It's been almost 80 years since the US government has reached as deeply into the financial markets as it will do when the regulatory overhaul being crafted in congress becomes law.

But in one major area, the new legislation is weaker because it departs from a central goal of 1930s lawmakers – to control the size and scope of the largest financial institutions.

The Glass-Steagall act, which separated commercial and investment banking in 1933, "was the most effective antitrust law we've ever had", said Charles Geisst, a finance professor at Manhattan College in New York, who has written about Wall Street's history.

Glass-Steagall was as much about breaking up companies as ensuring customer deposits wouldn't be used for risky practices, said Geisst, who believes congress may live to regret that it has done almost nothing to shrink firms such as JPMorgan Chase, Goldman Sachs and Citigroup.

Congress repealed Glass-Steagall in 1999, contributing to mergers and the growth of one-stop-shopping financial services companies.

The legislation now making its way through congress would create a new agency to oversee consumer financial products, establish a council to monitor systemic risk and increase regulation of derivatives, mortgage brokers, credit-rating companies and hedge funds.

Although it is unlikely to prevent future crises, the new law, with all its weaknesses and loopholes, probably will mitigate the impact of the next blow-up, said Harvey Goldschmid, a former SEC commissioner and a professor at Columbia Law School. Goldschmid, who sat on the SEC as it implemented the Sarbanes-Oxley Act, said the new bill will have a large impact on the way Wall Street works, increasing scrutiny of the biggest banks.

"You're going to create oversight in areas where we just haven't had it and in areas that have been part of the problem," he said. "Will it make it perfect? Of course not. Will it make it better? Definitely."

Others, particularly banks and their lobbyists, see a historical over-reaching by Congress that has the potential to stifle the economy for years to come.

"We're beginning to see people price in the impact on this on the entire financial system, on the availability of credit," said David Hirschmann, president of the US Chamber of Commerce's Centre for Capital Markets Competitiveness. "There are estimates that up to $2 trillion of credit that would be sucked out of the economy."

Another issue of concern in the current legislation is that it may lead to unintended consequences, which has happened before when lawmakers have tried to rein in US corporations.

"There is nobody who knows everything that is in" the senate's financial overhaul bill, said former SEC Chairman Harvey Pitt, who was appointed by former president George W Bush. "We run a big risk of feeling the love of unintended consequences and feeling it in all its unleashed fury."

Bloomberg