Financial Reform or Crippling Legislation for Banks?

Proposed Financial Regulatory Reform

To reduce the odds of a future crisis, the Obama plan would take three basic steps.

First, regulators would receive more authority to monitor everything from mortgages to complex securities. This is meant to keep future financial time bombs, like the no-documentation loans and collateralized debt obligations of the past decade, from becoming rife. Second, financial firms would be forced to reduce the debt they take on and to hold more capital in reserve. This is the equivalent of requiring home buyers to make larger down payments: more capital will give firms a bigger cushion when investments start to go bad. Finally, if that cushion proves insufficient, the government would be allowed to seize a collapsing financial firm, much as it can already do with a traditional bank. Regulators would then keep the firm operating long enough to prevent a panic and slowly sell off its pieces.

The bill proposed by Mr. Obama and the bill adopted by the House would rearrange the responsibility of a raft of federal agencies, and would create an independent agency devoted to consumer protection in the financial markets. In the Senate, in March 2010, Christopher J. Dodd, a Connecticut Democrat who is chairman of the Banking Committee, introduced a Democratic bill after months of negotiations with a Republican on the committee failed to produce a bipartisan measure. The major points of disagreement with Republicans concerned the scope of authority for a new Consumer Financial Protection Bill to be established within the Fed; the scope of exemptions under new rules governing the trade of derivatives; and the mechanism by which the government could seize and dismantle a large company on the verge of failure.

Republicans opposed the idea of an independent consumer watchdog and charged that the Senate bill would encourage bailouts by creating a $50 billion fund (out of fees charged to banks) essentially to dismantle companies that are so big their failure would endanger the economy.

Is Financial Reform Legislation Poorly Planned?

Timothy Geithner bullish on Wall Street bill

I’m very confident you’ll see some Republicans vote for this,” said Geithner, speaking on NBC’s “Meet the Press” program that aired Sunday morning.

Senate Republican Leader Mitch McConnell (Ky.)

Mitch McConnell (Ky.) of making a "cynical and deceptive assertion” about the bill after meeting with Wall Street executives. McConnell said this week that the bill "not only allows for taxpayer-funded bailouts of Wall Street banks, it institutionalizes them."

McConnell: Liquidation fund isn't only problem with financial reform.

Sen. Scott Brown (R-Mass.) would filibuster Dodd's financial regulatory reform legislation

Possible Fallout from Financial Reform

Reform will mean smaller bank profits

Resulting In:

• Bank Employee layoffs
• Decreased Ability for Banks to make loans
• More taxes
• Banks will increase taking chances to try and meet the government’s wishes, by continuing to making loans to borrowers who cannot pay the money back
• Banks will be coerced to forgive principals on mortgages
• Banks that are not in trouble will be forced to bail out competitors 

Any of the above will not only have a negative effect on Banks but on consumers of financial products as well.