The legislation, which some Republicans have already pledged to repeal if they regain power in Washington, will fundamentally overhaul the US government’s regulation of Wall Street and create a political legacy for Obama.
Obama says the bill will cut down on a culture of greedy risk-taking and “shadowy deals” that triggered the worst financial crisis in generations.
His opponents though argue that the legislation punishes the whole banking industry for the sins of the few, and is another example of government intervention in the economy that will choke growth.
The administration touts the new law as an example for the rest of the world, as top global economies seek to flush out the causes of the crisis, from which they are now only slowly emerging.
“We reaffirmed our commitment to fiscal responsibility and reform,” Obama said on Tuesday after White House talks with British Prime Minister David Cameron.
He called the bill “the toughest financial reforms since the aftermath of the Great Depression” and said it was part of a global effort to rebuild confidence since the economic crisis that erupted in 2008.
Obama was due to sign the financial reform legislation at the Ronald Reagan Building in Washington, and in the process bolster his claims as a significant reformer, following his health care reform law passed this year.
However, despite passing more significant legislation than any Democratic president in decades, Obama has yet to enjoy much of a political boost from fulfilling campaign promises.
His approval ratings are now between the mid 40s and 50 percent in most polls — dangerous territory for a first-term president facing mid-term congressional elections in November in which Democrats fear heavy losses.
Many analysts put Obama’s political woes down to the economy, and the slowing rebound — with unemployment still at 9.5 percent, as many Americans feel pessimistic about their futures.
The financial reform bill may eventually become popular with everyday Americans, but much of it, like the health care bill, is so complicated that it will not come into force for months.
For instance, it will be up to 12 months before a new Consumer Financial Protection Bureau is set up to protect American consumers from hidden fees, and deceptive lending practices when they get a new mortgage or credit card.
Similarly, it will take up to 18 months to set up new regulations to stop banks from engaging in impermissible proprietary trading and investment in hedge funds — a new system known as the Volcker rule after former Federal Reserve chief Paul Volcker.
The legislation also closes loopholes in regulations and requires greater transparency and accountability for hedge funds, mortgage brokers and payday lenders, and arcane financial instruments called derivatives.
Just three Republicans — Olympia Snowe and Susan Collins of Maine and Scott Brown of Massachusetts — backed the bill in the Senate, where it squeaked through last week after passing the House of Representatives in June.
The measure has drawn praise but also skepticism from economists and analysts.
The bill “addresses a number of key weaknesses in the US financial regulatory structure that led to the financial meltdown in 2008 and early 2009,” said Brian Bethune at IHS Global Insight.
But Diane Swonk at Mesirow Financial warned that much of the impact is not known.
“We will have more regulators overseeing — but not necessarily averting — risk, and with a bill so large and undefined, we are likely to get more, in terms of unintended than intended consequences, going forward,” she said.
The law is likely to generate much debate ahead of congressional elections in November as Republicans call for its reversal.
House Republican leader John Boehner said recently the law “ought to be repealed” and replaced with “common-sense things that we should do to plug the holes in the regulatory system.”
Copyright © 2010 Agence France Presse