Goldman Sachs (NYSE: C), Citigroup (NYSE: C), and JPMorgan (NYSE: JPM) Rise on news of Financial Reform

Stocks rose Friday after news came down that Congress has passed a key hurdle in financial regulatory reform. A committee has reconciled the House and Senate proposals, and the legislation is now headed to President Obama’s desk. It is expected this bill will be signed into law in the coming weeks.

In the past few months, bank stocks saw peaks and valleys as news trickled out on financial reform. Some feared a complete removal of prop trading, and some even went as far to question if Glass Steagall would return. In the end, we saw neither has happened.  If those stipulations had existed in a previous version of the bill, they have been successfully removed by now, which has buoyed the market.

Anthony Polini, an analyst at Raymond James commented “There was a big political component to this, and the fear on Wall Street was that this bill would be a whipping tool for the administration to do something popular and bash the banks.” The final bill is more likely to push the key details onto the regulators shoulders, rather than Congress.

Reform legislation has been a priority of the Obama administration, and remained front page headline worth news, until the Toyota and BP disasters occurred at least. Throughout the past year, as the negotiations proceeded, portions of the legislation were softened, such as restrictions that would force large bank holding companies to spin off their lucrative derivatives business.

In the end this bill should positively impact the environment, giving regulators more control and oversight. The role of regulators has been elevated, rightfully so – as the troops on the ground, these agencies must be empowered to regulate institutions in their charge. The details and tough decisions are being pushed on their lap now, but with their knowledge of the markets that may be where it best resides.

Who has the most to gain from this? The firms that have weathered the storm, and can now continue operations without the cloud of impending change hanging over. Goldman Sachs (NYSE: GS) would have faced a significant change to the core structure of the firm had prop trading been banned completely. The commercial banks also would’ve faced significant challenges, as a race for capital and liquidity could squeeze Citigroup (NYSE: C) and Bank of America (NYSE: BAC) just as it had in the Fall of 2008.

The uncertain regulatory outlook, compounded by the sovereign debt crisis of Europe had shaken up financial stocks and jostled the market as well. With some semblance of certainty restored, financial institutions will now have the ability to adapt and move forward.