Introduction
In 2009, the president of the US, President Obama, signed the Financial Reform Bill. The main aim of this bill was to head off any repetition of failures experienced by Wall Street that plunged the US into the great economic recession of 2010 (New York Times, 2011). This was the most visionary reform conducted on the federal financing regulation. This bill had several financial provisions. First, the bill would award powers to the government to dissolve companies that posed as economic threats to the country (New York Times, 2011).
Secondly, the government would establish an agency whose task would be to oversee transactions involving customers’ banking and thirdly, control the activities of the financial markets that were running without proper financial regulations (New York Times, 2011). The bill had a vote of 223-202 with the two opposing sides. The passing of the bill was an evident victory for the government. However, it diluted some of the financial recommendations given out by President Obama. This gave great strengths to some of the provisions of the bill that had tough financial implications. The greatest burden was on the senate which was by then not expected to execute the regulations it had planned to because of the signing and passing of the bill.
Discussion
The financial crisis that prompted this bill was because of the failure of Wall Street, the US financial hub. This bill presented reforms that encouraged sound investment, fostered real competition in the market and encouraged business innovation (Kuhnhenn, 2009). All these were to prevent another financial crisis from re-occurring. The regulations in the bill governed the issuance of simple loans as well as the execution of the most complex financial trade (Kuhnhenn, 2009). These measures imposed strict financial restrictions on all financial institutions, from the simplest to the most complex. This made international trade more difficult to transact but eliminated any possible financial blunders that are destructive to the economy.
The changes affected customers in a big way. The bill contained a provision for a consumer agency, which was one of the major and most important inclusions of the bill. The customer agency took all powers of protecting consumers from financial regulators (Kuhnhenn, 2009). Financial banks and the US Chamber of Commerce greatly opposed the provision that was highly supported by the White House. The White House and the Democrats claimed that it would help protect customers’ rights in financial transactions and help cultivate a culture of financial responsibility by financial institutions. It protected consumers from fraud and reduced fees on the use of debit cards (Kuhnhenn, 2009).
Republicans claimed that the bill would present obstacles to some businesses. They argued that it had no provisions for small and medium businesses whose financial turnover did not guarantee their survival. Instead, they proposed a bankruptcy procedure that would dismantle any failing institution. This regulation only affected small and medium financial institutions because large institutions had a strong financial base that warranted smooth operation without possible financial failure (Kuhnhenn, 2009). However, the bill provided means for the government to monitor large financial institutions. This helped stop bad lending practices and risky bets on derivative securities that nearly caused the collapse of the banking sector.
On the overall effect on the financial markets, the bill was beneficial. It had several limitations especially on the regulation of derivatives, complex investment options (Webel, 2010.p.43). The provisions in the bill were directed towards fostering precision and accountability in operations conducted in the derivatives market that was estimated at approximately $600 trillion. An amendment that was initiated by Scott Murphy gave an exception of the legislation to non-financial institutions that relied on derivatives as a cushion against market uncertainties rather than an investment amenity (Webel, 2010.p.44).
This excluded small and medium-sized businesses considered financially harmless to the financial system. It could have included more companies and made them subject to the derivative regulations. The initial proposal by the White House subjected all companies to the derivative regulations but vigorous lobbying by some companies diluted the restrictions (Webel, 2010.p.47). This presented a major weakness to the bill.
This bill had adverse effects on businesses. The bill required large businesses that had a great turnover to deposit more money to the Federal Reserve as a cushion against financial collapse. It gave the government the authority to dissolve firms provided they considered them a risk to the economy. Most large firms that had assets worth over $50 billion, and hedge funds worth over $10 billion had to pay into a resolution fund worth over $150 billion (Webel, 2010.p.51). This resolution fund was to cover the possible cost of dissolving such a company. This eliminated any possible financial bailout of institutions by the government. Though financial bailout was a contributing factor in the 2007 financial crisis, it helped many firms get back on their feet and recover from financial mismanagement.
Conclusion
The financial bill of 2009 was geared towards financially regulating Wall Street to prevent a possible reversion to the great financial crises of 2007. The bill affected many businesses and consumers and at large, the financial markets. However, the bill elicited strong criticism and experienced great resistance, it helped streamline the financial system. The stock market improved, banking profits increased by great margins and investment institutions praised the tough regulations of the bill. I think the bill was beneficial to the nation.
References
Kuhnhenn, J. (2009). House Financial Regulatory Reform Passes. Web.
New York Times: Financial Regulatory Reform. (2011). Web.
Webel, B. (2010). Financial Regulatory Reform and the 111th Congress. New York: Diane Publishing.