Democratic Reps. Melvin Watt, left, Nancy Pelosi and Barney Frank supported… (Alex Wong / Getty Images )
Reporting from Washington — More than a year after the financial crisis devastated the economy and triggered massive taxpayer bailouts, the House narrowly approved the most sweeping overhaul of financial regulations since the Great Depression in hopes of preventing a similar catastrophe.
The sprawling measure would grant the government broad new authority to break up large financial firms if their size poses a major risk to the economy, as well as to seize and dismantle such firms if they teeter near bankruptcy. A new $150-billion fund, paid for by the financial industry, would cover the costs of any government takeovers.
The nearly 1,300-page bill also would create a powerful new agency to protect consumers in the financial marketplace. It would outlaw many predatory and abusive mortgage practices and for the first time regulate hedge funds and private pools of capital. It also would give shareholders a nonbinding vote on executive compensation.
And the measure would make a host of other major changes to federal oversight of the financial system, including imposing new requirements on credit rating agencies and the trading of complex securities known as derivatives.
The House passed the legislation 223-202 on Friday without a single Republican vote after three days of often-divisive debate that featured finger-pointing over who was to blame for the financial crisis and the bailouts it spawned.
House Democrats said the new regulations would reverse years of lax oversight under President Bush that let risky Wall Street behavior shatter the economy.
"We are sending a clear message to Wall Street: The party is over," said House Speaker Nancy Pelosi (D-San Francisco) "Never again will reckless behavior on the part of a few threaten fiscal stability of our people."
President Obama has made the financial regulatory overhaul one of his top priorities and has prodded Congress to approve the changes by year's end. There is strong support by Senate Democrats for toughening regulations in response to the crisis. But the Senate bill differs in some key areas, and action there lags behind the House, making legislation unlikely to reach the president before early next year.
Obama urged Congress to "act as quickly as possible."
"The crisis from which we are still recovering was born not only of failure on Wall Street, but also in Washington," he said Friday. "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."
Many financial institutions and business groups oppose the legislation and have lobbied intensely to defeat it.
"Enacting the wrong financial regulatory reforms will have adverse consequences and will be felt throughout every corner of the economy and delay Main Street recovery," said David Hirschmann, president of the Center for Capital Markets Competitiveness at the U.S. Chamber of Commerce, one of the overhaul's most ardent opponents.
House Republicans said the legislation would amount to a federal takeover of the financial services industry and branded the new dissolution fund a permanent pot of bailout money.
"The time has expired on bailouts, that's the message we're hearing all over America," said Rep. Spencer Bachus (R-Ala.). "Americans are saying no more bailouts and they're saying no more bailout funds."
One of the most controversial parts of the legislation is the creation of a Consumer Financial Protection Agency. The new agency would have the power to write rules for a variety of financial activities involving loans or credit, to monitor large banks for compliance and to ban products and business practices it deemed unfair, deceptive or abusive.
The agency would take over from the Federal Reserve the ability to write consumer protection rules and from banking regulators the authority to monitor financial firms for compliance with those rules.
It's one of several ways the Fed would lose power under the legislation. Lawmakers have sharply criticized the central bank's performance leading up to the crisis. Under the bill, the Fed's emergency lending authority would be curtailed and it would face congressional audits of more of its activities. But the Fed would gain a new role in regulating large firms deemed to be a potential risk to the economy.
Consumer and public interest groups support creating the agency, citing the failure of the Fed and other regulators to rein in subprime mortgages.
"We need an aggressive watchdog in Washington that looks out for the best interests of consumers," said Jim Guest, president of Consumers Union. "This agency would crack down on lenders and banks that abuse their customers, and it would provide information consumers need to make informed financial decisions."