WASHINGTON (CN) – The Senate voted 59-39 Thursday to pass sweeping financial overhaul legislation, which promises to prevent future taxpayer bailouts of Wall Street and protect against another financial crisis. The bill represents the most extensive changes to U.S. financial markets since the aftermath of the Great Depression.
“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,” President Obama said in a speech Thursday from the White House Rose Garden.
The vote was largely along party lines, with four Republicans voting with the Democratic majority in favor of the bill and two Democrats voting against it. Democratic Sens. Maria Cantwell of Washington and Russ Feingold of Wisconsin opposed the legislation. Republican Sens. Susan Collins and Olympia Snowe of Maine, Scott Brown of Massachusetts and Charles Grassley of Iowa voted for the bill.
“With passage of the Wall Street Reform bill we have taken a major step towards creating a sound economic foundation for the American people we represent,” said Sen. Chris Dodd, D-Conn., chair of the banking committee and the major author of the bill.
The bill ends the banking philosophy of ‘too big to fail’ by giving federal regulators the power to break up and wind down large financial firms whose failure poses a threat to the economy.
It also creates a new federal consumer protection bureau within the Federal Reserve that will oversee mortgage, auto and credit card financial markets to protect against abusive lending practices.
It also sets up a “financial stability oversight council” composed of government heads to foster better communication about the state of the financial industry.
Its members would include the Federal Reserve chair, the head of the Federal Deposit Insurance Corporation, the chair of the Securities and Exchange Commission and the head of the new consumer protection bureau.
The bill contains stricter rules for derivatives trading, which are unique financial instruments whose value is derived from underlying investments that largely contributed to the 2008 financial crisis.
Republicans have warned that the agricultural and manufacturing industries use derivatives to hedge against fluctuating prices, but Democrats have called them part of the “shadow economy” that must be better illuminated by regulation.
An amendment sponsored by Sen. Blanche Lincoln, D-Ark., would spin off derivatives desks of big firms into separate subsidiaries that will operate trades through clearinghouses.
Obama congratulated the Senate. “Because of Wall Street reform, we’ll soon have in place the strongest consumer protections in history,” Obama said.
Obama criticized the financial industry for trying to undermine the reform with “hordes of lobbyists and millions of dollars in ads,” and said the legislation would not cripple the industry.
“The reform I sign will not stifle the power of the free market,” he said. “It will simply bring predictable, responsible, sensible rules into the marketplace. Unless your business model is based on bilking your customers and skirting the law, you should have nothing to fear from this legislation.”
Congressional Democratic leaders will now reconcile differences between the House and Senate versions of the bill and meet with the White House to iron out a final version. The House version of the bill passed in December.
The House bill exempts auto dealers from oversight by the new consumer protection agency, while the Senate bill does not. Senate Republicans fought to include the measure, saying that cracking down on car dealers would hurt Main Street, but Democrats fought back, characterizing car dealers as preying on soldiers who walk off bases and into car lots and get shouldered with burdensome loans.
The House version also makes the new consumer protection agency a separate federal entity with Congressional oversight instead of putting it within the Federal Reserve like the Senate bill.