Lawmakers are close to finalizing legislation that will overhaul the country's financial system and usher in new rules for Wall Street.
A joint House and Senate committee approved a bank regulation bill that now goes back to each chamber for a final vote. It will then be ready for President Barack Obama to sign into law, possibly by July 4.
Here are some of the likely winners and losers under the regulations:
Consumers - win
- New rules to protect consumers from risky financial products could only be overturned by banking regulators if they believe the rules could threaten the financial system or banks' deposits.
- A new consumer regulator would be added to the Federal Reserve, which has been criticized for failing to rein in the risky lending that contributed to the financial crisis.
- The consumer regulator would get funding from the Fed and would have the authority to request more funds from Congress.
- The regulator would be able to write and enforce rules for a slew of products such as mortgages and credit cards.
Credit rating agencies - win and lose
- Credit rating agencies — such as Moody's Corp., Standard & Poor's and Fitch Ratings — would be subject to greater liability.
- Rating agencies could be sued if they "recklessly" failed to review key information in developing a rating.
- The Securities and Exchange Commission would be given two years to mitigate conflicts of interest at the biggest rating agencies, which are paid by the issuers whose debt they rate. The two years give the agencies breathing space but if the SEC does not find a solution, the regulator would be required to implement a proposal by Sen. A Franken and create a board to match rating agencies with debt issuers.
- Federal regulators would be required to remove references to credit ratings in their rules in an effort to reduce reliance on the credit rating agencies.
Large financial firms - win and lose
- Large financial firms such as Bank of America and Goldman Sachs would be prohibited from proprietary trading and only be allowed to make minimum investments in hedge funds and private equity funds.
- Large firms would also face tougher standards in what qualifies for the capital they are required to set aside to ensure that they do not threaten the stability of the financial system.
- Banks such as Goldman and JPMorgan Chase would be forced to spin off some of their profitable derivatives business or risk losing access to the Federal Reserve's emergency funds. But banks would still be allowed to trade their biggest volume instruments, including foreign exchange and interest rate swaps.
- The firms' financial products such as mortgages and credit cards would be subjected to rules from a newly created bureau designed to protect customers from risky products.
- Most derivatives would be forced onto exchanges or through clearinghouses, in an attempt to limit the effect that large, risky trades can have on the economy, another factor that could curb bank profits. Non-financial players such as manufacturers, however, would be exempt.
CFTC/SEC - win
- The CFTC and SEC would gain new authority to regulate the $615 trillion over-the-counter derivatives market.
- The SEC would win power to oversee the hedge fund industry.
Small banks - win
- The Federal Reserve would continue supervising small banks.
- Banking regulators would enforce rules for small banks' financial products, and the new consumer financial regulator would provide backup enforcement.
U.S. Federal Reserve - win
- The Federal Reserve would gain powers to supervise systemically important financial firms.
- It would retain authority to supervise banks of all sizes.
- The Fed would be part of a "risk council" that would have authority to monitor risk in the financial system and decide whether a large complex company needs to divest assets.
- It would become home for the new Consumer Financial Protection Bureau and would have power along with other regulators to appeal bureau rules if they are deemed to undermine stability of the financial system or bank deposits.
- The Fed escaped congressional reviews of its monetary policy but would be subject to reviews of its emergency lending and open market activities.
- Democrats and Republicans originally wanted to strip the Fed of its powers to supervise banks and confine the central bank to setting monetary policy and acting as the lender of last resort.
Investors/shareholders - win and lose
- Broker-dealers who provide financial advice would not immediately be required to have fiduciary duties, which would require them to act in their clients best interests. The SEC must first study the issue for six months and then would have authority to impose those duties on brokers if they are deemed necessary.
- Publicly traded companies would be required to ask their shareholders whether they want a nonbinding vote on executive pay annually, once every two years or once every three years. Democrats originally wanted to give shareholders an annual say on executive pay.
- The SEC would have the authority to give shareholders an easier and cheaper way to nominate corporate board directors.
- The Municipal Securities Rulemaking Board would be required to impose fiduciary duties on municipal bond advisers.
Auto dealers - win
Auto dealers that do financing would be exempt from oversight by the new consumer bureau, and stay within the jurisdiction of the Federal Trade Commission.
Private pools of capital - win
- Advisers to hedge funds and private equity funds with more than $150 million in assets would be required to register with the SEC. Venture capital funds would be exempt.
Clearinghouses - win
- Derivatives clearinghouses would be able to borrow in emergencies from the Federal Reserve, as long as the systemic risk council, a majority of Fed governors and the Treasury Secretary, decide it is necessary.
Law firms - win
- Regulators like the Commodity Futures Trading Commission and Securities and Exchange Commission would have scores of rules to write to implement the legislation, meaning lots of billable hours for law firms and consultants advising clients on how to respond to proposed rules.