Reform bill fixes ‘fundamental flaws' of system: Obama official

Deputy Treasury Secretary Neal Wolin compares Dodd-Frank legislation to securities laws of the 1930s

Jul 15, 2010 @ 12:03 pm

By Mark Schoeff Jr.

A high-ranking Obama administration official said that Dodd-Frank financial reform legislation, which was approved today by the Senate, will provide key protections against a future market collapse, comparing the measure to reforms enacted after the Great Depression.

The Senate this afternoon approved the Dodd-Frank Wall Street Reform and Consumer Protection Act by a vote of 60-39. Earlier today, a 60-member Democratic-led majority voted to invoke cloture on the bill, the procedural step that prevents a Republican filibuster.

“Like the securities laws of the 1930s, the Dodd-Frank legislation lays the foundation for a stronger and safer financial system,” Deputy Treasury Secretary Neal Wolin said today at the Securities Industry and Financial Markets Association Regulatory Reform Summit in New York.

Mr. Wolin said the reforms would ensure that markets are “creative, competitive … and far less prone to panic and collapse.”

The 2,300-page bill, which touches on nearly every facet of the financial industry, will now go to President Barack Obama to sign into law.

The House on June 30 passed the bill, the product of House-Senate negotiations, with only a handful of Republican votes.

Most GOP members of Congress say the legislation represents a massive government overreach that will crimp credit markets while failing to address the problems at the heart of the financial collapse.

The measure largely reflects the financial-reform goals outlined by Mr. Obama a year ago, according to Mr. Wolin. He praised the bill for significantly reducing systemic risk posed by large financial firms, strengthening capital requirements, providing comprehensive regulation of derivatives, ending the so-called too-big-too-fail problem and establishing a consumer protection agency.

The 2008 financial crisis was precipitated by problems in each of those areas, in Mr. Wolin's analysis. “This bill fixes those fundamental flaws,” he said.

When the bill becomes law, which is now virtually assured, attention will turn to several federal agencies that must write scores of reports and regulations emanating from the legislation.

Tim Ryan, SIFMA president and chief executive, said that the legislation contains more than 250 rulemaking directives and studies. A SIFMA analysis shows that the Securities and Exchange Commission alone will be required to take 124 actions to implement the bill.

Financial industry professionals attending the SIFMA event are wary about how the regulatory process will unfold.

Mr. Wolin said that the legislation provides a framework for reform and gives agencies the authority to act in appropriate ways to strengthen market oversight.

“To legislate every detail of financial regulation would be to create a fixed and brittle system,” Mr. Wolin said.

In one example of responsibility being shifted to the regulators, the bill gives the SEC the authority to impose a uniform fiduciary duty on investment advisers and broker-dealers who give investment advice to retail clients. Before it does so, however, the SEC has to conduct a six-month study of the differences in current oversight of the two groups and incorporate the findings in any regulation.

It remains to be seen whether the SEC will impose on broker-dealers the same fiduciary duty that governs investment advisers or will formulate a standard that merges fiduciary duty with the suitability rules that apply to broker-dealers.

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