Financial oversight bill clears House

WASHINGTON - The House passed the most ambitious restructuring of federal financial oversight regulations since the New Deal yesterday, aiming to head off any replay of last year's Wall Street failures that plunged the nation deep into recession.

The sprawling legislation would give the government new powers to break up companies whose large size threatens the economy, create an agency to oversee consumer banking transactions, and shine a light into shadow financial markets that have escaped the scrutiny of regulators.

The vote was essentially a party-line 223-202. No Republicans voted for the bill; 27 Democrats voted against it. All area representatives voted along party lines.

The measure is central to lawmakers' effort to end government rescues of firms deemed too big to fail, which led to last year's bailouts of American International Group Inc., Citigroup Inc., and other financial firms. The banking industry, Republican lawmakers, and the nation's biggest business lobby, the U.S. Chamber of Commerce, fought to scale back the legislation.

While a victory for the administration, the legislation dilutes some of President Obama's recommendations, carving out exceptions to some of its toughest provisions.

The House failed to add language letting bankruptcy judges reset mortgage terms for homeowners in danger of foreclosure.

The burden now shifts to the Senate, which is not expected to act on its version of a regulatory overhaul until early next year.

The president praised the House action and called on Congress to act swiftly to get the bill to the White House for his signature.

"The crisis from which we are still recovering was born not only of failure on Wall Street, but also in Washington," Obama said after the vote. "We have a responsibility to learn from it and to put in place reforms that will promote sound investment, encourage real competition and innovation, and prevent such a crisis from ever happening again."

The legislation would govern the simplest payday loan and the most complicated high-finance trades. In its breadth, the measure seeks to impose restrictions on every financial-service company, from two-teller neighborhood savings and loans to huge conglomerates.

The legislation aims to prevent manipulation of, and bring transparency to, the $600 trillion global derivatives market, which was at the heart of the 2008 meltdown. But an amendment created an exception for nonfinancial companies that use derivatives as a hedge against price, currency, and interest-rate changes rather than as a speculative investment. The amendment also provided an exception for businesses that are considered too small to be a risk to the financial system.

When the Obama administration first proposed a package of regulations, it called for regulations of derivatives without any exceptions. But a potent lobbying coalition that included Boeing Co., Caterpillar Inc., General Electric Co., Coca-Cola, and other big companies persuaded lawmakers to dilute the restrictions.

The bill would create a Financial Services Oversight Council made up of the Treasury secretary, the Federal Reserve chairman, and heads of regulatory agencies to monitor the financial markets for potential threats to the nation's system.

It would identify firms and activities that should be subject to heightened standards, including requirements that they place more money in reserve. Companies would have to plan for their own demise, detailing how they would be dismantled if they failed.

The government could dismantle even healthy firms if they were considered a grave risk to the economy. Large firms with assets of more than $50 billion, and hedge funds with at least $10 billion in assets, would pay into a $150 billion resolution fund that would cover the costs of dismantling such a company.