Wall Street reform will take years for government to fully implement

The Obama administration’s landmark rewrite of financial regulations will take years for the federal government to fully implement.

President Obama will sign the 2,315-page bill into law on Wednesday as regulators, administration aides and the industry hunker down for hundreds of battles over the fine print of new regulations.

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Senior administration officials said the legislation provides a “frame” for the new regulatory landscape, but the full force of the rewrite hinges on how regulators interpret their new powers in the comings months and years.

Officials noted it will take time to start up organizations like the consumer financial protection bureau created by the legislation.

“While some things start sooner than later, we should expect that this is going to be done thoughtfully and carefully, and that it will take time,” said Diana Farrell, deputy national economic adviser.

The legislation also requires the creation of a new council of federal regulators to oversee broad financial risks; new regulations of the $600 trillion derivatives market; and a new system for the government to wind down failing financial firms.

The bill largely resembles the Obama administration’s original proposal last year and will be enacted nearly two years after the worst financial crisis since the Great Depression. Passing new financial regulations has been one of the president’s top priorities. The legislation faced stiff opposition from Republicans: Only three in each of the House and Senate wound up supporting the final legislation.

One of the first decisions for the president will be nominating an inaugural head of the consumer bureau, which will have broad power to write and enforce rules over home loans, credit cards and other products across the financial system. The administration is considering a handful of potential nominees, including Elizabeth Warren, the Harvard professor and original advocate for the agency.

She is expected to face tough opposition from Senate Republicans if she were nominated. Sen. Chris Dodd (D-Conn.) on Monday questioned if she could win the votes necessary for confirmation. Labor unions and some Democrats are openly pushing the president to nominate Warren.

Sen. Susan Collins (Maine), one of the three Senate Republicans to support the legislation, declined Tuesday to say if she could support a Warren nomination.

By some counts, the legislation requires hundreds of rulemaking procedures and scores of studies.

Many of the key provisions in the bill come into effect over the next two years.

• The new council of regulators must meet within three months.

• Federal regulators must write rules within nine months for how companies retain 5 percent of the risk in mortgage-backed securities.

• Also within nine months, the Federal Reserve must write rules setting “reasonable and proportional” interchange fees that merchants and retailers pay to banks and credit unions that issue debit cards.

• The government must set up the new consumer bureau within one year.

• New restrictions under the “Volcker rule” on proprietary trading and alternative fund sponsorship by big banks would come into effect over the next 18 months. Full compliance with the rule, named after former Federal Reserve Chairman Paul Volcker, could take many years longer.

Some provisions that take effect quickly may also take longer to fully implement. New “resolution authority” powers for the federal government to wind down failing firms take effect immediately. But regulators will still need to flesh out the nuts and bolts of how they would deal with a failing firm.

“Resolution authority provisions are effective upon enactment, but the [Federal Deposit Insurance Corporation] will have to create some rules and some procedures in order to sort of create the framework in which the resolution authority will be exercised,” said Neal Wolin, deputy Treasury secretary.

Wolin said there are teams of federal officials across the regulatory system meeting to discuss how to implement the bill. They are combing through the policymaking specifics, alongside personnel, pay and information technology issues. In the case of the consumer agency, Wolin said officials are deciding just where the office should be located physically.

Federal agencies are already planning to go on a hiring spree. Mary Schapiro, chairwoman of the Securities and Exchange Commission (SEC), said the commission would likely need to hire 800 people to meet the new requirements. Hundreds, maybe thousands, of new employees are expected across the financial system.


Roxana Tiron contributed to this article.