UPDATE: Investors have apparently decided that big bank stocks will not be hurt by the Senate's financial reform bill, despite the industry's griping. The prices of JPMorgan, Goldman Sachs, Citigroup, Wells Fargo and Bank Of America soared in early morning trading. (Check out the chart here.)
ORIGINAL STORY: Last night, the Senate passed a long-awaited financial reform bill that would impose a series of broad new restrictions on Wall Street firms, banks and other financial institutions.
Reaction from the financial industry is already pouring in, with bankers and experts in varying states of shock and worry over the bill's current language. The complaints from the lawmakers who voted against the bill vary with some, including Russ Feingold (D-WI), insisting that it doesn't go far enough and most Senate Republicans lamenting that the measure doesn't address key issues like "Too Big To Fail" institutions.
But Wall Street's main objection seems to be that the bill overreaches. Most disturbing to the financial services industry is a provision put forth by Blanche Lincoln (D - Ark.) that would require banks to spin off derivatives desks. Cyrus Santi at the NYT's Dealbook spoke to one CFO at a large bank who was terribly worried about the derivatives language, a concern shared by FDIC chairwoman Sheila Bair. Here's Dealbook's bank source:
"This is the one provision where it is more than just a little bit of moving it from one pocket to another. This is the kind of thing that has significant fallout for the economy if they get it wrong," he said, speaking on the condition that he not be named because of the delicacy of the issue."
One analyst interviewed by the Wall Street Journal expressed shock that the Senate bill was not weaker than the House bill. Another predicted that lobbyists will in fact find a way to weaken the bill and that the financial industry will adapt quickly to any changes. Still, the WSJ notes that at least one bank projects that the bill's "seismic changes" will impose considerable costs if enacted as is:
Goldman analysts recently tried to quantify the impact of the changes likeliest to survive, including already adopted caps on fees for checking accounts and credit cards, as well as restrictions in the Senate bill on proprietary trading with the banks' own money and the House curbs on derivatives. Those elements alone could shave 17% off bank earnings, Goldman said. Less-likely changes could boost the hit to 23%.
The Federal Reserve, Bloomberg reports, was able to articulate a "Main Street" message to lawmakers and retained oversight over the vast majority of the nation's banks. (Lawmakers wanted to limit the central bank's oversight to only large banks.)
The Senate bill may actually increase the Fed's powers and, crucially, issues an outright ban on new audits of central bank's interest rate moves. Here's more from Bloomberg:
"The Fed's authorities seemed to be under serious threat," said David Nason, a former assistant U.S. Treasury secretary who's now a managing director at Promontory Financial Group LLC, a Washington-based consulting firm. Instead, the Fed "appears to have regained its footing and now appears to be emerging with at least as much authority and likely more."