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Legislative process

What Is the Legislative Process?

The legislative process is the series of steps by which a proposed idea, known as a bill, moves through a legislative body, such as Congress, to become a public law. This intricate sequence is a fundamental component of governance and regulation, shaping the legal framework that governs economic activity, financial markets, and nearly every aspect of daily life. The legislative process ensures that proposed changes or new statute are debated, refined, and formally approved, reflecting the will of the representative body and, ultimately, the populace. In finance, this process is critical for establishing and amending regulations that impact everything from securities trading to banking operations.

History and Origin

The foundation of the legislative process in the United States is rooted in Article I, Section 1 of the U.S. Constitution, which vests all legislative powers in a bicameral Congress consisting of a Senate and a House of Representatives. This structure was a result of the "Great Compromise," balancing popular majorities with state interests30.

Throughout U.S. history, the legislative process has been instrumental in responding to economic challenges and establishing significant financial regulations. For instance, in the wake of the 1929 stock market crash and the ensuing Great Depression, Congress passed the Banking Act of 1933, commonly known as the Glass-Steagall Act. This landmark legislation aimed to restore confidence in the banking system by separating commercial banking from investment banking activities28, 29. President Franklin D. Roosevelt signed the Glass-Steagall Act into law on June 16, 1933, as part of a broader series of measures to stabilize the economy27.

Key Takeaways

  • The legislative process is the formal pathway for a proposed law to be enacted.
  • It typically involves introduction, committee review, floor debate and voting, passage by both legislative chambers, and presidential approval.
  • In the U.S., ideas for legislation can originate from members of Congress, citizens, or advocacy groups.25, 26
  • A presidential veto can be overridden by a two-thirds vote in both the House and Senate.23, 24
  • The process ensures deliberation and allows for public input and amendments before a bill becomes law.

Interpreting the Legislative Process

Understanding the legislative process involves recognizing its sequential yet often non-linear nature. A bill's journey from concept to law can be complex, involving multiple stages where it can be amended, delayed, or fail entirely. Key to interpreting this process is identifying the various points of influence and decision-making. For instance, the role of congressional committee is pivotal, as they conduct research, hold hearings, and refine bills before they reach the full chamber for a vote21, 22. Public engagement, through comments on proposed regulation or direct advocacy, also plays a crucial part in shaping legislation. The bicameral nature of the U.S. Congress means that a bill must pass both the House of Representatives and the Senate in identical form before it can be sent to the President, which often necessitates compromise through a conference committee to reconcile differences between versions of a bill19, 20.

Hypothetical Example

Imagine a group of consumer advocates proposes a new financial protection measure to their local Representative. This idea, aimed at enhancing transparency in brokerage accounts, gets drafted into a bill.

  1. Introduction: The Representative formally introduces the bill in the House of Representatives.
  2. Committee Review: The Speaker refers the bill to the House Financial Services Committee. The committee reviews the bill, holds hearings, and makes amendments.
  3. House Vote: If approved by the committee, the bill is debated and voted on by the full House. It passes with a simple majority.
  4. Senate Action: The bill then moves to the Senate, where it is referred to the Senate Banking, Housing, and Urban Affairs Committee. This committee also reviews, debates, and potentially amends the bill.
  5. Senate Vote: If approved by the Senate committee, the bill is debated and voted on by the full Senate. It passes with a simple majority.
  6. Conference Committee (if needed): If the House and Senate versions of the bill differ, a conference committee composed of members from both chambers meets to resolve the discrepancies and create a single, unified bill.
  7. Final Vote: The reconciled bill is then sent back to both the House and Senate for a final vote. If both chambers pass the identical version, it proceeds to the President.
  8. Presidential Action: The President can sign the bill into law, allow it to become law without a signature (after 10 days if Congress is in session), or veto it. If vetoed, Congress can attempt to override the veto with a two-thirds majority vote in both chambers. If signed or if a veto is overridden, the bill officially becomes a public law.

Practical Applications

The legislative process has profound practical applications across the financial landscape, directly influencing how markets operate and how financial institutions are regulated. Major legislation enacted through this process includes:

  • Securities Regulation: The Securities Act of 1933 and the Securities Exchange Act of 1934 are foundational examples. These laws, passed by Congress, established the framework for regulating the issuance and trading of securities, and created the Securities and Exchange Commission (SEC) to enforce them17, 18. The SEC, in turn, engages in its own extensive rulemaking process to implement these statutes15, 16.
  • Financial Crisis Response: The Dodd-Frank Act, officially the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, was a direct legislative response to the 2008 financial crisis. This comprehensive law aimed to promote financial stability by improving accountability and transparency in the financial system, ending "too big to fail," and protecting consumers13, 14.
  • Corporate Governance: The Sarbanes-Oxley Act of 2002 (SOX) transformed corporate governance and financial reporting following major accounting scandals. Passed through the legislative process, SOX aimed to protect investors by improving the accuracy and reliability of corporate disclosures12. The Financial Industry Regulatory Authority (FINRA) also develops rules for the securities industry, which are subject to SEC review and approval, demonstrating a layered approach to regulation11.

Limitations and Criticisms

While the legislative process is designed to ensure thorough consideration and democratic representation, it is not without limitations and criticisms. One significant challenge is the potential for gridlock, where partisan differences or competing interests can delay or entirely prevent the passage of needed legislation. The complexity and length of the process can also make it difficult for constituents to track a bill's progress or influence its outcome effectively.

Another criticism, particularly relevant in finance, concerns the unintended consequences or excessive burdens imposed by new laws. For example, the Sarbanes-Oxley Act (SOX), while intended to enhance corporate accountability, has faced criticism for imposing substantial compliance costs, especially on smaller public companies9, 10. A report by the U.S. Government Accountability Office (GAO) noted that while SOX compliance costs are higher in absolute terms for larger companies, they are proportionally more burdensome for smaller firms, sometimes discouraging companies from going public8. Critics argue that these costs can stifle innovation and growth for certain businesses7.

Legislative Process vs. Rulemaking Process

While closely related, the legislative process and the rulemaking process are distinct phases in the creation and implementation of law and regulation.

The legislative process refers to the procedures by which a legislative body, such as the U.S. Congress, proposes, debates, amends, and enacts a bill into a statute or public law. This process culminates in the creation of primary law, signed by the executive, which sets broad legal principles and mandates.

In contrast, the rulemaking process is undertaken by executive agencies, such as the Securities and Exchange Commission (SEC) or the Federal Reserve, to create specific rules and regulation that implement, interpret, or prescribe law. These rules carry the force of law and provide the detailed operational guidance necessary to carry out the broader mandates set by the legislature. For instance, Congress passes the Dodd-Frank Act, and then the SEC engages in rulemaking to create the specific rules for implementing the various provisions of that Act.

The key distinction is that the legislative process creates the fundamental laws, while the rulemaking process elaborates on those laws, providing the practical details for their enforcement and compliance.

FAQs

How does a bill typically become a law in the United States?

In the United States, a bill typically becomes a law by being introduced in either the House or Senate, reviewed and approved by a committee, passed by a majority vote in its originating chamber, then passed by the other chamber, and finally signed by the President. If the President issues a veto, Congress can override it with a two-thirds vote in both houses.6

What is the role of committees in the legislative process?

Committees play a crucial role by specializing in specific policy areas. When a bill is introduced, it is referred to one or more committees for detailed review, research, hearings, and mark-up (amendment). Most bills either die in committee or are substantially shaped there before moving to the full chamber.4, 5

Can ordinary citizens influence the legislative process?

Yes, ordinary citizens can influence the legislative process in several ways. They can contact their elected representatives, express their views on proposed bill, join advocacy groups, or participate in public comment periods for agency regulation and proposed rules.3

What happens if the House and Senate pass different versions of the same bill?

If the House and Senate pass different versions of the same bill, a conference committee is usually formed. This committee, made up of members from both chambers, works to reconcile the differences and create a single, unified bill. The reconciled bill then must be approved by both the House and Senate before it can be sent to the President.1, 2