by millionairemind » Sat Jun 26, 2010 6:35 am
The lobbyists won at the end.
Published June 26, 2010
Marathon bill ends Wall St's run of fear
Relief in the industry as horse-trading waters down final version of tough financial reform bill
By ANDREW MARKS
NEW YORK CORRESPONDENT
THE feared reforms that have kept Wall Street on edge and nervous for months finally arrived at dawn yesterday.
Touted as the most onerous reforms of the American financial system since the Great Depression, the compromise bill that finally emerged was a mercifully watered-down version that drew a collective sigh of relief from the US financial industry.
After several months of furious lobbying and contentious negotiations between lawmakers, a House-Senate committee successfully ended a nearly 24-hour marathon session with the passage of compromise legislation between separate House and Senate bills.
The provisions are aimed at toughening financial regulations and curb the worst excesses of Wall Street that led to the 2008 financial crisis that rocked the world financial system.
The deal struck now makes a vote by both houses of Congress on the full bill a certainty next week, and its passage almost a foregone conclusion. The final compromise was finessed when lawmakers overcame sticking points that had threatened to scuttle the bill.
They agreed to water down a proposal that would have required banks to spin off their lucrative swaps-dealing business to a separately capitalised affiliate.
The compromise allows banks to stay in foreign-exchange and interest-rate swaps dealing, which accounts for the bulk of the over-the-counter derivatives market.
The financial industry also won significant concessions in the so-called Volcker Rule, named after White House economic adviser Paul Volcker. Although the final version would give regulators little room to waive the trading ban, it would on the other hand allow banks to invest up to 3 per cent of their tangible equity in hedge funds and private equity funds.
Speaking after the breakthrough in the negotiations, President Barack Obama said the bill would hold Wall Street accountable and help prevent another economic meltdown. 'We are poised to pass the toughest financial reform since the ones we created in the aftermath of the Great Depression,' he said at the White House, boosted by the deal as he headed to a global economic summit in Canada over the weekend.
Fittingly, the final bill reconciled from the two separate house bills will be ready for Mr Obama to sign into law by July 4 - Independence Day in the US.
On Wall Street, bankers contacted sounded relieved by the package. The initial consensus appeared to be that while the legislation will present a big regulatory change and challenges for bank profit-making, it could have been much tougher.
'It means a heavy dose of regulation for an industry that has been operating under the opposite conditions, of massive deregulation of its business, for the last 50 years, but for the most part everyone was braced for a far worse scenario in terms of restrictions,' said Joe Battipaglia, investment strategist at Stifel Nicolaus.
Indeed, although major investment banks such as Goldman Sachs, Morgan Stanley and JP Morgan will have to deal with limits on proprietary trading and their swaps desks, that is a far cry from having to get rid of one of their most profitable businesses altogether, a provision that was still very much on the table when the joint House committee convened for this final round of negotiations on Thursday morning.
'In the end, it's not going to hit us too hard. This could have been a lot harsher,' said a swaps trader. 'I mean, a couple weeks ago, people were worried for their jobs.'
Indeed, Wall Street industry veterans such as Nicholas Colas, chief market strategist at ConvergEx Group, feel that the legislation is so full of loopholes and softened regulations that it will not prove to be a 'game-changer' for the way business is done on Wall Street, or throughout the global finance system for that matter.
'I would assume a positive response from the markets on this because it ultimately doesn't go anywhere near as far as people in the industry were fearing.'
The final revision of the Volcker rule, for instance, probably the most feared provision of the law, merely restricts, but does not prevent, banks whose deposits are federally insured from trading for their own benefit.
'What stands out to me is that the legislation doesn't address in a meaningful way 'Too Big to Fail' - you'd think that would be the main accomplishment of the reform, to ensure that we can't have a repeat of what took place in the fall of 2008, where one of a half dozen banks can take down the entire US financial system,' said Mr Colas.
"If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong" - Bernard Baruch
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