WASHINGTON — The House passed the most ambitious restructuring of federal financial regulations since the New Deal on Friday, aiming to head off any replay of last year's Wall Street failures that plunged the nation deep into recession.
The sprawling legislation would give the government new powers to break up companies that threaten the economy, create a new agency to oversee consumer banking transactions and shine a light into shadow financial markets that have escaped the oversight of regulators.
The vote was a party-line 223-202. No Republicans voted for the bill; 27 Democrats voted against it.
While a victory for the administration, the legislation dilutes some of President Barack Obama's recommendations, carving out exceptions to some of its toughest provisions. The burden now shifts to the Senate, which is not expected to act on its version of a regulatory overhaul until early next year.
The president praised the House action Friday, and called on Congress to act swiftly to get the bill to the White House for his signature.
"The crisis from which we are still recovering was born not only of failure on Wall Street, but also in Washington," Obama said. "We have a responsibility to learn from it and to put in place reforms that will promote sound investment, encourage real competition and innovation, and prevent such a crisis from ever happening again. "
The legislation would govern the simplest payday loan and the most complicated high-finance trades. In its breadth, the measure seeks to impose restrictions on every house of finance, from two-teller neighborhood thrifts to huge interconnected conglomerates.
Democratic leaders had to fend off a last-minute attempt to kill a proposed consumer agency, a central element of the legislation and one the features pushed by the White House. The agency would take over consumer protection powers from current banking regulators, and big banks and the U.S. Chamber of Commerce vigorously opposed the idea.
Democrats said the broad legislation would help address problems that led to last year's calamitous financial crisis. Republicans argued that it overreached and would institutionalize bailouts for the financial industry.
"Let's put it to the American people: Do you prefer the Republican position of doing literally nothing to rein in these abuses, or should we try to rein them in?" Rep. Barney Frank, who led the Democratic effort on the bill, asked moments before the final vote.
Republicans cast the regulatory bill as a burden to business and argued that it would continue to protect companies considered too big to fail. They offered an alternative that called for special bankruptcy proceedings to dismantle failing financial institutions. That alternative failed.
"This house has been on a spending spree, a bailout spree and a regulatory spree that I could never have imagined in any of my prior 18 years here in Congress," House Minority Leader John Boehner of Ohio, a Republican, said.
Democrats accused Republicans of doing the bidding of big banks, pointing to a meeting in the Capitol Visitors' Center this week between GOP leaders and about 100 lobbyists. Even the White House took a swipe at House Republicans.
"I didn't expect them to help after a meeting with 100 lobbyists for the financial industry," White House Chief of Staff Rahm Emanuel said in an interview. "I'm not surprised they are opposed to it. The lobbyists are trying to gut this."
Consumer advocates cheered the survival of the consumer protection agency but said the overall legislation fell short, especially in the regulation of complex investment instruments known as derivatives.
The legislation aims to prevent manipulation and bring transparency to the $600 trillion global derivatives market. But an amendment by New York Democrat Scott Murphy, adopted 304-124 Thursday night, created an exception for nonfinancial companies that use derivatives as a hedge against market fluctuations rather than as a speculative investment. The amendment exempted businesses considered too small to be a risk to the financial system.
A Democratic effort to make more companies subject to derivatives regulations and to end abusive-trading rules failed.
When the Obama administration first proposed a package, it called for regulations of derivatives without any exceptions. But a potent lobbying coalition that included Boeing Co., Caterpillar Inc., General Electric Co., Coca-Cola and other big companies persuaded lawmakers to dilute the restrictions.
"It's a weakness in the bill and a win for Wall Street," said Barbara Roper, director of investor protection for the Consumer Federation of America. "Hedge funds and others that are not bona fide hedgers of commercial risk will slip through this language."
The bill would create a Financial Services Oversight Council made up of the Treasury secretary, Federal Reserve chairman and heads of regulatory agencies to monitor the financial markets for potential threats to nation's system.
It would identify firms and activities that should be subject to heightened standards, including requirements that they place more money in reserve. The government could dismantle even healthy firms if they were considered a grave risk to the economy. Large firms with assets of more than $50 billion, and hedge funds with at least $10 billion in assets, would pay into a $150 billion resolution fund that would cover the costs of dismantling such a company.
It was that fund that Republicans argued amounted to yet another bailout pool.
But one Republican, Federal Deposit Insurance Corp. chairman Sheila Bair, rebutted the House GOP critics, commending the legislation for creating a system to dismantle failing firms. "Ending too-big-to-fail by creating an effective resolution regime that will apply to large financial institutions is the key to ensuring that we end the need for future bailouts," she said.
The Federal Reserve, criticized for not spotting last year's crisis, would lose power in the legislation. The measure would limit the Fed's unilateral ability to inject large amounts of money into financial institutions. It also would take away the Federal Reserve's consumer regulation authority and would subject it to a broad audit by Congress' investigative arm.
The legislation also takes on Wall Street compensation. Company shareholders would get a nonbinding vote on the pay of top executives. Federal banking regulators would have to approve compensation practices, though not actual pay, at banks and bank holding companies.
The House vote marked a personal triumph for Frank, the Massachusetts Democrat and chairman of the House Financial Services Committee, who began drafting the legislation last summer. Frank had to steer the various pieces of the bill amid Republican opposition and misgivings from pro-business Democrats.
Yes — Democratic Rep. Jim Matheson
No — Republican Reps. Rob Bishop and Jason Chaffetz