Financial reform closer to becoming law

 

After months of debate and negotiations, the financial reform bill that President Obama and the Democrats really wanted to put in place is now completed and will go through the House and Senate before the President will sign it in to law. Their goal is to have the President do that by the 4th of July. However, the fact that it is completed is also an important step and legislators worked tirelessly for over 20 hours to finish it before the G20 meeting begins tomorrow.

Although the United States is by far the most important and largest economy in the world, policies that will prevent a future financial crisis need to be in place in all other large economies, so the President wants the other members of the G20 to use this bill as a template for their own financial reform bills. This is likely going to be the main issue the U.S. wants to discuss at the G20 meeting in Toronto this weekend.

The financial reform bill is intended to prevent the collapse of major financial institutions like AIG and others by forcing them to raise more capital to have in reserves, set up a watchdog agency that will seize troubled companies and assets and perhaps see potential problem spots before they come to be. In addition, some limits on how banks can invest will be in place, although they are watered down from what some originally wanted. The concern was that if the limits are too restrictive, then banks will simply move those assets overseas where the law allows them to operate more freely. To combat this, they met somewhere in the middle by allowing banks to make investments in certain areas and force them to spin-off others.

Hopefully, this compromise will be enough to prevent future collapses and crises, but also allow companies to operate in such a way that will prevent them from wanting to move assets overseas. There is also the chance that lawmakers in the House or Senate will want to make changes which could alter the final reading of the bill, but more people believe that it will not change and will also see a fairly quick passage.

It will be interesting to see how the other members of the G20 will react to this bill. Some countries have stricter rules on this issue than the U.S. currently does, like Canada. However, some do not because certain types of activities are not that prevalent everywhere. Regardless, this reform issue is very important moving forward, not only for the U.S. but, for the entire world. After all, many people in various countries felt the recession and even for those that didn’t this time around, that does not necessarily mean they won’t if a similar crisis occurs again in the future.