Washington, July 21 (DPA) President Barack Obama Wednesday signed into law the most sweeping overhaul of the US financial system since the Great Depression of the 1930s, capping a year-long effort to fix regulatory gaps that helped plunge the globe into crisis in 2008.
The signing marked a major domestic political victory for Obama, who said the landmark legislation would prevent another financial collapse, end taxpayer-funded bank bailouts and refocus attention on the plight of ordinary consumers.
The reforms aim to learn the lessons from the 2008 financial crisis that was ‘born of a failure of responsibility from certain corners of Wall Street to the halls of power in Washington’, Obama said at a ceremony in Washington’s Ronald Reagan Building.
The new law extends the government’s watch into virtually all corners of the financial sector, including hedge funds and derivatives markets, and provides new powers for authorities to step into failing financial firms to help avoid an industry-wide collapse.
The bill also creates a new consumer financial protection agency with ‘just one job: looking out for people – not big banks, not lenders, not investment houses’, Obama said. ‘That’s not just good for consumers, that’s good for the economy.’
Obama signed the bill into law after more than a year of tense debate among lawmakers, which was closely watched by European and developing countries that were severely affected by Wall Street’s 2008 meltdown.
The collapse of US investment bank Lehman Brothers in September 2008 sparked a major financial crisis that helped drive the US and world economy into a deep recession.
The new law aims to prevent Wall Street banks from taking excessive risks that led to the crisis. Banks invested in complicated securitized mortgages that left them vulnerable to bankruptcy when the housing market began a downward spiral in mid-2007.
Government regulators were heavily criticised for failing to spot the looming crisis. The legislation creates a nine-member council of regulators, to be headed by US Treasury Secretary Timothy Geithner, to watch for future systemic threats to the financial system.
Most conservative US lawmakers opposed the legislation as costly and dangerous over-regulation of the financial industry. Wall Street and many US businesses sought to water-down the bill.
‘Such a broad, sweeping bill epitomizes a law with unintended consequences that creates more uncertainty for American businesses,’ Thomas Donohue, president of the US Chamber of Commerce, said in a statement.
The financial reform gives broad leeway to regulators as they go about implementing some of its key provisions. It leaves the Obama administration to set new capital and liquidity standards for banks to ensure they have enough reserves to withstand a future downturn.
Dwindling reserves were a key reason banks were left vulnerable during the crisis. The US will likely base its new capital standards on an international agreement that world leaders have pledged to reach by the end of the year.
Obama insisted the regulations were not too onerous for US companies: ‘Unless your business model depends on cutting corners and bilking your customers, you have nothing to fear from this reform.’
For Obama, the legislation marks his second major domestic political victory of the year after health care reform. Obama is also pushing for far-reaching legislation on climate change and immigration this year.
Yet the president’s approval ratings remain below 50 percent amid anger over a still-struggling economy, high unemployment and soaring federal budget deficit. Obama sought to link the financial reforms to his wider efforts to revive the mainstream economy.
‘Ultimately, there is no dividing line between Main Street and Wall Street. We rise or fall together as one nation,’ Obama said. ‘These reforms will help lift our economy and lead all of us to a stronger, more prosperous future.’
