For Immediate Release
Congress Passes Financial Reform, Consumer Protections; Much More Must Be Done to Rein in Wall Street
Statement of Robert Weissman, President, Public Citizen
WASHINGTON - More than a year and a half after Wall Street crashed the global economy, Congress has finally taken important action to rein in the Wall Street titans. The Wall Street reform bill is a crucial first step, passed despite the financial sector's enormous investments in lobbying and campaign contributions. But Wall Street remains far too powerful in Washington, with the result that this bill does not contain crucial reforms that must be included in subsequent reform efforts.
On the positive side of the ledger, the bill contains stronger consumer financial protections and curbs on some of the worst practices in the derivatives markets.
Consumer Protection: The bill consolidates and streamlines existing consumer financial protection by creating a Consumer Financial Protection Bureau. This bureau will have the authority to crack down on unfair, deceptive and abusive practices in connection with consumer products such as payday loans, credit cards and mortgages by using new rules and enforcement powers. It also will have authority to ban particularly harmful practices such as forced arbitration. Had the bureau been in place and operating effectively during the run-up to the financial crisis, it would have prevented the predatory and abusive mortgage lending practices that led directly to the crash.
Transparency, Oversight and Stability in the Over-the-Counter (OTC) Derivatives Market: The bill also makes major progress on reining in reckless and unfair derivatives practices. It restricts the most egregious practices, such as federally insured banks engaging in risky proprietary trading and financial institutions making bets against their own clients. It requires the vast majority of previously unregulated OTC derivatives to be cleared and traded on regulated exchanges. Derivatives were a critical cause of the financial crisis; new clearing and exchange rules should go a long way toward stabilizing the system.
There are many other positive components of the bill. How effective they turn out to be will depend crucially on implementation over the next months and years. If Wall Street can regain control of the regulatory process, then many of the potential benefits from this bill will be lost.
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Unfortunately, many important reforms are missing from the bill. Some key elements were jettisoned or weakened in the conference process. These include limits on commercial banks owning hedge funds, and the bulk of the requirement that commercial banks spin off their derivatives trading desks.
Other key reforms are absent from the bill. These include meaningful restraints on executive and top trader compensation, a financial speculation tax and rules to break up the biggest banks. The megabanks that now dominate the financial sector - which is more concentrated than at the onset of the financial crisis - pose a continuing threat to our economy and democracy.
Particularly because it does not break up the megabanks, this bill does not ensure that we will not have a repeat of the financial crisis. Another round of reform will be needed to achieve that objective.
Nonetheless, the bill is an extraordinary achievement for regular Americans and will be enacted into law despite a massive and deceptive opposition campaign by Wall Street and its allies.
We have lots more to do, but today we have achieved what many thought impossible just months ago.
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Public Citizen is a national, nonprofit consumer advocacy organization founded in 1971 to represent consumer interests in Congress, the executive branch and the courts.