Two years after an economic crisis laid bare the shaky foundations of the US financial system, questions remain as to whether the latest measures to prevent another collapse will work.
To some, the 2,300-page reform package passed by Congress Thursday is the most wide-ranging Wall Street reform since the 1930s. Others view it as a meddling mishmash of rules that fail to address the problem.
The White House — zeroing in on a major political victory — claimed the bill would assign crisis-era notions of too-big-to-fail banks or toxic assets to the dustbin of history.
Republicans vowed to repeal the measures if re-elected to office, seeing them as unfairly burdening innocent firms and curbing growth.
Unsurprisingly, experts see some gray shading between the red and blue of Washington politics.
“It’s a mixed bag” said Phillip Swagel, a former Treasury Department economist, now a professor at Georgetown University.
“There are some things that are useful, there are some things that are nothing, and some things that could be downright harmful.”
With the meltdown blamed on everything from risky trading to some regulators favoring pornography over supervision, allegations that the reforms miss the mark are common.
“It does not attack the fundamental problems that got us into the disaster of 2008,” said Thomas Ferguson, a politics professor at the University of Massachusetts.
Ferguson criticized the measures as stopping well short of proscribing size limits on companies, or spiting larger banks.
“It just ducks the too-big-to-fail problem,” he said.
But supporters say giving the government powers to monitor and even wind-down firms that pose a “systemic risk” to the financial system will go a long way to preventing a repeat of the bailouts needed to save AIG, or the disorderly collapse of Lehman Brothers.
Others say the legislation gives politicians overbearing powers to intervene in the market.
One of them, Edward Yingling, president of the American Bankers Association, warned firms now faced “years of uncertainty.”
Still, there is little doubt that much of the text remains unwritten.
“Even after the president signs the Wall Street reform bill, financial reform will be far from complete,” said Gary Gensler, chairman of the Commodity Futures Trading Commission, one of the regulators who will now be asked to fill in the blanks.
“We’ll have a significant number of rules to write and implement to regulate the financial system,” he said. “Just at the CFTC, we have organized around 30 areas where we believe rules will be necessary.”
Many of these rules will cover the trade in complex derivatives like the mortgage-backed assets that were blamed for spurring the collapse.
The measures could include “central clearing, higher capital and margin requirements, better transparency, and, possibly, exchange-based trading,” said analysts at Moody’s, a ratings agency.
Advocates say exchange-based trading would make these sometimes opaque instruments more transparent and so less risky for investors, but Moody’s warned the risk may simply be shifted to central counterparties.
But perhaps the biggest “blank” in the regulation is the role of the Consumer Financial Protection Bureau.
The new body will sit inside the Federal Reserve, but its boss will have great leeway to operate beyond the control of the Fed or Congress.
“One could imagine a person in charge of the agency being someone who really likes being in front of the TV camera… chasing stories and basically having a negative effect on the availability of credit,” said Swagel.
“All the power of this agency is vested in one person so it really depends on who that person is and how they interpret their mission.”
The same could be said for much of the reform. As a work in progress, it will depend on who finishes writing the rules and who implements them.