WASHINGTON — Lawmakers yesterday reached a deal on a massive overhaul of Wall Street, giving President Obama a big win, but allowing city banks to dodge the most drastic regulatory proposals.
Obama lauded the agreement — the toughest crackdown on financial institutions since the Depression — as including “90 percent of what I proposed when I took up this fight.”
The president said it would “help prevent another financial crisis like the one that we’re still recovering from.”
The final compromise — reached after an all-night, 21-hour negotiating session between the House and Senate — heads to a final vote in both chambers next week.
It regulates everything from credit and debit cards, to mortgages, to complex trades by the world’s largest financial institutions.
The legislation creates a federal agency to police consumer lending, sets up a warning system for financial risks, forces failing firms to liquidate, and maps new rules for instruments that have been largely uncontrolled.
Although the votes are expected to be close, Democratic leaders hope to have the bill sent to Obama for his signature by July Fourth to hand him the second big victory of his administration after health-care reform.
Obama campaigned on reining in Wall Street, and congressional Democrats intend to hold up the legislation as a major accomplishment ahead of the November mid-term elections.
A recent poll found 79 percent of Americans blame banks for the nation’s economic problems.
“The American people overwhelmingly want an end to the risky behavior on Wall Street that brought our economy to the brink of collapse,” said Democratic Campaign Committee spokesman Ryan Rudominer.
“This November, voters will have a clear choice between House Democrats standing with middle-class families on Main Street, and a Republican Party that puts their political interests first in order to defend big corporate special interests.”
Lawmakers trying to strike a deal were buffeted by competing arguments from industry officials, who said the new oversight would be ruinous and consumer advocates who called for strict regulation.
In a key late development, members of the New York House delegation were able to water down provisions authored by Sen. Blanche Lincoln (D-Ark.) that would have kept big city banks from investing in complex derivatives — which Wall Street considers a vital tool to hedge risk.
Fourteen New York lawmakers and an even larger group of centrist “New Democrats” had threatened to oppose the bill if the provision wasn’t changed.
“What we were fighting against was sort of some out-of-control pitchfork populism against Wall Street,” said Rep. Michael McMahon (D-SI).
“I think we were able to come up with a very reasonable package, one that makes sense and helps New York.”
House Speaker Nancy Pelosi cleared New York House members to negotiate with Lincoln on the final deal in congressional hallways.
New York lawmakers asked Sen. Charles Schumer to get involved in the final talks, according sources familiar with the endgame.
But Schumer stayed on the sidelines, the sources said.
Schumer, himself a conferee, voted for the final conference agreement, which passed 7-5.
“One of the most important and enduring reforms in this bill is the brand new agency that will focus on helping consumers and prevent them from being ripped off,” Schumer said.
Mayor Bloomberg said, “I want to thank New York’s congressional delegation and groups like the centrist House Democrats for making the final product better for our national economy, better for consumers and shareholders, and better for New York City.”
Bank stock soared as investors saw regulations wouldn’t be as stringent as they feared.
The final deal:
* Prohibits banks from making risky bets with their own cash, but lets them invest 3 percent of their capital in hedge and private-equity funds.
* Limits the ability of banks to trade derivatives, forcing them to spin investments off into subsidiaries, but lets them use interest-rate swaps to hedge their risks.
* Creates a consumer-protection bureau and contains other provisions to protect consumers from shady lenders and aggressive credit-card companies.
* Slaps banks with up to $19 billion in fees and seeks to prevent future bailouts.
Democrats “obviously are going to market this as a short-term win because — whoo-hoo! — they cracked down on Wall Street,” a senior GOP strategist scoffed. “My guess is there’s plenty in there that will end up being owned by the Democrats long-term that they will come to regret.”
Booms and busts
WINNERS
President Obama: The president — here with France’s Nicolas Sarkozy at the G-8 summit in Huntsville, Ontario, yesterday — gets his second big legislative win after health care. Changes subject from the Gulf spill.
Car dealers and pawn shops: Special-interest politics at its worst. Both managed to get exemptions from oversight of new consumer protection board.
Mayor Bloomberg, New York lawmakers: Won last-minute concessions for the city’s most important industry.
New York City banks, hedge funds: They would have rather seen no new legislation, but dodged the most devastating proposals.
Congressional Democrats: Beleaguered party finally gets something to campaign on — taming Wall Street — for the November mid-term elections.
LOSERS
Left-wingers: Didn’t get anything like the most stringent anti-Wall Street proposals they were pushing.
Republicans: Politically, they’re on the wrong side of the issue, and could be portrayed as tools of Wall Street in the November elections.
Credit-card companies: Already facing new regulations outlawing their most egregious practices, they won’t be able to squeeze small shops as much on “swipe” fees.
Sen. Blanche Lincoln (D-Ark.): Fighting for her political life, she pushed a plan that would have killed city banks by outlawing derivatives trading, but the proposal was significantly watered down.
Rating agencies: Moody’s and others subject to new, stringent oversight after botching calls on risky firms.
What’s in the financial-reform agreement for consumers:
Financial-protection bureau
* Creates an independent Consumer Financial Protection Bureau to set rules for banks, mortgage lenders and credit-card companies.
Credit scores
* Consumers get to see their credit score if a landlord or bank uses it to deny a lease or loan.
Brokers
* Study of the brokerage industry to determine whether stockbrokers should have a fiduciary duty to clients.
Plastic
* Requires the minimum purchase amount for credit-card transactions to be no more than $10, while giving the Fed the power to limit the fees that card issuers can collect on debit-card transactions.
Mortgage reforms
* No prepayment penalties for people with adjustable-rate mortgages. Brokers can’t get bonuses for pushing bad loans instead of their best offer.
State laws
* Often tougher state consumer-protection laws would apply to banks and other financial institutions, including national banks.