Senate passes financial reform bill

Vote represents major policy victory for President Obama

updated 16 minutes ago

WASHINGTON - The Senate has passed a sweeping overhaul of how the government regulates banks and Wall Street.

The legislation is aimed at preventing a repeat of the financial meltdown two years ago that plunged the nation into a deep recession.

The Senate passed the bill on a 59-39 vote, giving President Barack Obama a major policy victory.

The bill now must be merged with a House version. A key House negotiator predicts the bill will reach Obama's desk by the Fourth of July.

The massive legislation touches all points in the financial sectors, from Wall Street CEOs and first-time home buyers, to high-flying traders and small town lenders.

The bill calls for new ways to watch for risks in the financial system.

Earlier in the day the Senate cleared the way Thursday for the most far-reaching restraints on big banks since the Great Depression. President Barack Obama cheered from the White House.

Breaking a Senate blockade by a single vote, lawmakers voted 60-40 to end debate and advance the massive financial regulation bill, which became a priority for Obama after the passage of his health care overhaul in March. Democrats had one more 60-vote hurdle to clear before they could pass the bill with a simple majority.

Obama said the financial industry had tried to stop the new regulations "with hordes of lobbyists and millions of dollars in ads."

Noting the near-meltdown of big Wall Street investment banks and the resulting costly bailouts, he said, "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."

House Financial Services Committee Chairman Barney Frank, D-Mass., said he expected relatively few disagreements between House and Senate negotiators, and he predicted Obama will have a bill to sign before July 4.

The legislation 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.

"We'll soon have in place the strongest consumer protections in history" covering credit cards, student loans, mortgages and more, Obama declared.

Two amendments had stood between the bill and final Senate passage. One would ban commercial banks from carrying out speculative trades for their own profit. The other would exempt auto dealers from oversight by a new consumer protection bureau.

Under an agreement between Republicans and Democrats, the fate of the bank trading limits, a Democratic amendment, depended on the car dealer measure, a mostly Republican proposal.

Republicans considered dropping their regulatory exception for car dealers, in a move aimed at rejecting the bank trading restrictions. The Obama administration said it wanted most to assure that auto dealers would be regulated like other lenders.

Sen. Jeff Merkley, D-Ore., said that without the restriction on bank trading, banks are tempted to steer too many resources into "high-risk investing," leaving too little for conventional loans to businesses and families.

The two functions, he said, "don't belong under the same roof."

Three Republicans — Scott Brown of Massachusetts and Olympia Snowe and Susan Collins of Maine — voted to end debate and move ahead on the bill. Two Democrats — Russ Feingold of Wisconsin and Maria Cantwell of Washington — voted with other Republicans against it. 

Democrats succeeded in breaking through the Republican block by winning Brown's backing. The Massachusetts Republican, who had voted against ending debate on Wednesday, met with Reid Thursday morning to voice his concerns regarding the bill's effect on Massachusetts banks such as State Street and insurance firms such as MassMutual. House Financial Services Committee chairman Barney Frank, also of Massachusetts, weighed in Thursday with letters to Reid offering his own guarantees that the final bill would resolve Brown's concerns.

Cantwell and Feingold continued to object to the bill. Cantwell protested her inability to get a vote on an amendment that she said would toughen regulation of complex securities known as derivatives. Feingold has said the bill does not go far enough to restrain Wall Street.