While the financial reform bill passed and will soon be the law, it is hard to comment on any specifics because the real laws have yet to be written. Normally, when Congress passes new legislation, it is pretty specific in its intent, and Congress leaves it up to those who must enforce the laws to write rules and regulations clarifying Congressional intent.This time, however, Congress was extremely vague in many areas, giving non-elected bureaucrats carte blanche to write rules and regulations which will become the law! Still, despite not knowing exactly what we will get, it is possible, at this time, to determine some winners and losers.
The financial reform bill now puts in place yet another regulatory agency, the Bureau of Consumer Financial Protection. One can be sure that the regulations emanating from this new agency will put a burden on community banks equal to that of Sarbanes-Oxley whose cost, in the middle part of the last decade, had a huge negative impact on their earnings. As the regulatory noose tightens, small businesses, which have historically relied on community institutions and on the now defunct shadow banking system (non-bank lenders) for much of their credit needs, will continue to face a credit crunch. That's bad news for private sector job creation.
The Treasury had a similar group prior to the '08 crisis, and it, along with all of the other government agencies, failed to see the growing systemic risks. What makes anybody think this group will be any better? And, given that they are composed of agency heads, it is likely that they will be politically influenced. Furthermore, like the "bazooka" the Congress gave to Hank Paulson in '08 with the idea that since it existed it would never have to be used (until it was), this solution guarantees that it will be used in the future, and it will be taxpayer money that winds down a mega-bank that decided to take excessive risks in order to earn (and reward themselves with) excessive returns. On the other hand, if size limits and/or capitalization requirements were appropriate, the government would never need the bazooka. If institutions never got "Too Big," then the market could absorb a failure without systemic issues, just as it does every week when the FDIC closes its given allotment of community institutions.