The much anticipated and highly debated Wall Street reform bill has finally made its way into the final stretch, as Wall Street saw an exceptional week of trading. The reform has increased confidence abroad from foreign investors and governments, who have criticized the United States for lack of action on financial reform, and has eased many concerns regarding the accountability of the specific entities that had contributed to the recent financial crisis. The Wall Street reform places more focus on stability than on profit, and on protecting the consumer more than the financial institution.
Banks are required to have higher reserve funds to be able to account for any crisis, and credit rating agencies will be held more accountable for risky lending. A new consumer regulator will be added to the Federal Reserve, and this regulator will have the ability to oversee the Fed, which has been under fire for all of the ill-informed and audacious lending that has contributed to the financial melt down on Wall Street. The Federal Reserve scored a win, being able to retain its power to supervise all banks, when original plans were to strip the Fed of all its powers and make it a last resort for lending. Instead, the addition of the Consumer Financial Protection Bureau will keep the Federal Reserve regulated and in check.
This reform offers much more long term stability at the sacrifice of windfall profits for the financial giants. Financial giants such as Goldman Sachs would be prohibited from proprietary investing and would be limited in their investments in hedge funds and private equity funds. Banks would be under greater regulation regarding credit cards and mortgages, but would retain their ability to invest in foreign exchange rate and interest swaps, which are known to contribute most to their growth.
The market has had a great week that was much better than anticipated due to the fact that the bill was becoming finalized and foreign confidence was on the rise as Europeans and Canadians regained confidence in the ability of the United States to regulate Wall Street, which was the epicenter of the financial crisis that sent ripples into foreign economies as well as our own. Consumers are able to place more confidence in the financial sector as well, knowing that the reform will offer them much more protection than they had ever been afforded in the past. The Wall Street reform bill is expected to pass and be signed into law by President Barack Obama before the July 4th recess. This will be known as another key domestic policy win for the President, with congressional elections fast approaching.