Published: Jun 25, 2010 11:08 AM EDT
Updated: Jun 25, 2010 8:11 AM EDT

WASHINGTON (AP) - One year in the making, a sweeping overhaul of

Wall Street rules forged in the aftermath of a financial crisis

cleared congressional negotiations early Friday and headed to the

House and Senate for final votes.

Lawmakers hope to have a bill on President Barack Obama's desk

by July 4.

Success came at 5:39 a.m., hours after Obama administration

officials helped broker a deal that cracked the last impediment to

the bill - a proposal to force banks to spin off their lucrative

derivatives trading business.

The legislation, the most ambitious rewrite of financial

regulations since the Great Depression, touches on an exhaustive

range of financial transactions, from a debit card swipe at a

supermarket to the most complex securities deals cut in downtown

Manhattan.

Eager to avoid a recurrence of the 2008 financial meltdown,

lawmakers set up a warning system for financial risks, created a

powerful consumer financial protection bureau to police lending,

forced large failing firms to liquidate and set new rules for

financial instruments that have been largely unregulated.

"It took a crisis to bring us to the point where we could

actually get this job done," Senate Banking Committee Chairman

Christopher Dodd said.

In its breadth, the legislation would affect working class

homebuyers negotiating their first mortgage as well as

international finance ministers negotiating international

regulatory regimes.

The bill came together in during a time of high unemployment for

American workers, huge bonuses for bankers and rising antipathy

toward bank bailouts.

"It is reassuring to know that when public opinion gets engaged

it will win," said Rep. Barney Frank, the chairman of the

House-Senate panel that merged House and Senate bills into one

piece of legislation.

House negotiators voted a party line 20-11 in favor of the final

agreement; senators voted 7-5, also along party lines.

Republicans complained the bill overreached and tackled

financial issues that were not responsible for the financial

crisis.

Frank and Dodd set a furious pace for lawmakers in their last

day of talks, pushing them into the late hours to resolve the most

nettlesome differences between the House and Senate.

Their goal, in part, was to equip Obama with a legislative

agreement as he meets with leaders of the Group of 20 nations this

weekend in Toronto.

"Congress has shown that America is ready to lead by example,"

Treasury Secretary Timothy Geithner said.

Shortly after 5 a.m., Rep. Paul Kanjorsky, D-Pa., moved to

officially name the legislation the Dodd-Frank bill. Dodd, who will

retire at the end of this term, jokingly objected before lawmakers

voted unanimously in favor. Aides and administration officials

broke into applause.

While the legislation addressed the causes of the last meltdown

- and more - it left for later any restructuring of the

government-related mortgage giants Fannie Mae and Freddie Mac. Time

and again, Republicans tried to shift the debate to the mortgage

purchasing firms, to no avail.

The government took over Fannie and Freddie in 2008 after they

suffered heavy loan losses in the housing crash. Their collapse has

cost $145 billion and the Obama administration has pledged to cover

unlimited Fannie and Freddie losses through 2012, lifting an

earlier cap of $400 billion.

While many tough provisions in the bill survived, securing the

votes of moderate Democrats in the House and a handful of

Republicans in the Senate meant softening some provisions in the

bill.

Under the bill, banks could lose billions in lucrative trading

business, though negotiators blunted some of the harsher measures

under consideration.

In a blow to Obama, the consumer protection agency would not

regulate auto dealers, even though they assemble loans for millions

of car buyers. Payday lenders and check cashers would be regulated,

but enforcement would be left to states or the Federal Trade

Commission.

To pay for the costs of the bill, negotiators agreed to assess a

fee on banks with assets of more than $50 billion and hedge funds

of more than $10 billion in assets to raise $19 billion over 10

years.

The House-Senate panel numbered 43 total negotiators, though not

all attended at all times.

The final agreement capped an all-night marathon session of

public and private deal making. House Speaker Nancy Pelosi stepped

in to press agreement on one of the final obstacles.

As they worked toward the home stretch early Friday, negotiators

softened a contentious Wall Street restriction that would force

large bank holding companies to spin off their lucrative

derivatives business.

The deal, negotiated between the White House and Sen. Blanche

Lincoln, D-Ark., eliminated one of the last major sticking points.

Congressional leaders were eager to wrap the bill up, with hopes of

getting final House and Senate passage next week.

Derivatives are complex securities often used by corporations to

hedge against market fluctuations. But they also have become

speculative instruments for financial institutions, the most

notorious of which were credit default swaps that hedged against

loan failures.

In the House, moderate Democrats and members of the New York

congressional delegation fought to remove Lincoln's language.

Under the agreement banks would only spin off their riskiest

derivatives trades. Banks get to keep some of their lucrative

business based on trades in derivatives related to interest rates,

foreign changes, gold and silver. They could even arrange credit

default swaps, the notorious instruments blamed for the meltdown,

as long as they were traded through clearing houses. Banks also

would be allowed to trade in derivatives with their own money to

hedge against market fluctuations.

Negotiators also limited the ability of banks to carry out their

own high-risk trades or invest in hedge funds and private equity

funds.

Bank holding companies that have commercial banking operations

would not be permitted to trade in speculative investments. But

negotiators agreed to let bank holding companies invest in hedge

funds and private equity funds, setting an investment limit of no

more than 3 percent of their capital. There are no such conditions

on banks now.