The financial services bill that has emerged from Congress, and will probably now pass the Senate and the House of Representatives looks like as decent a compromise as anyone might have expected.
The US method of lawmaking – lobbying and jockeying in two different legislatures followed by a marathon sausage-making session in which one clause is traded off against another – is not pretty.
We shall have to wait to see how many unintended consequences emerge from the 2,000 page bill, as they did with the Sarbanes-Oxley Act after it became law.
On the face of it, however, the result is acceptable. The worst parts appear to have been sufficiently diluted while the essential elements remain intact.
This said, I would have preferred different outcomes – one which banks would have liked less and another they would have like more – in two vital areas.
First, the Volcker rule on banks having to spin off private equity and hedge fund operations was relaxed in a way that I don’t think it should have been. The provision as enacted still allows big commercial banks to engage in a limited amount of such activities.
Second, Blanche Lincoln’s strange idea that banks should have to spin off their swaps operations remains in the final bill, with a final twist of illogicality.
They will now be able to trade some forms of financial derivatives, such as interest rate and currency swaps as part of their main activities but spin off the trading of others – commodity and energy derivatives, for example, into separate affiliates.
We are told that the former are “less risky”. It sounds to me an awful lot more like Ms Lincoln, who chairs the Senate agriculture committee, has guarded her own turf.