US LAWMAKERS last night passed a landmark financial reform bill allowing the broadest overhaul of rules governing America’s largest financial institutions since the 1930s.

The Senate approved the bill by a 60 to 39 vote last night and will now send it to President Barack Obama to sign into law next week.

The bill, which ushers in a raft of restrictions on banks, is intended to avert a repeat of the 2008 crisis that brought the world economy to the brink of collapse.

The bill will be called the Dodd- Frank Act after its main leaders, sen- ate banking committee chairman Chris Dodd, a Democrat, and Republican Barney Frank.

Obama said the new regulation would give the strongest consumer protection in history and meant the American people “will never again be asked to foot the bill for Wall

Federal Reserve chairman Ben Bernanke said the bill was “a wel- come and far-reaching step toward

will be barred from proprietary trad- ing and allowed only to make mini- mum investments in private equity and hedge funds.

Banking giants will also be forced to shed some of their highly prof- itable derivatives business or face the risk of losing access to emer- gency funds held by the Federal Reserve. They can, however, continue to trade big volume instruments such as foreign exchange and inter- est rate swaps.

The bill also introduces new rules on credit cards and mortgages, with the goal of establishing a new con- sumer protection bureau to oversee the regulation and shield customers from exposure to risky products.

More powers will be handed to the Federal Reserve once the bill is signed by Obama, allowing it to supervise every bank on Wall Street and granting it the ability to pull apart any bank that it deems a risk.

Credit rating agencies will also come under the spotlight. Fitch, Moody’s and Standard & Poor’s will now have to assume more responsi- bility for their ratings and will face potential legal action if they fail to do so.MORE ON US REFORM BILL: P2

Rating agencies, such as Moody's, Standard & Poor's
and Fitch could be sued if they "recklessly" fail to
review key information in developing a rating. Credit ratings
will also be removed from federal regulators rules to reduce
reliance on ratings. The SEC will now start a two-year probe
into how to reduce conflicts of interest for agencies who are
paid by the companies issuing the securities they rate.

by banking regulators if they believe the rules could threaten the financial system or banks' deposits. The consumer regulator will be able to write its own rules for a slew of products such as

Regulators like the Commodity Futures Trading
Commission and Securities and Exchange Commission
will have scores of rules to write in coming months to imple-
ment the legislation, meaning lots of billable hours for law
firms and consultants advising clients on how to respond to

Derivatives clearinghouses will be able to borrow in
emergencies from the Federal Reserve, as long as the
systemic risk council, a majority of Fed governors and the
Treasury Secretary decide it is necessary.

Auto dealers that do financing will be exempt from
oversight by the new consumer bureau and stay within
the jurisdiction of the Federal Trade Commission.

Advisers to hedge funds and private equity funds
with more than $150m in assets will be required to
register with the SEC. Venture capital funds will be exempt.

trading and only be allowed to make minimum investments in
hedge funds and private equity funds. They will also face
tougher standards in what qualifies for the capital they are
required to set aside to protect against potential losses. Banks
such as Goldman and JPMorgan Chase will be forced to spin off
some of their profitable derivatives business or risk losing access

to the Federal Reserve's emergency funds. The firms' financial products such as mortgages and credit cards will be subjected to new rules from a newly created bureau designed to protect customers from risky products. Most derivatives trade will be

all sizes. Will be part of a "risk council" that will have authority
to monitor risk in the financial system and decide whether a
large complex company needs to divest assets.

SO there you are: President Obama has finally got his Wall Street reform bill, a gargantuan, 2,315-page piece of legislation over which politicians and lawyers will argue for years. As we explain on page 1 and below, there is a huge amount of detail in the final ver- sion, with rules governing everything from investment banks to rating agen- cies to credit cards. Some of the changes are sweeping; others less so, with the whole package the result of endless deal-making and compromis- es. Global finance will change as a result – but it won’t be completely

transformed. There can be no compar- ison between yesterday’s reforms and those passed as part of Franklin D Roosevelt’s New Deal in the aftermath of the Great Depression, contrary to what many people will claim.

Deposit Insurance Corporation (FDIC) and oth- ers will now have to write hundreds of new regulations to implement the leg- islation. This process could spiral out of control and inject massive uncer- tainty into decision-making, forcing subsequent legislation to clarify mat- ters. Nearly two-thirds of the law’s pro- visions are subject to the sway of rule-writing, and many key terms, such as proprietary trading, a tricky concept at the best of times, lack a clear definition in yesterday’s bill.

There are glaring omissions in the legislation: most of the real drivers of the

completely unscathed, not least the Fed’s interest rate policies, global imbalances, the state-created Fannie Mae and Freddie

Mac’s massive power over the mort- gage market and the US government’s pro-sub prime housing policies. However, one cause of the crisis is being tackled: institutions will no longer be deemed too big to fail. Procedures will be introduced to dis- mantle and wind down in a con- trolled manner even the biggest firms that run into trouble.

These rules, while imperfect, will reduce moral hazard; they would also have allowed Lehman Brothers to go bust without triggering the panic and contagion we saw in September 2008. The procedure will operate in three stages: first, a crisis at an institution that is thought to pose systemic risk will be identified by the Fed and the appropriate regulator, with the Treasury Secretary eventually deter- mining whether action needs to be taken; then the FDIC would be appointed as a receiver to resolve the failing firm; no general taxpayer funds would be spent, with any money lent by the Treasury eventually

repaid via a levy on firms with assets of more than $50bn. Crucially, credi- tors would bear losses; there would be no bail-out.

Some of the other ideas also make sense, such as giving shareholders greater powers or pushing more deriv- atives onto exchanges. But most of the other rules will either be useless or downright damaging. Banks will be barred from proprietary trading and their involvement in private equity and hedge funds will be curtailed. Yet given the welcome introduction of the wind-down procedures, none of this ought to be necessary.

It will take months, if not years, before we fully understand what the legislation will mean for Wall Street, the economy and of course London. It is a shame that this bill, which is not all bad, contains so many mistaken policies and is shrouded in so much uncertainty. It remains to be seen whether its populist elements are enough to save Obama’s floundering presidency.allister.heath@cityam.com

SWEEPING changes to the US finan- cial regulation landscape could effect the UK, argued lawyers yesterday.

While it remains unclear what kind of knock on effect the bill will have on the UK, some London lawyers were last night predicting a flood of financial bodies would move opera- tions from New York to the City.

“US banks may shift operations to London, provided that the UK or European Union does not make the UK a worse regulatory environment than the US,” said Dewey & LeBoeuf partner Bruce Johnston.

He also said that US banks with UK subsidiaries are likely to be affected by the new bill.

“It will [affect banks with UK sub- sidiaries]. The effect [however] is not 100 per cent clear,” said Johnston.

US reform bill
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the secretary of the Treasury would be
created to monitor big-picture risks in
the financial system.

Council could identify firms that threat- en stability and subject them to tighter oversight by the Federal Reserve.

up firms that have not responded to earlier measures and pose an urgent threat.

uidation” process that the government
could use in emergencies, instead of
bankruptcy or bailouts, to dismantle
firms on the verge of collapse.

some firms are “too big to fail” and
avoid a repeat of 2008, when the Bush
administration bailed out AIG and
other firms but not Lehman Brothers.
Lehman's subsequent bankruptcy froze
capital markets.

Corp’s costs for running liquidations
would be covered in the short term by
a Treasury credit line, then recouped by
sales of the liquidated firms’ assets. In
case of shortfalls, costs could be fur-
ther covered by claw-backs of any pay-
ments to creditors that exceeded
liquidation value.

of solvent insured banks to prevent
bank runs. But this could only happen if
the boards of the FDIC and the Fed
decided financial stability was threat-
ened, Treasury approved the terms, and
the president activated a rapid process
for congressional approval.

which was widely criticised in the run-up
to the 2007-2009 credit crisis, would be
closed and most of its duties shifted to
the Comptroller of the Currency.

assets of $150m or more would have to
register with the Securities and
Exchange Commission, exposing them to
more scrutiny. Venture capital funds
would be exempted from full registration.

manage assets of $100m or more to be
federally regulated, an increase from
the present $30m level. The change
would shift some of the oversight for
small firms from the SEC to the states.

ed to monitor, but not regulate, the
insurance industry, which is now
policed only at the state level. The
move would appease opponents of cen-
tralized regulation by keeping real
power out of Washington’s hands, while
giving big insurers that want a single
regulator a foothold they might be able
to expand from in the future.

House economic adviser Paul Volcker,
the bill would bar proprietary trading
unrelated to customers’ needs at banks
that enjoy government backing, with
some of the details of implementation
left up to regulators.

to three per cent of their Tier 1 capital in private equity and hedge funds, not to exceed three per cent of any single fund's total ownership interest.

ests above the new caps would have to
be divested over time, under the
Volcker rule.

years would have to stop counting
trust-preferred securities and other
hybrids as Tier 1 capital, a key measure
of a bank’s balance sheet strength.

A £350m offer for Crest Nicholson was in jeopardy on Thursday night after advisers to the debt-burdened housebuilder told its lender-owners to reject the bid as too low. A steering committee representing Crest’s cred- itors, which took control of the housebuilder following a £630m debt- for equity swap last year, met with Morgan Stanley on Friday to discuss details of the possible sale of the busi- ness.

Royal Bank of Scotland has three bid- ders competing in the final round of the auction of its Global Merchant services division, which is centred on the WorldPay payment processing business. TPG and Clayton, Dubilier & Rice are now to bid separately after

two months of on-off talks between the two over whether they would bid separately, together or not at all for the £2.5bn business.

Nathan Kirsh, the South African investor, has been knocked back in his latest attempt to change the lead- ership of Minerva, the London proper- ty developer, which called his demands “wholly inappropriate”. KiFin, Mr Kirsh’s investment vehicle that holds 29.9 per cent of Minerva, had demanded that Salmaan Hasan, and Oliver Whitehead leave their posts.

Smiths News enjoyed a surge in rev- enue thanks to its acquisition of a books wholesaler and a rise in market share after a rival distributor fell into administration. Revenue at the UK wholesaler jumped 38 per cent.

Hundreds of thousands of savers will be freed from the need to lock them- selves into poor-value pension deals from April next year, under radical plans outlined by the Government. Mark Hoban, the Financial Secretary to the Treasury, said that the Government would replace deeply unpopular rules.

A shareholder action group wants Sir Victor Blank, former Lloyds Banking Group chairman, to be extradited to the US to defend the controversial takeover of HBOS in 2008. Lloyds Action Now (LAN) is trying to bring a lawsuit in America, alleging that Sir Victor and chief executive of Lloyds, Eric Daniels, misled investors.

The Agricultural Bank of China remains on course to become the world's largest ever initial public offer- ing despite a disappointing first day of trading in Shanghai. hares in the Chinese bank closed up 0.8pc at 2.70 yuan (26p) after the company launched the first part of its widely anticipated dual flotation. AgBank shares had been expected to rise by almost 5pc.

Sir Martin Sorrell expects the China region to become WPP’s third-biggest market within the next few years. peaking at a conference in Shanghai on Thursday, the chief executive of WPP said he is “hopeful” of generat- ing $1bn (£650m) of revenue from China, Taiwan and Hong Kong. WPP is the world's largest advertiser.

Boeing says delivery of its new 787 aircraft could slip into next year, though the company is still hoping it can send the jet to its first customer by year’s end. The cautious new guid- ance for delivery of the much-delayed Dreamliner stems from issues with testing rather than the aircraft, according to Scott Fancher, head of the 787 program.

ovartis AG reported a 19 per cent rise in second-quarter net profit thanks to healthy drug sales and cost cuts, prompting the Swiss drug giant to boost its full-year sales outlook despite a difficult market environ- ment in Europe. Novartis chief execu- tive Joe Jimenez said the higher net profit was partly backed by soaring sales of the company’s new drugs.

GOLDMAN SACHS has agreed to pay $550m (£356m) to settle civil fraud charges over how it marketed a sub- prime mortgage product, ending months of negotiations that rattled the bank’s clients and weighed on its share price.

The investment bank has now paid the largest-ever penalty by a Wall Street firm to the Securities and Exchange Commission (SEC).

But many investors viewed the $550m settlement as just a slap on the wrist for a bank that earned more than $13bn last year.

The settlement appears to leave the door open for additional enforce- ment actions by the SEC and further investigation by federal prosecutors.

The SEC accused Goldman of creat- ing and marketing a debt product linked to subprime mortgages with- out telling investors that a hedge fund helped choose the underlying securities and was betting against them.

materials were incomplete, but it did not admit or deny the allegations. The settlement appears to only resolve the issue of this transaction in particular.

It is understood that Goldman had pressed regulators to agree to a global settlement, which would effectively have ended any SEC investigations into other collateralised debt obliga- tions underwritten or marketed by the Wall Street firm.

Goldman said yesterday that Fabrice “Fabulous Fab” Tourre, who was at the centre of the SEC investiga- tion, will remain with the bank on unpaid leave.

ROYAL BANK of Scotland (RBS) is set to receive a $100m (£64m) payout from Goldman Sachs as part of the US bank’s settlement with the Securities and Exchange Commission (SEC) over fraud allegations.

The UK bank, which is led by chief executive Stephen Hester, is thought to have been the largest victim of the alleged sub-prime mortgage fraud, which was orchestrated by Goldman and involved hedge fund Paulson & Co.

ments on Goldman’s sub-prime mort- gage portfolio named Abacus, which is at the heart of the fraud allega- tions. The bank’s involvement came after it acquired ABN Amro, which had insured a portion of the Abacus trade in 2007.

The bank is not the only recipient of payments from Goldman, $300m will go to the US Treasury.

While $250m will be returned to investors who bought into the sub- prime mortgage packages and were subsequently harmed by Goldman’s actions.

pending SEC investigation, it
could open the door to more settle-
ments. However, there is some specu-
lation that it could also pave the way
for further SEC investigations and
action by US federal prosecutors.

trader at the centre of the SEC
investigation, is still on paid leave,
according to the bank. Although the
settlement takes Goldman off the
hook, it is understood that “Fabulous
Fab” Tourre could still be subject to a
criminal investigation.

$550m. Of that, Goldman will
pay the US Treasury $300m, while
$250m will be paid to investors,
including Royal Bank of Scotland
(RBS) and Germany’s IKB bank,
which were harmed by the bank’s
actions. RBS gets $100m, while IKB
will get $150m.

the wrist. Goldman earned more
than £13bn last year. Its shares,
which lost 22 per cent of their value
in the second quarter, largely due to
the fraud charges, jumped 4.6 per
cent in after-hours trading to $152.