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House votes 223 to 202 to approve sweeping bill to overhaul financial regulatory system

By Brady Dennis
Washington Post Staff Writer
Saturday, December 12, 2009; A01

More than a year after the near-collapse of Wall Street plunged the economy into crisis, a divided House on Friday approved the most sweeping overhaul of the nation's financial regulatory system since the Great Depression.

"We are sending a clear message to Wall Street: The party is over," House Speaker Nancy Pelosi said after the 223 to 202 tally, which failed to attract a single Republican vote.

The bill's passage marks a milestone in the Obama administration's efforts to rein in the abuses that contributed to the crisis and to prevent similar failures in the future. President Obama has called financial reform one of his top priorities, alongside health care and climate change. In a statement Friday, he said the legislation "brings us another important step closer to necessary, comprehensive financial reform," and he urged the Senate to act as quickly as possible.

The 1,279-page House bill would create a new federal agency dedicated to consumer protection, establish a council of regulators to police the financial landscape for systemic risks, initiate oversight of the vast derivatives market and give the government power to wind down large, troubled firms whose collapse could endanger the entire financial system. The legislation also would give shareholders an advisory say on executive compensation, increase transparency of credit-ratings agencies and set aside billions of dollars to aid unemployed homeowners.

Rep. Barney Frank (D-Mass.), who guided the bill through the House Financial Services Committee, compared the legislation to efforts in previous generations to expand the government's oversight of private enterprise.

"Innovation is generally a good thing. But in the absence of sensible regulation, it can cause abuses," he said. "And so I think this is, frankly, of the historic dimensions of what Theodore Roosevelt and Woodrow Wilson did, and what Franklin Roosevelt did."

House Republicans were unanimous in their opposition, saying that the bill would amount to an egregious overreach of government powers and leave unresolved many of the problems that led to the recent crisis. They argue that it would create unnecessary new layers of bureaucracy and stifle financial innovation.

"We are left with a perpetual Wall Street bailout bill," Rep. Jeb Hensarling (R-Tex.), an outspoken critic, said during Friday's debate. "We are left with a bill that will crush job creation at a time when our nation needs to be creating jobs. We have a bill that assaults the fundamental economic liberties of every American citizen."

Despite Friday's victory for administration officials, the elation won't last long. An uncertain road lies ahead in the Senate, where success requires a three-fifths majority and where support from key Democrats is far from certain.

Vision for reform

"We did not choose how this crisis began, but we do have a choice in the legacy this crisis leaves behind," President Obama said June 17, as his administration unveiled an 85-page white paper that laid out its vision for financial reform. From there, Frank steered versions of that blueprint through the House Financial Services Committee as lobbyists of all stripes descended on lawmakers in a furious effort to shape the outcome.

Consumer advocates pushed for more rigorous regulation, saying that the institutions responsible for wrecking the economy need strict supervision. Financial and business groups mounted multimillion-dollar attacks on the proposed consumer-protection agency and other parts of the bill, arguing that too much regulation could strangle both large and small firms.

The summer passed in a flurry of press releases and public statements, conference calls and letter-writing operations. There were rallies and protests, closed-door meetings and shoe-leather lobbying in the marble hallways of Congress. The U.S. Chamber of Commerce produced ads claiming that a new consumer agency would crack down on local butchers and bakers.

Faced with so many competing interests, Frank often was forced to compromise.

He cut a deal with the big banks, Republicans and moderate Democrats who objected to a provision that would allow state consumer protection laws to exceed federal standards. He exempted groups such as retailers, lawyers, auto dealers and real-estate brokers from oversight by the new consumer agency. He agreed to a proposal that would require financial firms to pay ahead of time into a fund that the government could use to wind down large, troubled institutions. He didn't fight a popular measure by Rep. Ron Paul (R-Tex.) that would subject the Federal Reserve to unprecedented scrutiny. He worked to placate members of the Congressional Black Caucus, who held up the bill in protest of the administration's handling of the economy.

Pelosi praised Frank on Friday as a "maestro" for the way he navigated the various legislative landmines. The maestro looked more disheveled than usual after three days of intense debate. He emerged from the House floor to handshakes and hugs from fellow Democrats, his belt pulled sideways, his shirt coming untucked, his eyes bleary. He thanked his staff and wound down a news conference saying, "I'm sure you're as worn out as we are."

Uncertain future

While Frank has done his part, the fate of regulatory reform remains in jeopardy.

"It's probably the third inning of this game," said Robert Litan, an economist and senior fellow at the Brookings Institution. "This is not going to be the bill that finally passes. Not all of it will survive."

By all accounts, the Senate presents a much tougher ballgame. There, financial lobbyists have said they plan to target a handful of moderate, business-friendly Democrats who have expressed skepticism about parts of the president's proposals in hopes of reshaping the final legislation next year.

The Senate Banking Committee only recently began to consider a 1,136-page bill by its chairman, Sen. Christopher J. Dodd (D-Conn.). It differs in significant ways from Frank's legislation and the administration's original vision, bulldozing the existing regulatory establishment, stripping power from agencies including the Federal Reserve and the Federal Deposit Insurance Corp., and erecting a triumvirate of new regulators with sweeping, unprecedented powers.

Edward Yingling, president of the American Bankers Association, said his group assumed that Frank would get a bill through the House despite industry opposition. But he and other financial industry lobbyists expect that final legislation would look quite different. "There is a possibly of getting a bipartisan bill in the Senate, but it will entail compromise. I think it would have to be modified significantly," he said.

Dodd has expressed a desire to reach bipartisan agreement, but Republicans have not endorsed his version of reform. Unless they can find middle ground, it would prove tough to round up the 60 votes necessary to avoid a filibuster.

One indication of the delicate road ahead came Friday in the waning moments of the House debate. An amendment from Rep. Walt Minnick (D-Idaho) to eliminate the proposed Consumer Financial Protection Agency and replace it with a council of existing regulators failed, but not before it garnered more than 30 votes from moderate Democrats. Like-minded Democrats in the Senate hold far more collective power and will play a central role in shaping any legislation with a prayer of passing.

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