WASHINGTON (CNNMoney.com) -- After a grueling 20-hour session, lawmakers early Friday finished melding the House and Senate Wall Street reform bills, bringing Congress closer to passing the most sweeping changes to the financial system since the New Deal.
Finishing at 5:39 a.m. ET, 43 lawmakers agreed to send to their respective chambers a final bill that aims to strengthen consumer protection, shine a light on complex financial products, create a new process for taking down giant, failing financial firms, and make them stronger to prevent such failure.
"We are now on the brink of passing Wall Street reform," said President Obama at the White House, shortly before leaving for Canada to attend the G-20 meeting. "We are poised to pass the toughest financial reforms since the ones we passed during the Great Depression."
The conference committee votes were 20-11 among House negotiators and 7-5 among Senate negotiators, strictly along party lines. The room erupted into claps and hugs when it was all done, with staffers shaking hands and saying, "big bill."
In one of their final votes, lawmakers renamed the legislation the Dodd-Frank Bill for the lawmakers who led the work on the reforms: Senate Banking Chairman Christopher Dodd, D-Conn., and House Financial Services Chairman Barney Frank, D-Mass. The chamber erupted in cheers on the motion's approval.
"It's the most extraordinary experience," Frank said. "You hate to have the kind of pain that so many people went through in this economic crisis, but it just doubled our resolve to get it done."
Frank and Dodd insisted on pushing forward and wrapping up the negotiations, to ready the bill for final passage by each chamber before Congress adjourns for the Independence Day recess.
Shortly after the vote, Treasury Secretary Tim Geithner put out a statement supporting the efforts and calling for Congress to move ahead. "We urge Congress to carry the momentum forward and move swiftly towards final passage," he said.
The move was a big win for the White House, giving Obama fodder as he encourages other nations to embrace financial reforms at the G-20 meeting in Toronto on Saturday.
"This will strengthen the hand of the president going to Toronto to make that case," Dodd said. "We can make the case if not to embrace exactly what we've done, to embrace the principles we've enshrined in this bill."
Despite promises of an open negotiating process, many of the toughest deals were reached in private conversations among Democrats, as well as White House and Treasury officials, outside the Senate meeting room session that was being broadcast on C-SPAN.
Lawmakers, who began negotiations Thursday at 9:30 a.m. ET, grew increasingly short-tempered and weary. Sometimes, the air conditioning shut off, and suit jackets and sweaters came off and sweat ran down faces.
The lawmakers have been meeting for two weeks reconciling the bills, which were largely similar. However, they left most of the toughest decisions to the last day.
Most of Thursday, negotiations were slow going, as Democrats disagreed among themselves on measures that aimed to stop the kinds of problems that lead to the massive taxpayer bailout of American International Group.
Early Friday, lawmakers agreed to a weakened version of a provision originally authored by Sen. Blanche Lincoln, D-Ark., to force large banks to spin off divisions that trade derivatives contracts into affiliates.
The compromise allows banks to engage in trades of contracts of traditional banking bets, such as on interest rates and the price of gold. But banks would have to two years to spin off affiliates if they want to make riskier trades, ranging from commodities to credit default swaps.
But Lincoln fought efforts to weaken the provision further Friday morning.
"Clearly swap dealing is a risky activity, and it's something we need to deal with," Lincoln said. "Banks should be banks."
Congress first started working on financial overhaul last spring. The House passed a version in December, and the Senate passed its version in May.
Since January 2009, financial services firms have spent nearly $600 million and hired hundreds of lobbyists to influence legislation including financial reform, according to the Center for Responsive Politics. This week, dozens of them lined the Senate office building meeting room and hallway, where they often pulled staffers and lawmakers aside.
The final compromise that lawmakers struck will establish a consumer financial protection regulatory bureau inside the Federal Reserve, that will write new rules to protect consumers from unfair or abusive mortgages and credit cards. Lawmakers agreed the regulator would not oversee auto dealers who make auto loans.
The final deal will also create a 10-member council of regulators, headed by the Treasury Secretary. The group is tasked with sounding an alarm before companies are in position to trigger a financial crisis.
Regulators will be tasked with ensuring banks beef up their capital cushions, such as forcing financial firms to move more of their assets into investments that are more easily converted into cash over the next several years.
The bill would also establish new procedures for shutting down giant financial firms that are collapsing.
The bill aims to shine a brighter light on some of the different kinds of complex financial products, called derivatives, that are blamed for the problems that forced a bailout of American International Group (AIG, Fortune 500) and the bankruptcy of Lehman Brothers. It would force most derivatives on to clearinghouses and exchanges, to help pinpoint the value of the trades.
Republicans objected to some of the bill's major provisions, particularly parts that establish the consumer agency and create new rules for the derivatives. While they generally favored more consumer protection and more regulation of derivatives, they argued that the legislation is too heavy-handed in these areas.
Derivatives: After midnight, lawmakers began discussing differences on the bills that aim to shine a light on derivatives.
Lawmakers agreed to push many derivatives onto clearinghouses and exchanges that can better pinpoint the value of the securities and create firewall's between buyers and sellers.
They also agreed to allow leeway for financial firms to avoid exchanges and avoid posting collateral on such contracts for so-called commercial end-users, such as airlines that are trying to hedge against the changing price of jet fuel.
Additionally, lawmakers embraced a provision that prevents big banks from making risky bets on "nontraditional" derivatives and having access to emergency taxpayer-backed loans. Banks would have to spin off their swaps desk into affiliates, if they want to make such bets.
Volcker: Just before midnight, lawmakers agreed on a new version of the so-called Volcker Rule, which was first proposed by former Federal Reserve Chairman Paul Volcker. The measure prevents banks from owning hedge funds and trading for their own accounts.
Lawmakers agreed to gives regulators more specifics and less leeway when it comes to preventing banks from trading for themselves or owning hedge funds. But they also watered it down in several ways: It doesn't impact insurers. And it allows some proprietary trading in areas, such as government debt, for hedging purposes and small business investments.
As for the ban on banks owning hedge funds, the provision allows Wall Street banks that take commercial deposits to sink as much as 3% of capital in hedge funds or private equity.
Consumer groups and policy analysts watching the negotiations noted that 3% of a giant Wall Street bank's capital means billions could still be invested on risky bets.
"Three percent of Goldman Sachs' capital is a big number, and it enables very large funds," said Raj Date, executive director of the Cambridge Winter Center for Financial Institutions Policy.
Also, for some banks, the provision may not fully go into effect for up to seven years, according to Jaret Seiberg, an analyst with Concept Capital's Washington Research Group.
Bank tax: The cost of implementing Wall Street reform bills is around $19 billion and Congress decided to pay for it by taxing the largest financial firms, with firms taking the biggest risks paying the most.
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