Financial Reform Bill Signed into Law: 5 Key Changes Outlined

(July 21) -- President Barack Obama signed the sweeping financial reform bill into law today, just six days after it passed the Senate. The Dodd-Frank Wall Street Reform and Consumer Protection Act is meant to protect consumers, add transparency to the financial markets, and restructure government power so that companies are no longer "too big to fail."

Below, Surge Desk reminds readers of the five most important aspects of the bill, as outlined here last week.

1. The economy gets a new monitor, and failing firms a new undertaker.
Headed by the secretary of the treasury, the Financial Stability Oversight Council will watch for major risks in the overall economy and will have power to step in and dismantle failing firms that pose a "systemic risk," like Bear Stearns, Lehman Brothers and Merrill Lynch all did. Failing firms will no longer be bailed out with taxpayer money; instead they will be liquidated.

2. Consumers get a new watchdog.
A new consumer financial protection agency will be created to combat lending abuse. The agency will keep an eye on mortgage lenders and credit card companies and will put a cap on the fees debit card companies can charge retailers.

3. Stricter oversight of hedge funds, private equity firms and the derivatives market (which was at the heart of the subprime mortgage fallout) will be implemented.

4. Capital reserves will increase.
Large banks will have to increase the amount of capital they hold in reserve in the event loans go bad. The increased reserves will reduce their potential profits, but this rule won't go into effect for five years so as not to discourage lending now as the economy continues to recover.

5. We'll hear even more about the Volcker Rule.
Named for economist and former Fed Chairman Paul Volcker, who proposed the original plan, the Volcker Rule limits a bank's ability to make speculative investments that don't benefit their customers to 3 percent of its capital. Speculative investments include investments in hedge funds and private-equity funds. Banks are also banned from proprietary trading, the risky practice of using their own money for trades instead of their customers' money.

The White House Blog has also posted its version of the Top 10 things the Administration thinks you "may not know" about the bill.

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