WASHINGTON (CNNMoney.com) -- More than a year after the financial system blew up, efforts to build a better financial regulatory system are just now getting hammered out in the Senate.
The big question is: Will it be tough enough?
Eight senators have paired up, one from each political party, to negotiate behind closed doors parts of a regulatory reform package that could pass the Senate with a filibuster-proof 60 votes.
Sen. banking chief Chris Dodd, D-Conn., and Sen. Richard Shelby, R-Ala., said in a joint statement Wednesday that their goal was to produce a bill that "strengthens our regulatory structure and makes our economy more secure."
"We have made meaningful progress and we hope to resolve the remaining issues before we reconvene in January," they added.
Two weeks ago, the House passed its version, a sweeping 1,300-page regulatory reform package, which could usher in the biggest changes to the way government watches over financial companies since the New Deal.
That bill increases oversight over big financial firms and complex financial products and creates a new agency dedicated to watching out for consumers seeking mortgages and credit cards.
However, it also got watered down a fair bit. For example, the White House had proposed forcing big national banks to start abiding by stronger state consumer protection laws. But that provision got weakened in negotiations, allowing big banks to mostly avoid stronger state consumer laws.
Some regulatory reform efforts are poised to get more diluted in the Senate, Congressional veterans say. They expect the concerns of financial services companies to be given more weight as the global crisis has eased and populist fury appears to be calming.
"Moderate Democrats are getting a lot of pressure from back home from their constituents who want Washington to act on the financial crisis and fix whatever problems exist, but at the same time, not to go too far," said Brian Gardner, a Washington policy analyst at investment firm Keefe Bruyette & Woods.
That much was apparent during the House negotiations, where several industries, including small banks, credit unions, auto dealers, credit reporting agencies were able to win a lighter touch.
The closed-door negotiations in the Senate haven't stopped banking and financial service groups from pushing for a more sensitive audience.
"It is the Senate's role to take a careful look and consider issues thoughtfully," said Scott Talbott of the Financial Services Roundtable, a bank lobbying group. "The Senate is taking a bipartisan approach."
Last week, President Obama vowed to fight banks that are trying to weaken or stop regulatory overhaul.
"The industry has lobbied vigorously against some of these reforms on Capitol Hill," Obama said last week. "I've no intention of letting their lobbyists thwart reforms necessary to protect the American people. If they wish to fight common-sense consumer protections, that's a fight I'm willing to have."
Some of the key issues up for debate in the Senate bill include: creating a Consumer Financial Protection Agency, unwinding large firms considered too big to fail, regulating banks under one roof, and moving the trades of some complex financial products onto exchanges to make them more transparent.
In November, banking chief Sen. Dodd released a draft of regulatory reform that his staff spent months working on. But Democrats and Republicans on his committee balked at different parts of the bill, making it clear they wouldn't sign off without some major rewrites.
Now they're back to the drawing board, with Republicans and Democrats teamed up to work out their differences.
The bipartisan nature of the talks have given more of an opening to some Republican and financial service sector ideas that haven't gotten much traction, including proposals for less government intervention.
For example, Sen. Mark Warner, D-Va., and Sen. Bob Corker, R-Tenn., have been tasked to tackle issues surrounding companies that are considered too big to fail.
One thing they're considering is creating a special kind of bankruptcy court that would handle the failure of big financial firms that could threaten the larger financial system. That same idea was championed by Republicans opposed to the House reform package. By contrast, the House plan would give regulators new powers to break up such giants instead of establishing a bankruptcy court.
Most regulatory experts say they expect the Senate's final proposals to deviate from that of both the House and the White House.
"The Senate was always going to be a more difficult row to hoe for the administration's position," said New America Foundation policy analyst Ellen Seidman. "They may surprise us all."
Even in the House, where Democrats outnumber Republicans by 81 members, the White House faced a surprisingly tough battle.
Its signature piece of regulatory reform -- creating a Consumer Financial Protection Agency -- nearly got killed, when a conservative Democrat (Rep. Walt Minnick, D-Idaho) proposed replacing the agency with a weaker panel of existing federal regulators, an idea pushed by the U.S. Chamber of Commerce.
House leaders had to sweat hard to garner enough support -- 223 Democrats -- to overcome the 175 Republicans -- and 33 Democrats -- who voted to replace the consumer agency.
The House version of the new consumer agency still took a beating; originally, it would have created an independent panel whose sole purpose would be to watch out for consumers seeking mortgages and credit cards.
Under the final House bill, the Consumer Financial Protection Agency won't be able to mandate simpler "plain vanilla" models of consumer credit cards and mortgages. Some 98% of banks, including all the small ones, and credit unions will keep their same regulator when it comes to enforcement of consumer protection rules. Auto loans won't be regulated.
"For us, the CFPA was so weakened, it's questionable as to what impact it's going to have," said John Taylor, president of the National Community Reinvestment Coalition, a nonprofit housing and lending advocacy group.
While the Consumer Financial Protection Agency is back up to its original strength in the Senate version, the changes in the House portend more to come, experts say.
Indeed, Dodd and the top Republican on the banking committee, Sen. Shelby, don't agree on the proposed new agency.
A look back at the hot stories and images from the world of business this week. More
A CNNMoney analysis finds some states like California have a lot of workers stuck in part-time jobs. More
Founder of Square Jack Dorsey discusses the international launch of the Square Register software, their partnership with Snapchat, and how Square could work with Apple Pay. More
President Obama addressed some visa reforms for high-skilled, legal immigrants -- but experts say comprehensive reform is still necessary for the U.S. to stay competitive. More
Billionaires are on a buying spree in New York, with sales of multimillion dollar properties up 120% so far this year, according to CityRealty. And the prices are expected to keep climbing next year. More