[JURIST] Members of the US Senate and House of Representatives [official websites] on Friday reached an agreement on the financial reform bills [HR 4173 materials; S 3217 materials] passed by each chamber, which focus on increasing regulation in the financial sector following the recent economic crisis [JURIST news archive]. The reconciled 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] applauded the reconciliation efforts [press release] and commented on the important nature of the reforms, stating, “[t]he reforms making their way through Congress will hold Wall Street accountable so we can help prevent another financial crisis like the one that we’re still recovering from.” The House and Senate are expected to vote on the final bill next week.

The Senate approved its version of the financial reform bill last month, 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 in 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.