House Passes Financial Reform Bill

NEW YORK (TheStreet) -- The House passed a sweeping financial-services reform bill Friday, which -- although diluted somewhat from the initial plan introduced by the White House earlier this year -- constitutes the nation's first major legislative response to the banking crisis that sparked the worst economic downturn since the Great Depression.

The bill, which passed along party lines (223-202) and will now advance to the Senate, covers everything from consumer protections, to governmental authority to dismantle banking behemoths during times of crisis, to heightened oversight of the trading of complex financial derivatives and the activities of hedge funds.

"The crisis from which we are still recovering was born not only of failure on Wall Street, but also in Washington," President 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. "

One of the most significant elements of the bill is the formation of a Financial Services Oversight Council -- comprised of the Treasury secretary, the Federal Reserve chairman and the chiefs of regulatory agencies -- designed to track the financial markets for systemic risks.

If the bill becomes law, the government could take apart any firm that it believes poses a dangerous enough threat to the banking system and the economy. Firms with assets of more than $50 billion, and hedge funds with at least $10 billion in assets, would contribute to a $150 billion pool that would cover the costs of disassembling such a company.