Last stop: Wall Street's risky bets

For nearly two weeks, a negotiating committee of 43 lawmakers has been reconciling the House and Senate versions of the most sweeping overhaul of the financial regulatory system since the 1930s.

The panel is on track to complete negotiations by Thursday evening, preparing bills for final passage by each chamber next week, said Rep. Barney Frank, D-Mass., who is running the conference committee.

"We want to make sure that this bill can be voted on before the July 4th break...no one is interested in prolonging uncertainty," Frank said Wednesday. "We have to conclude tomorrow night."

The Wall Street reform bills aim to strengthen consumer protection, shine a light on complex financial products, create a new process for taking down giant, failing financial firms, and make them stronger to prevent such failure.

Thursday's agenda

One of the outstanding issues is the best way to craft a provision, first proposed by former Federal Reserve Chairman Paul Volcker, to stop banks from owning hedge funds and trading for their own accounts.

That provision is being merged with another one that aims to prevent big banks from making risky bets and having access to emergency taxpayer-backed loans. That measure originally would have required banks to spin off their departments that trade complex financial contracts called derivatives.

The House bill doesn't include similar language, but some lawmakers have said they're open to the idea. Meanwhile, some of the more conservative Democrats have expressed reservations about portions of this section, according to a letter penned last week.

Senate Banking Chairman Sen. Christopher Dodd, D-Conn., said Wednesday they hadn't finished work on provisions to limit Wall Street's investment activities.

He said he was trying to strike the right balance of putting "real limitations" on risky banking activities without preventing banks from "proper hedging' against legitimate risks.

"Striking that balance is the challenge," he said. "We've been trying to find that sweet spot we could agree with."

Also, on Thursday, lawmakers will tackle general differences on the bills that aim to shine a light on derivatives, which are currently traded in the shadows.

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Both bills push many derivatives onto clearinghouses and exchanges that can better pinpoint the value of the securities and create firewalls between buyers and sellers. However, the House version allows more leeway for financial firms to avoid exchanges and avoid posting collateral on such contracts.

Progress made

The panel has made progress on many items of contention.

On Wednesday, lawmakers agreed to go with a Senate measure to pay to unwind failing financial firms by taxing banks after a major collapse. But lawmakers plan to require some sort of repayment plan get lined up before any money goes toward taking down a failing firm.

They're also on track to weaken a Senate provision requiring banking parent companies to bulk up their capital cushions with assets that can be more easily converted to cash. The Senate measure would cause all banks to have to raise a lot of money. House negotiators are concerned about the impact, especially on smaller banks, and pitched ways to weaken the measure.

Lawmakers are moving toward allowing those bank holding companies with less than $15 billion in assets to "grandfather" in existing assets under existing rules. But banks would have to move toward tougher standards for new securities over some period of time, either five, seven or 10 years. Lawmakers are still negotiating the timing.

They also agreed to house a consumer protection regulator inside the Fed and give it power to regulate credit cards and mortgages, but not auto dealers who make auto loans. 

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