Summary of the Wall Street Reform Bill

On July 15, 2010, the United States Senate passed legislation to rein in some of the worst abuses by Wall Street.  Sen. Bernie Sanders voted in favor of the measure which already had passed the House of Representatives in the identical form.  The legislation falls short of what the senator thinks is needed, but it includes many important provisions - including his provision to bring much-needed transparency  to the Federal Reserve.  Below please find a summary of some of the key areas covered - or left out - of the bill, which was sent to President Obama for his signature after final passage.


Overall

The Restoring American Financial Stability Act of 2010, H.R.4173, is a step forward, but it does not go nearly far enough to prevent another financial crisis and to get Wall Street to invest in the productive job-creating economy instead of gambling on risky investments.

wall streetToo Big To Fail

This bill does not break-up too big to fail banks that nearly drove the entire economy off of a cliff nearly two years ago.  Incredibly, three out of the four largest financial institutions in this country (Bank of America, JP Morgan Chase and Wells Fargo) are bigger today than they were before the financial crisis. 

Credit Card Interest Rate Caps

Unfortunately, this bill does nothing to cap credit card interest rates.  It is immoral and wrong that a quarter of American credit card holders are paying more than 20% interest on their credit cards.

Fed Transparency

On the positive side, the legislation includes Sanders' amendment lifting the veil of secrecy at the Federal Reserve.  This is a major victory for American taxpayers.  Beginning on December 1st, the American people will finally know all of the names of the financial institutions, corporations, and foreign central banks that received over $2 trillion in secret loans and other financial assistance from the Fed.  We will know the exact terms of this unprecedented financial assistance.  And, in a little over a year from now, a comprehensive independent audit of all of the Federal Reserve’s emergency actions will let the American people will know if there were any conflicts of interest involving these secretive actions by the Fed. 

In addition, we will also know the names and details of banks receiving assistance through the Fed’s discount window about once every two years which is also a positive step forward.

Sadly, Fed Chairman Ben Bernanke has refused to release any of this information to the American people, despite repeated requests from me and others that he do so.  By adopting Sanders' provision, Chairman Bernanke will finally have to understand that this money does not belong to the Federal Reserve, it belongs to the American people and the American people have a right to know where their hard earned taxpayer dollars are going.

More details on this provision are available here.


Lincoln/Derivatives

This bill does not do enough to stop too big to fail banks from gambling trillions of dollars in risky derivatives and credit default swaps.  This gambling led to the $182 billion bailout of AIG, the collapse of Lehman Brothers, the downfall of Bear Stearns and precipitated the worst financial crisis since the Great Depression.

Sen. Lincoln had a very good provision in this bill that passed the Senate to force big commercial banks to make a choice: stop gambling in risky derivatives, or lose access to cheap loans from the Fed and deposit insurance from the FDIC.  Instead of doing this, banks will still be able to keep gambling a substantial amount of money in derivatives while having access to the discount window at the Fed and deposit insurance protecting them if their risky bets don’t pay off.

Credit Ratings Agencies

Sen. Franken had a very good provision to prevent conflicts of interest at the Credit Ratings Agencies that passed the Senate 64-35.  Sanders co-sponsored this amendment.  92 percent of the AAA ratings issued in 2006 and 2007 by Standard and Poors, Moody’s, and Fitsch, later turned into junk status.  The reason for that is mainly because Wall Street pays the ratings agencies a lot of money to issue these AAA ratings – and if they don’t receive a AAA rating, the Credit Ratings Agencies lose a lot of money.  It’s like the movie industry paying critics for favorable reviews.  The Franken amendment would have eliminated these conflicts of interest.  Instead, the conference committee chose to study this issue for two years and after that period, conflicts of interest may still not be eliminated.  That is unfortunate.

Volker Rule

The bill does a decent job banning most proprietary trading by banks (banks betting on derivatives for their own benefit) and that is a plus.  This is known as the Volker Rule and Senators Merkley and Levin deserve a great deal of credit inserting this piece.

Consumer Financial Protection Agency

The Consumer Financial Protection Agency is good, but it could be much, much better.  Unfortunately, it will be housed at the Fed which is kind of like putting the fox in charge of the henhouse.  Sanders is disappointed that it won’t regulate interest rates on credit cards.  But, it could have been much worse.