Jonathan Chait

The Financial Reform Miracle

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Edmund Andrews is excited:

For all its compromises and omissions and special exceptions, this is a strong bill that will make life a lot less free-wheeling and lucrative for the big banks and, with a little perserverence, a lot safer for consumers and  the economy as a whole.  This is a victory for the good guys.

He also singles out Al Franken's amendment to reform the ratings agencies:

Franken's amendment is simple and brilliant.   It requires the Securities and Exchange to make up a list of approved rating agencies, and then to hand out rating assignments to each of the agencies on a rotating basis.    The  Wall Street issuers would  still pay the agencies for their ratings, but the agencies would no longer in a race to lower their standards.  In fact, the agencies would have new incentives to set themselves apart by competing on the accuracy of their ratings.  Best of all, the system would encourage new rivals to jump into the business because it would be much easier to win assignments.

Noam is a little more cautious:

Does the financial reform bill really solve the problem of “too big to fail”? The answer is: “Sorta,” but not quite in the way the bill’s supporters suggest. ...

the upshot of financial reform will have been to make it costlier to be a big bank relative to being a small or medium-sized bankwhich is to say, it has effectively taxed bigness. That’s because the legislation imposes a handful of new mandates and regulationslike oversight by a soon-to-be-established consumer financial protection agency, as well as limits on fees for debit-card transactionsfrom which small and medium-sized banks are exempt. Other reformssuch as a bill Congress passed last year to limit hidden credit-card fees and make statements more transparent, and new restrictions on trading derivativeswould disproportionately dent profits at megabanks. These banks tend to have far bigger credit card operations, and are the only bona fide derivatives brokers around.

The big banks typically complain that these efforts will drive them out of this or that line of business, or at least curtail their activity significantly. And there may be something to those concerns. But in a world in which we worry about megabanks doing too much rather than too little, that’s not necessarily a bad thing. If only there were a bit more of it.

By the standards of what's possible -- and certainly when it comes to regulating an unfathomably wealthy and profitable industry -- this is a huge legislative achievement.

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