The US Senate passed the Wall Street Reform Bill last night, taking the lead among developed nations in addressing the causes of the financial crisis and giving Democrats victory in perhaps the hardest battle in their campaign to strengthen financial regulation.
If it becomes law, the bill will force much more of the over the counter derivatives market to be traded on exchanges or cleared through central counterparties, and will oblige banks to spin off some of their derivatives trading activities into separate entities – which the Federal Reserve and Treasury had opposed. Companies using derivatives for hedging will get exemptions from some collateralisation rules.
Tougher oversight will be designed to ensure excessive leverage gets spotted...