US House passes sweeping financial reform bill

The US House of Representatives has passed a bill which is expected to help usher in the most sweeping changes to the way the country regulates its financial services sector since the economic programmes of the 1930s, which lifted the US out of the depression.

Defying stiff resistance from the US Republican party as well as banking sector lobbyists, the bill passed by a vote of 223 to 202. It will strengthen consumer protection, as well as reinforce government regulation in the financial services industry. Before it is made into law, it still needs to be approved by the US Senate, but some US senators expect it to be passed within the first six months of 2010.

Under the House version of the bill, which is slightly different than the one being debate in the US Senate, the US Federal Reserve would be stripped of its powers to write consumer protection laws. This responsibility would be taken over by a newly-created independent Consumer Financial Protection Agency which will go after abuses such as unscrupulous mortgage deals and excessive credit card rates.

Among its many provisions, it will also create a new body called the Financial Services Oversight Council to identify and regulate financial firms that are so large and interconnected that they are considered too big to fail. It will also give the US government the right to step in and dismantle failing non-bank financial firms that threaten the economy, powers that have been put in place to avoid another collapse such as that faced by Lehman Brothers or the American Insurance Group.

Meanwhile, the Government Accountability Office, an investigative arm of the US Congress, will be bestowed the authority to audit the US Federal Reserve. Banks will also have to pay the Federal Deposit Insurance Corporation US$150 billion to set up a fund in case of future failures in the US financial sector.

In his weekly radio and internet address, US President Barrack Obama said that although the roots of the most recent financial slump can be traced to the use of “easy credit” that encouraged people to borrow regardless of their financial position, he added that “much of it was due to the irresponsibility of large financial institutions on Wall Street that gambled on risky loans and complex financial products, seeking short-term profits and big bonuses with little regard for long-term consequences.”

“This legislation brings us another important step closer to necessary, comprehensive financial reform,” he added.