Reuters reports that, as the US Senate has now approved a bill to overhaul the financial system, big banks are likely to emerge as the biggest losers.
Although there will be more horse-trading before the bill becomes law (it will be merged with a House bill), as things currently stand, the large firms will be prohibited from engaging in prop trading or investing in private equity or hedge funds, will have to set aside billions in extra capital, and will have to spin off their profitable derivatives operations. The general consensus is that profits from investment banking operations will fall by between 15 - 20% because of the legislation.
Here's what the 'smart money' is saying about the proposed legislation:
'Over the last year, the financial industry has repeatedly tried to end this reform with hordes of lobbyists and millions of dollars in ads, and when they couldn't kill it, they tried to water it down....Today, it's fair to say these efforts have failed'.
President Obama (Reuters)
'Many of these negative provisions have nothing to do with the financial crisis. Despite all the talk about this being a Wall Street bill, it in fact does tremendous harm to traditional banks on Main Street that had nothing to do with the crisis and that will now be less able to support the economy'.
Ed Yingling, head of the American Bankers Association (The Financial Times)
'Provisions like the so-called Volker Rule would impose sweeping new restrictions on size and activities that were not a cause of the financial crisis'.
Tim Ryan, head of the Securities Industry and Financial Markets Association (Reuters)
'It's a choice between learning from the mistakes of the past, or letting it happen again. For those who wanted to protect Wall Street, it didn't work'.
Senate Majority leader Harry Reid (The New York Times)
'It will inevitably contract credit...(This bill) is probably undermining the system....probably making for a weaker system'.
Senator Judd Gregg (The Wall Street Journal)
'The decisions we've made will have an impact on the lives of Americans for decades to come. Judgement will not be rendered by self-serving congratulatory press releases, but, rather, by the marketplace. And the marketplace does not give credit for good intentions'.
Senator Richard Shelby (The New York Post)