The Congress on Thursday approved the broadest overhaul of financial rules since the Great Depression and sent it to President Barack Obama to sign into law.
By a vote of 60 to 39, the Senate passed a sweeping measure that tightens regulations across the financial industry in an effort to avoid a repeat of the 2007-2009 financial crisis.
Wall Street had fought bitterly to derail the legislation, which leaves few corners of the financial industry untouched. It establishes new consumer protections, gives regulators greater power to dismantle troubled firms, and limits a range of risky trading activities in a way that would curb bank profits.
Unless your business model depends on cutting corners or bilking your customers, you have nothing to fear from this reform, Obama said. He is expected to sign the bill into law next week.
The Senate vote caps more than a year of legislative effort after Obama proposed reforms in June 2009. The House of Representatives approved the legislation last month. Financial markets showed little reaction on Thursday as investors had already factored in the bill's impact.
Although Obama originally had hoped for bipartisan support for reform, only three Republican senators voted in favor of the bill, joining 55 Democrats and two Independents. One Democrat opposed it.
With Republicans poised for big gains in the November congressional elections, Democrats are eager to show voters that they have tamed an industry that dragged the economy into its deepest recession in 70 years.
I regret I can't give you your job back, restore that foreclosed home, put retirement monies back in your account, said Democratic Senator Christopher Dodd, one of the bill's chief authors. What I can do is to see to it that we never, ever again go through what this nation has been through.
JPMorgan Chase & Co, the second-largest U.S. bank, said the bill would not compromise its business model but might hurt profitability. We'll have some effect on revenues and margins and volumes, its chief executive, Jamie Dimon, said on a conference call.
As the largest U.S. derivatives dealer, JPMorgan could have the most to lose from the bill, which aims to curb lucrative trading in risky over-the-counter derivatives and force banks to end trading for their own profits.
ARE VOTERS IMPRESSED?
Along with the health-care overhaul, Democrats can now point out that they have passed two far-reaching reform efforts that will likely shape American society for generations.
It is not clear whether that will impress voters.
The public's understanding of the regulatory revamp is very low, according to an Ipsos online poll released on Thursday. Of those polled, 38 percent had never heard of the reform, while 33 percent had heard of it but knew nothing about the bill. Other polls show the public divided about its merits.
And even as Democrats hope the regulatory crackdown will help them win support in the November elections, many voters remain angry at lawmakers for spending hundreds of billions in taxpayer dollars to prop up Wall Street while Main Street struggled amid a deep recession.
The legislation has also won Democrats few friends on Wall Street as wealthy donors have started to steer more campaign contributions to Republicans.
Under the 2,300-page bill, mortgage brokers, student lenders and other financial firms will have to answer to a new consumer-protection authority, though auto dealers will escape scrutiny.
Regulators, who scrambled to contain the damage from failing firms like Lehman Brothers in the last crisis, will have new authority to dismantle troubled firms if they threaten the broader economy.
A council of regulators will monitor big-picture risks to the financial system and many large banks will have to set aside more capital to help them ride out tough times.
Large private-equity and hedge funds will face more scrutiny from federal regulators, and credit-rating agencies could potentially see their entire business model upended.
Much of the $615 trillion over-the-counter derivatives market will be routed through more accountable and transparent channels, and banks will have to spin off the riskiest of their swaps clearing desk operations.
Wall Street deployed an army of lobbyists to fight the bill, but they were undermined by the industry's tone-deaf decision to award fat bonuses to executives only months after the government put up $700 billion in bailout funds.
SOWING REGULATORY UNCERTAINTY
Most Republicans argued the bill is an intrusive overreach that fails to address problems in the housing market that spurred the crisis.
The administration and its Democrat allies in Congress have taken a crisis and used it, rather than solving it, Senate Republican Leader Mitch McConnell said.
House Republican Leader John Boehner said the measure should be repealed.
Even after the legislation is signed into law, financial firms will face years of uncertainty as regulators put the measures into effect. Some analysts believe that will weigh on lending.
According to the U.S. Chamber of Commerce, the bill will spawn 533 new regulations, 60 studies and 94 reports.
The whole sector will be years trying to react to the solidifying of whatever the rules are, said Linda Duessel, market strategist at Federated Investors in Pittsburgh.
The Obama administration will move as quickly as possible to provide clarity and certainty about the new rules, Treasury Secretary Timothy Geithner said. This is the beginning, not the end, of the process of financial reform, he said.
Groups that pushed for a tougher bill now worry that regulators may be swayed by industry lobbying.
I will believe reform is here when I see it, said John Taylor, head of the National Community Reinvestment Coalition.
(Additional reporting by Thomas Ferraro, Ross Colvin, Alister Bull and Mark Felsenthal in Washington and Leah Schnurr in New York; Editing by Leslie Adler)