It's taken nearly 35 years, but consumer advocate Michael Calhoun thinks Congress finally took a huge step in crafting a sweeping overhaul of the nation's financial regulations — one that includes the creation of the Consumer Financial Protection Bureau.
"This is a landmark, a true inflection point," said Calhoun, president of the Center for Responsible Lending in North Carolina.
Since the mid-1970s, Calhoun has been pushing to get an agency that would look out for consumers' interests. He had hoped the election of then-presidential candidate Jimmy Carter would provide a boost to a bill then pending in Congress.
Carter was elected in 1976, but that bill went down in the House — defeated by 25 votes, Calhoun recalled. Now the pendulum has swung ever so slightly, and this massive legislation is only a few steps away from becoming law.
Designed to protect consumers from abuses such as unaffordable mortgages, the legislation also aims to rein in the big banks that nearly blew up the financial system with their high-risk derivative securities tied to such loans.
Wall Street's anguish over the possible loss of lucrative earnings on such trading isn't shared by some on the local or regional level.
Russell Goldsmith, chief executive of City National Corp. in Los Angeles, said his regional bank and most other smaller institutions don't handle much consumer business and don't have units that do a big business in trading derivatives. Therefore, he said, the changes would affect them little in the long haul.
Besides, Goldsmith thinks many of the changes are warranted.
Having a council of regulators monitor and stop risky practices that threaten the overall economy is good, he said, as is expanding the Federal Reserve's authority over huge non-banks such as American International Group Inc. AIG's near-collapse in late 2008 helped trigger the financial crisis.
And he thinks eliminating the U.S. Office of Thrift Supervision, which oversees mortgage-laden savings and loans, also makes sense.
But requiring banks to increase capital, their last bastion against sour loans and bad investments, would force weaker institutions to focus less on lending, Goldsmith said. He warned that it would take years to see how the intended and unintended consequences of the massive bill play out.
But chief executives at the giant banks most familiar to California — Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc. — were less forthcoming.
Through their public relations offices, Bank of America's Brian Moynihan and JPMorgan's Jamie Dimon declined to say what they liked and disliked in the bill.
A Citigroup spokeswoman provided previous testimony by the bank's CEO, Vikram Pandit, who expressed support for a regulator that could shut down large, complex institutions; force greater transparency in derivatives trading; and increase consumer protection under a single national set of rules.
In a brief statement, Wells Fargo said: "We hope these reforms guard against a future crisis. We're now turning our focus to understanding how these reforms will affect our customers, our company and how they will work in practice."
Industry groups and some analysts criticized the bill, saying that its tougher requirements for capital would make community banks even tighter-fisted about lending and that sophisticated services previously provided by large U.S. banks would be taken over by foreign rivals.
Because of "an unworkable expansion of bureaucracy," said Rochdale Securities analyst Richard Bove, "consumer prices are about to soar in banking."
Consumer-oriented groups also found plenty to complain about, saying that in many ways Wall Street would carry on unimpeded.
The regulations impose restrictions on banks' using their own funds to speculate in derivatives. At the same time, they are designed to make trading in complex securities more transparent so huge undisclosed risks would be hard to hide.
Nonetheless, banks will continue trading derivatives for their customers much as they have in the past, said Dean Baker, co-director of the Center for Economic and Policy Research.
Some people had said that the largest banks should be broken into pieces and that bank holding companies should be forced to set up separate, non-bank subsidiaries to handle risky trading.
Consumer groups also had lobbied unsuccessfully for the creation of an insurance fund to help shut down giant firms whose operations threatened the financial system — a measure they said would avert having to bail out collapsing financial giants again.
No fund was created, leaving the critics warning that shutting down big banks might again prove unworkable if another crisis strikes.
"There is probably no economist who believes that this bill will end the risks of too-big-to-fail financial institutions," Baker said.
Consumer advocates also criticized the exclusion of most auto dealers from the oversight of the proposed consumer protection bureau.
Dealers that make loans directly to customers still would be subject to the bureau's rules, but dealers won an exemption from oversight if they only arrange for customers to get loans at banks and other lending institutions. The Obama administration and the military, saying that service members agreeing to loan arrangements were getting hurt by abusive practices, had not wanted to exempt any auto dealers.
"It's a huge mistake," said Kimberly S. Jones, policy advocate for the California Reinvestment Coalition, which lobbies on behalf of lower-income neighborhoods. "These dealers have cost consumers billions of dollars."