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The reforms are designed to prevent future financial crises

The US Senate has approved a landmark bill designed to overhaul the US financial system, by 60 votes to 39.

Earlier this month, the reform bill was passed by the US House of Representatives.

The vote is the culmination of months of political wrangling after President Obama committed to overhaul the banking sector after the 2008 financial crisis.

The reforms are designed to reduce the risks that banks take and prevent future crises.

Consumer protection
They have been described by US Treasury Secretary Tim Geithner as “the most sweeping set of financial reforms since those that followed the Great Depression”.

The legislation creates a new federal agency designed to oversee consumer lending and outlines new regulations for complex financial instruments.

To this end, it will set up a powerful consumer financial protection bureau, with powers to clamp down on abusive practices by credit card companies and mortgage lenders.

Large banks will also be required to increase the amount of capital they hold in reserve against loans going bad.

However, they will only be forced to do so after five years, as the government is keen that banks do not hold back on lending money during the economic recovery.

The bill also introduces the so-called Volcker rule – named after the former Federal Reserve chairman Paul Volcker, who proposed it.

Banks will be banned from what is called proprietary trading – effectively taking bets on financial markets using its own money.

They will also be limited to investing a maximum of 3% of their capital in speculative businesses such as hedge funds or private equity funds.