House Passes Biggest Financial Regulatory Changes Since 1930s

Thought the healthcare debate was big in 2009? It looks like 2010′s financial regulatory reform debate could be bigger. The House today passed a bill (vote: 223-to-202) authored largely by House Financial Services Committee Chairman Barney Frank that will now be debated and reconciled with a Senate bill over the coming months with an eye toward overhauling banking and consumer protection rules by mid-2010.

The House bill proposes the Consumer Financial Protection Agency which would watch over financial firm practices with respect to home, credit card and car loans. The bill also has radical changes for the Fed: not so controversially, the bill moves power over consumer protection laws from the Fed to the newly created CFPA. Very controversially, it allows Congress to audit the Fed’s monetary policies.

This politicizing of Fed policy could create big problems by prohibiting the Fed from maneuvering according to economic data and market activities. If politicians oversee the monetary policy process, they’re on 2-4 year campaign cycles so their agenda is always going to be dictated by their search for vote-getting soundbytes, not by the proper, long-term market perspective.

Below are some additional House and Senate details from today’s WSJ report, and here’s a chart they did on November 5 summarizing House and Senate proposals.

[The House bill] would give the government the power to break up even healthy financial companies if regulators believe they pose a threat to the financial system. It will also direct the Federal Deposit Insurance Corp. to collect $150 billion in fees from big financial institutions to create a fund to pay for future large failures.

…Senate Banking Committee Chairman Christopher Dodd has proposed creating a single federal bank regulator, stripping supervisory powers from the Fed and FDIC. His goal was to more closely focus each agency on their core responsibilities and eliminate the turf-fighting between different regulators.