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US Senate passes tougher new financial reforms
Publication date: 16 July 2010
Final approval was given by United States Senators for the biggest overhaul of the country’s financial regulation in decades. The sweeping reforms, intended to avert a repeat of the 2008 crisis that brought the world economy to the brink of collapse, were voted through after months of political wrangling and therefore seen by many is a major victory for the Obama administration. Speaking afterwards, the President said the new regulation would give the strongest consumer protection in history, and that the American people “would never again be asked to foot the bill for Wall Street’s mistakes.”
Mr Obama then went on to say the reforms would bring an end to what he characterised as ‘shadowy deals’.
“Even before the financial crisis that led to this recession, I spoke on Wall Street about the need for common sense reforms to protect consumers and our economy as a whole,” he said. “Moments after the vote, Federal Reserve Chairman, Ben Bernanke, said how the financial reform legislation approved by the Congress today “represents a welcome and far-reaching step toward preventing a replay of the recent financial crisis.”
The legislation creates a new federal agency designed to oversee consumer lending and outlines new regulations for complex financial instruments. To this end, it will set up a powerful consumer financial protection bureau, with powers to clamp down on abusive practices by credit card companies and mortgage lenders. Large banks will also be required to increase the amount of capital they hold in reserve against loans going bad. However, they will only be forced to do so after five years, as the government is keen that banks do not hold back on lending money during the economic recovery.
The bill also introduces the so-called Volcker rule – named after the former Federal Reserve chairman Paul Volcker, who proposed it. Banks will be banned from what is called proprietary trading – effectively taking bets on financial markets using its own money.
They will also be limited to investing a maximum of 3% of their capital in speculative businesses such as hedge funds or private equity funds.
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