U.S. lawmakers spent 20 hours Thursday and Friday negotiating sweeping reform of the country’s financial system. Finally, at nearly 6 a.m., the Senate and House of Representatives agreed on legislation that will tighten governance of big financial institutions and the banking industry as a whole. The bill is expected to have enough support to pass a vote of the full governing bodies next week. President Barack Obama presumably will approve the legislation by July 4.

The financial reform bill, which was cobbled together using pieces of two proposals — one by the Senate and one by the House — was prompted by the near-collapse of the American economy in 2008. That financial crisis was caused in large part by institutions’ shaky lending practices and predatory and forced taxpayers to bail out big banks at a cost of billions.

What’s in the Bill

The final bill has been months in the making, so it’s bound to have some substance, right? It certainly does have some bite to it, especially for institutions raking in money through investment banking.

• New Oversight, Consumer Protection Committees — A new, 10-member financial oversight committee will be formed to watch over financial markets for potential threats. It will be able to recommend tougher regulations and consumer protection regulations as well as be able to break up exceptionally large institutions. Another bureau would be formed to help consumers avoid predatory actions by banks.

• Limited Derivatives, Private Equity Trading — The banks that made millions upon millions through hedge funds and private-equity investments will see that income curtailed in the near future. Under the new legislation, banks will be able to invest only 3% of their capital in those products. In addition, banks will have two years to separate their derivates-trading divisions completely from their consumer banking divisions to ensure customers’ deposits remain safe. If banks lose money on derivatives trades, they won’t be able to turn to the FDIC to bail them out.

• Transaction Fee Regulation

The legislation makes the Federal Reserve responsible for establishing “fair and proportionate” fees that banks can charge retailers on debit card transactions. As of now, card companies and banks make $48 billion each year from charging merchants these interchange fees, a number that is bound to go down with decreasing fees.

• Shareholder-Selected Executive Pay — Shareholders of each bank would have the right to cast votes on executive pay packages. The Fed would also set standards to govern excessive and unsound compensation.

• Ratings Agencies Accountability — The ratings agencies that failed to see the mortgage meltdown coming would be forced to register with the Securities and Exchange Commission and would face tougher standards of liability. The SEC will have the ability to decide whether banks should select and compensate ratings agencies or if an independent board should make the selections.

• Mortgage Protection — Mortgage lenders would have to obtain proof that borrowers will be able to pay their mortgage. Lax mortgage-lending standards helped plunge the housing market into a nosedive in 2008, and the new rules are meant to help protect against another crisis.

House and Senate Come to a Compromise

Members of the Senate and House spent 20 hours ironing out legislation and coming to a meeting point on issues the two groups did not originally agree upon in their original bills.

The section that needed the most give-and-take was the derivatives trading regulations, which will impact the revenue of some big banks.

Most Americans Support Reform

About 60% of Americans support the tighter regulation of Wall Street, compared to 38% who do not, according to a CNN/Opinion Research Corporation survey conducted in late May. A CNN polling expert said Americans that made more than $50,000 per year, as well as Democrats and Independents, supported the bill, while Republicans and less wealthy citizens opposed the legislation.

For an official statement on Congress’ agreement, click here.

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