But most of the changes only bring regulations in line with the realities of the corporate financial world, which hasn’t been waiting for Washington to act. The agreement will put an end to a long-outdated ban on stock speculation by banks and other “crossover” businesses that stemmed from the Crash of 1929. The new law will allow banks, securities firms and insurance firms to jump with both feet into each other’s businesses. Yet for a decade now, America’s biggest financial firms have been leaping through every loophole and waiver permitted under the old financial regulatory laws to grab each other’s lunch, and to trade information about you. “This legislation,” says financial historian Ron Chernow, “is the last nail in a coffin under construction for quite a number of years.”
Much of what people will see right off will be more of the same bewildering financial hucksterism. More of those dinner-hour phone calls from credit-card and mortgage companies you’ve never heard of–but which somehow know your financial history quite intimately. More dubious products like the “credit guard” offered by banks–regular credit monitoring that, if you checked, you’d find you get for free from the government anyway. What changes are coming? You’ll get offered a lot of the same tantalizing products from one company, rather than a whole bunch.
Many consumers will no doubt enjoy the new world of the one-stop financial supermarket, especially as the expected wave of mergers gets underway. As banks buy up major securities firms or insurance companies and vice versa, they will offer more useful products, like generous checking privileges for investment portfolios, or homeowners insurance for mortgage loans. And think of how many different documents you need to gather these days to take out a mortgage–credit histories, investment portfolios, bank-deposit information. “It’s like buying a car and having to put it together yourself,” says Bert Ely, a banking consultant. Soon you may have all this paperwork dropped into your lap. The new efficiencies will also lower costs for the banks, which presumably will be passed on to the consumers. “Over time, consumer loan rates will come down,” says Charls Walker, a former Treasury undersecretary.
Still, some fear that the sweeping changes may make the nation’s financial system less stable. Last year Wall Street dealmaker Sandy Weill merged his Travelers insurance and securities conglomerate with Citibank, forming Citigroup. That looks like the model of the future, and it may leave the nation with a handful of behemoths, each of them deemed too big to fail by the government, encouraging excessive risk. “The biggest problem here,” says Chernow, “is that we are going to see a landscape filled with financial conglomerates of such gigantic size that the failure of any single one could have catastrophic consequences.” The new law is not a sure thing just yet. Congress will probably haggle over the wording for another week or so, especially as some legislators realize how few protections the bill offers to consumers, says Frank Torres of the Consumers Union in Washington. But most observers believe that the financial industry, which long delayed the bill by dickering over its provisions, wants it far too badly to let it fail this time. That’s because what they want most of all is a bigger piece of you.
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