[JURIST] The US House of Representatives [official website] on Wednesday voted 237 to 192 to approve the final version of financial reform legislation [HR 4173 materials], which focuses on increasing regulation in the financial sector following the recent economic crisis [JURIST news archive]. The House and Senate [official website] reached an agreement [JURIST report] on the final version of the bill last week, but were forced to re-open negotiations [Reuters report] this week following the death of Democratic Senator Robert Byrd (WV) [official website] in order to ensure the bill’s final passage in the Senate. The biggest concession made in order to gain Republican support for the bill was the removal of a $17.9 billion tax on large financial institutions that was meant to cover the bill’s costs. The final bill creates a new regulatory council to monitor financial institutions in order to prevent the companies from becoming “too big to fail.” It also gives the Federal Reserve [official website] the power to supervise the largest financial companies and report to the government any risks the firms may pose to the economy at large. Additionally, a new consumer protection division will be established within the Federal Reserve to enforce rules against certain business practices like abusive mortgage lending and some credit card practices. As a final protection against future bailouts, the government will have the ability to seize and liquidate failing financial institutions before their collapse can have an adverse affect on the entire economy. The so-called “Volcker Rule” is included in the final bill, but instead of prohibiting banks from owning hedge funds, banks will be permitted to invest up to 3 percent of their capital into hedge funds or private equity funds. The final bill also includes regulation of some derivatives, requiring that they be bought and sold through clearinghouses or exchanges. US President Barack Obama [official website] praised the passage of the bill [press release], as well as its content, stating:

It will put in place the strongest consumer financial protections in history, curbing abuses by banks, mortgage and credit card companies and giving their customers the information they need to make responsible financial decisions. It will make our financial system more transparent, so that complex transactions that escaped scrutiny in the past will now be done in the light of day. And it will put an end to the idea that any financial firm is too big to fail, and therefore entitled to taxpayer bailouts.

The Senate is expected to vote on the final bill later this month.

The Senate approved its version of the financial reform bill in May, after the House passed its version [JURIST reports] in December. The Senate Banking Committee [official website] proposed a bill [text, PDF; JURIST report] in 2009 that was met with resistance and resulted in the committee’s development of the bill ultimately passed by the Senate. One provision in the bill that has been the source of much debate is the creation of a consumer protection agency. The House Financial Services Committee [official website] had approved a bill to create the agency in October, after originally delaying [JURIST reports] it at the behest of financial industry leaders last July. The creation of the agency is a key step in achieving the Obama administration’s stated goal of tightening financial industry regulations. Last June, the administration proposed a broad series of regulatory reforms [press release; JURIST report] aimed at restoring confidence in the US financial system.