The conclusion of the House-Senate Conference on the financial reform bill early Friday morning has produced a bill that seeks to revamp the American financial system, and more importantly, bring accountability to Wall Street. Dubbed the Dodd-Frank Act after its primary architects, Senate Banking Committee Chairman Sen. Christopher J. Dodd (D-CT) and House Financial Services Committee Chairman Rep. Barney Frank (D-MA), the bill is expected to be approved by both the House and the Senate some time next week.
“This is a tremendous day,” said Sen. Dodd. “After great debate, we have produced a strong Wall Street reform bill that will fundamentally change the way our financial services sector is regulated. Over the past two years, America has faced the worst financial crisis since the Great Depression. Millions of Americans have lost their homes, their jobs, their savings and their faith in our economy.”
The Dodd-Frank Act seeks to overhaul the regulatory system in hopes of preventing future crisis situations in the financial sector. Among the bill's many aims: the formation of the Consumer Financial Protection Bureau; the creation of a council of regulators to oversee the financial system and look for major risks; set strict regulations on complex financial derivatives; and give the U.S. government the power to take over financial institutions on the brink of disaster that pose a threat to the American economy.
"All Americans have a stake in this bill," said U.S. Department of the Treasury Secretary Tim Geithner. "It will offer families the protections they deserve, help safeguard their financial security and give the businesses of American access to the credit they need to expand and innovate. This is a good day for them and for the cause of financial reform."
To protect America's mortgage market, a provision of the Dodd-Frank Act requires that lenders be required to obtain proof from borrowers that they can pay for their mortgages. They would have to provide evidence of income, either though tax returns, payroll receipts or bank documents. That provision seeks to eliminate "stated-income loans" where borrowers offered no proof of their ability to make mortgage payments. Lenders would have to disclose the maximum amount that borrowers could pay on adjustable-rate mortgages (ARMs). Mortgage lenders are barred from receiving incentives to push people into high-priced loans.
"The reforms making their way through Congress will hold Wall Street accountable so we can help prevent another financial crisis like the one that we’re still recovering from," said President Barack Obama. "We’ll put in place the toughest consumer financial protections in our history, while creating an independent agency to enforce them. Through this agency, we’ll combine under one roof the consumer protection functions that currently are divided among half a dozen different agencies. Now there will be one agency whose sole job will be to look out for you."
“We closed loopholes in regulations and required greater transparency and accountability for over-the-counter derivatives, asset-backed securities, hedge funds, mortgage brokers and payday lenders,” said Sen. Dodd. “I am proud of this bill, and I am proud of the open and transparent process that led to such a successful result.”