WASHINGTON -- Nearly two years after a Wall Street meltdown left the economy reeling, the House on Wednesday passed a massive overhaul of financial regulations that would extend the government's reach from storefront thrifts to the high-finance penthouses of New York City.
Senate support for the far-reaching bill remained in flux, however. The Senate was forced to delay its vote until mid-July, denying President Barack Obama a victory before Independence Day. Democrats struggled to secure the votes of a handful of Republican senators even after meeting their demands and backing down on a $19 billion tax on big banks and hedge funds.
The legislation, swelling to more than 2,000 pages, would rewrite the nation's regulatory books. Simple supermarket purchases and exotic derivatives trades would be subject to new laws. And the entire financial system would be placed on a risk watch in hopes of thwarting the next threat of a financial crisis.
The 237-192 House vote broke largely along party lines but attracted more support than in December when no Republicans voted for the House version of the bill. The new legislation combines the House bill with one passed by the Senate in May.
"Never again, never again should Wall Street greed bring such suffering to our country," House Majority Leader Steny Hoyer, D-Md., declared.
Republicans portrayed the bill as a vast overreach of government power that would do little to prevent future bailouts of failing financial institutions. They complained that it failed to place tighter restrictions on Fannie Mae and Freddie Mac, the mortgage giants forced into huge federal bailouts after their questionable lending helped trigger the housing and economic meltdowns.
"This legislation is a clear attack on capital formation in America," said Rep. Eric Cantor of Virginia, the second-ranking House Republican. "It purports to prevent the next financial crisis, but it does so by vastly expanding the power of the same regulators who failed to stop the last one."
Analysts by and large found the legislation tougher than what the Obama administration had recommended, but not as harsh as the industry had feared.
The legislation creates a new federal agency to police consumer lending, set up a warning system for financial risks, force failing firms to liquidate and map new rules for instruments that have been largely uncontrolled.
The legislation requires bank holding companies to spin off their derivatives business into self-funded subsidiaries. Banks would be allowed to keep less risky derivatives operations.
It sets new standards for what banks must keep in reserve to protect against losses, though lobbyists carved out a grandfather exception for banks with assets of less than $15 billion.
The legislation also adopted the Obama administration's so-called "Volcker Rule," named after its chief advocate, former Federal Reserve Chairman Paul Volcker. Commercial banks would not be permitted to trade in speculative investments. But negotiators agreed to let them invest in hedge funds and private equity funds, setting an investment limit of no more than 3 percent of their capital.