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Big banks are under siege but they're not beaten yet

Last week, the US Senate passed its long-awaited version of financial sector reform, a bill patterned on a blueprint drawn-up by the White House last year.

Trumpeted as the most comprehensive overhauling of America's banking system since the 1930s, it aims to prevent, or limit, future economic calamities.

But is such fanfare deserved? Or did the Democrats squander the chance to enact deep, structural reform in favour of a mainly regulatory prescription?

In many ways, given the scope of financial contagion created by the 2008 Wall Street meltdown, financial reform is the biggest test yet of the Obama administration's tactical ability and direction.

This was the fight that everybody from Main Street to Wall Street has been anticipating.

Fed a steady diet of media reports about CEOs of taxpayer-rescued firms raking in huge bonuses for the last two years, the anger of middle and working-class people at Wall Street has remained stratospheric.

That fury has helped motivate the likes of the Tea Party movement activists to hit the streets with demands to 'take back the government'.

Since the March 2008 collapse of Bear Stearns, the financial services sector has spent almost $600m lobbying Congress to dilute its reform plans. And, according to some critics of the reform process, it's been money well-spent.

For example, they say, it's all well and good that the Senate's bill will require most derivatives (like the notorious speculative bets that exacerbated the housing crisis) to be swapped on open exchanges, much like stocks.

However, due to intense lobbying from business groups, the bill includes exemptions for certain types of companies to use derivatives in non-exchange circumstances, creating a potential loophole that critics fear could lead to the kind of murky trading that caused so much damage in the past.

Critics also say the Senate bill doesn't go far enough in tackling the problem of 'too big to fail' financial behemoths.

The Senate, like the House, envisions an 'orderly' takeover and dismantling of them when they verge on collapse. But critics say Congress should have simply banned banks from becoming so huge in the first place.

Then there is the matter of how to pay for such future bank euthanising. The House wants to tax banks up front in order to create a $150bn pool to fund such wind-downs. The White House and the Senate argue that banks should only be made to repay the money afterwards - which sounds like a prescription for further bail-outs to many.

Both the Senate and the House call for the creation of a new consumer protection agency to combat abusive credit-card and mortgage lending.

The House wants a new stand-alone entity, while the Senate would tuck it beneath the umbrella of the Federal Reserve Bank - the same Fed that came under heavy fire for not recognising the warning signs preceding the 2008 crisis.

Keenly aware of the public's anger at Wall Street, Republicans have sought to selectively amend, rather than block, the proposals put forth by the Democrats.

Beating their anti-big-government drum, Republicans are once again warning the American public that Obama's bureaucrat minions have diabolical designs on their financial freedoms.

They say the proposed new consumer protection agency, in particular, will stifle economic innovation, while further burdening taxpayers with a fresh layer of expensive government.

At the end of the day, even most critics of the Senate and House bills agree that progress has been made in clipping the wings of the highest financial fliers.

However, given that weeks of closed-door horse-trading lie ahead as the two houses try to gel their bills together, it remains to be seen whether Wall Street or Main Street will have the last laugh.