurrence of the near-meltdown of big Wall Street investment banks and the resulting costly bailouts. It calls for new ways to watch for risks in the financial system and makes it easier to liquidate large failing financial firms. It also writes new rules for complex securities blamed for helping precipitate the 2008 economic crisis, and it creates a new consumer protection agency.
It would impose new restraints on the largest, most interconnected banks and demand proof that borrowers could pay for the simplest of mortgages.
"Our goal is not to punish the banks but to protect the larger economy and the American people from the kind of upheavals that we've seen in the past few years," Obama said earlier Thursday after the Senate cleared a key 60-vote hurdle blocking final action.
The financial industry, Obama said, had tried to stop the new regulations "with hordes of lobbyists and millions of dollars in ads."
Two Democrats, Sens. Maria Cantwell (D-WA) and Russ Feingold (D-WI), voted against the bill. Four Republicans, Sens. Scott Brown (R-MA), Olympia Snowe (R-ME), Susan Collins (R-ME), and Chuck Grassley (R-IA), voted in favor of the bill.
In a statement released after the vote, Feingold explained that the legislation does not address the root causes of the financial crisis:
"The bill does not eliminate the risk to our economy posed by 'too big to fail' financial firms, nor does it restore the proven safeguards established after the Great Depression, which separated Main Street banks from big Wall Street firms and are essential to preventing another economic meltdown. The recent financial crisis triggered the nation's worst recession since the Great Depression. The bill should have included reforms to prevent another such crisis. Regrettably, it did not."
Cantwell echoed Feingold's concerns in a separate statement after the vote:
"While this bill takes much needed steps to help prevent a crisis of this magnitude from ever happening again, it fails to close the very same loopholes in derivatives trading that led to the biggest economic implosion since the Great Depression," Senator Cantwell said. "Throughout this debate I have fought hard against efforts to weaken this legislation as well as to pass language to strengthen it further. But the fact of the matter is, without key reforms in derivatives trading, this bill does not safeguard America's economy from a repeat of this crisis.
It sets up a process for responding the next time we have a financial crisis, but it doesn't prevent this kind of thing from ever happening again. We have to stop these kinds of dangerous activities. We need stronger bans on banks gambling with depositors' money. We need bright lines - like Glass-Steagall - that separate risky activities from the traditional banking system. We need to refocus our financial system away from synthetic bets and get more capital into the hands of job creators and Main Street businesses. There are good, strong provisions in this bill, and I'm proud of the work we did to get them in there, but I fear that without closing the loopholes primarily responsible for this economic meltdown, we are missing the entire heart of the matter."
The Senate passed the bill without the Merkley-Levin amendment, an addition that would have imposed stricter language on the "Volcker Rule." Named after Obama economic adviser Paul Volcker, the "Volcker Rule" bars commercial banks from using taxpayer-backed money to trade for their own gain. Without the Merkley-Levin amendment, sponsored by Sens. Jeff Merkley (D-OR) and Carl Levin (D-MI), regulators who were blamed for their lack of oversight preceding the financial crisis will be empowered to shape the "Volcker Rule" and possibly water it down.
Levin and Merkley's amendment was never debated on the Senate floor. Instead, "last-minute maneuvering" killed it. Levin said that it showed "the power of Wall Street," reports Reuters:
Last-minute maneuvering on the Senate floor killed two controversial amendments: one to tighten proposed restrictions on risky trading by banks, and another exempting car dealers that do not finance their own lending to auto buyers from oversight by a new federal consumer watchdog.
Republicans withdrew the auto-dealer amendment, offered by Senator Sam Brownback, so that the bank trading amendment, offered by Democrats Jeff Merkley and Carl Levin, would not come to a vote. It is firmly opposed by major financial firms.
Twice the Senate had to beat back efforts by Republicans to delay the bill before achieving final passage.
"The decisions we've made will have an impact on the lives of Americans for decades to come," said Sen. Richard Shelby, R-Ala., who voted against the legislation. "Judgment will not be rendered by self-congratulatory press releases, but, rather, by the marketplace. And the marketplace does not give credit for good intentions."