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Now the real work on financial reform begins

In the end, it's only a beginning. The far-reaching new banking and consumer protection bill now shifts from the politicians to the technocrats.
/ Source: The Associated Press

In the end, it's only a beginning. The far-reaching new banking and consumer protection bill that President Barack Obama intends to sign on Wednesday now shifts from the politicians to the technocrats.

The legislation gives regulators latitude and time to come up with new rules, requires scores of studies and, in some instances, depends on international agreements falling into place.

For Wall Street, the next phase represents continuing uncertainty. It also offers banks and other financial institutions yet another opportunity to influence and shape the rules that govern their businesses.

In hailing the bill's passage in the Senate on Thursday, Treasury Secretary Timothy Geithner acknowledged that implementing the new law will take time.

"But we are determined to move as quickly as we can to provide clarity and certainty," he said.

Among the first impacts of the bill, which Obama is expected to sign as early as Wednesday, will be the immediate creation of a 10-member Financial Stability Oversight Council, a powerful assembly of regulators chaired by the treasury secretary to keep watch over the entire financial system.

The Obama administration has one year to create a new Bureau of Consumer Financial Protection. Congress will keep its eye on that agency, eager to see whom Obama chooses as its director. The agency will have vast powers to enforce regulations covering mortgages, credit cards and other financial products.

One of the first post-passage issues to come back to the Senate will be the appointment of a director for the consumer agency.

On Friday, David Axelrod, senior adviser to President Barack Obama, said Elizabeth Warren is "obviously a candidate" for the presidential nomination to head the agency. Axelrod told reporters that Warren is a champion for consumers and middle-class families. He said she helped inform the consumer-protection efforts that are part of the giant financial reform bill that Congress sent to Obama on Thursday.

Warren, a Harvard law professor, now heads the Congressional Oversight Panel, which has been a watchdog over the Treasury Department's bank bailout fund.

A person familiar with the White House deliberations said Obama is also giving serious consideration to Michael Barr, an assistant treasury secretary who has been one of the architects of the administration's regulatory plan, and Eugene Kimmelman, deputy assistant attorney general in the Justice Department's antitrust division. The official spoke on the condition of anonymity because the deliberations are ongoing.

But while the oversight council and the consumer bureau might bloom swiftly, other central provisions of the bill will take time, in some cases years, to take root.

The consumer bureau, for instance, has as long as 30 months after it is created for its regulations on predatory lending to take effect. The legislation calls for a two-year study before regulators write rules on how risk-rating agencies should avoid any conflict of interest with the firms whose financial products they assess.

The Fed has until April to derive standards to measure the fairness of fees charged by banks to merchants for customers who use debit cards. And regulators will have to fine tune the broad restrictions in the legislation for the complex derivatives market. Key will be determining what firms and corporations will face new restrictions.

The U.S. Chamber of Commerce counts more than 350 rules that the legislation directs regulators to write. Senate Banking Committee Chairman Christopher Dodd, an author of the bill, says the legislation gives regulators a specific blueprint to follow.

"This bill directs the regulators to do things," he said in an interview. "We leave to the regulators how best to achieve the goals, but the goals are clear. Congress is not a regulator."

In many instances, regulators already have embarked on rule-writing. The SEC, for instance, has been working on rules that would impose the same professional standards on stockbrokers and dealers that are imposed on financial advisers. The legislation insists that the SEC conduct a study first.

Hailing the bill Thursday, Fed Chairman Ben Bernanke said the central bank is also ahead of the game, "overhauling its supervision and regulation of banking organizations."

Regulators also will have to figure out how to implement new standards for how much capital banks should hold in reserve to protect against losses. The legislation requires rules in 18 months. But the U.S. is also part of international negotiations on what global capital standards should be, and those could move more slowly.

"I am very confident with the strong hand that this (legislation) gives us, that we will be able to bring the world with us," Geithner told reporters Thursday.