On the eve of the G20 Summit, President Barack Obama hailed the reforms, which include the Volcker rule in an attempt to limit the size of banks and to limit their trading abilities, as “the toughest consumer financial protections” in US history.
The reforms will pass through Congress and the Senate but the President said he was confident the rules would make law.
Obama said: “The reforms making their way through Congress will hold Wall Street accountable so we can help prevent another financial crisis like the one that we’re still recovering from.”
Central to the reforms are new rules that force more transparency in the trading of derivatives, although derivative swap counters will remain in US banks and the banks will still be able to invest up to 3 per cent of their businesses in hedge funds and private equity funds.
But the largest US banks and hedge funds will also be hit with a $19bn (£12.75bn) levy, separate from President Obama’s other banking tax announced earlier this year.
The reforms stop short at breaking up the banks between their core consumer businesses as happened in the Glass Steagal act after the Great Depression.
The reforms also include the creation of a US Consumer Financial Protection Bureau akin to the new UK consumer body announced this week. They also call for more funding to the US financial regulator, the Securities and Exchange Commission, which has been heavily criticised in the wake of the Madoff, Stanford and Lehmans crises.
US Treasury secretary Timothy Geithner said: “The bill that has emerged from Conference is strong. It represents the most sweeping set of financial reforms since those that followed the Great Depression. It establishes the greatest consumer financial protections in American history. It prevents financial firms from taking risks that will threaten the economy. And it provides the government with significant new tools to better protect taxpayers from the damage of future financial crises.”