Wall Street reform: 'Clock is ticking'

WASHINGTON (CNNMoney.com) -- The head of a key banking panel is expected Monday to release a draft bill of sweeping regulatory changes aimed at warding off future collapses in the financial system.

While much of the attention has focused on battles over the creation of a new consumer regulator to ensure consumers get a fair shake with mortgages and credit cards, the final draft is expected to address other areas, including some lawmakers generally agree about.

Senate Banking chief Christopher Dodd, D-Conn., said Thursday that the "single most important thing we do in this bill" will be creating a new mechanism to prevent firms from becoming so big that their failure would threaten the entire financial system, spurring another universally hated $700 billion Troubled Asset Relief Program.

Also expected in the bill: New requirements for banks and financial firms to strengthen their capital cushions and new rules pushing some complex financial products to be traded on clearinghouses, instead of in the shadows as is currently done.

Because there's general agreement on many of the major ways to ward off future crises, some experts are optimistic that a reform measure can be approved this year. The House passed a version of regulatory reform in December.

"There's still a broad alignment of interests, the public deeply wants something done and the public hates bankers who are seen as the principal opposition," said Doug Elliott of the Brookings Institution, a liberal think tank. "I'm not convinced that you can find 41 senators who will be willing to filibuster and be portrayed as protecting the bankers."

However, the midterm elections could complicate getting a final agreement, as most of Congress spends the summer preparing to face voters.

"As time moves on, you limit the ability to get something done. The clock is ticking," Dodd said Thursday, adding he'd like to get a bill passed by the banking panel in the next several weeks.

However, Republicans on the panel want to slow things down. In a Friday letter, they said the Dodd timetable wouldn't allow enough time for lawmakers to "fully understand the details of your new legislative proposal," according to the letter signed by all 10 Republicans on the committee.

Although the details of the bill won't be released until Monday, both Dodd and his most recent negotiating partner, Sen. Bob Corker, R-Tenn., have dropped hints of what to expect.

Consumer protection: Expect to see some sort of consumer financial protection regulator, likely housed inside an existing regulator, probably the Federal Reserve, or possibly Treasury or even the Federal Deposit Insurance Corp. That would differ from the House proposal, calling for a stand-alone agency, which Republicans oppose.

Lawmakers were still arguing about the details this week, but Dodd and the White House have insisted the regulator should have strong powers to make and enforce rules and be able to function on an independent revenue stream.

Too big to fail: Since late last year, Corker and Sen. Mark Warner, D-Va., have been hashing out a way to force big financial firms teetering on the brink of collapse to go through special bankruptcy proceedings. That would help wind them down more quickly than they can in the existing system.

The bill may include a tax on financial firms to create a resolution fund. The fund would be used to pick up part of the tab to wind down banks and financial firms that need help beyond the bankruptcy system. There's also the possibility for additional taxes on large firms after a failed company has tapped the fund.

Banking supervision: The regulatory role of the Federal Reserve is poised to get scaled back to include the largest banks, Corker said.

The Federal Deposit Insurance Corp. may get new powers in supervising smaller state-chartered banks, Congressional aides and lobbyists say. And Dodd may suggest merging two bank regulating agencies, as the House proposes in its bill, to get a stronger set of eyes on savings and loans and mortgage lenders.

Although Dodd last November suggested a super banking regulator to supervise all the banks under one roof, that idea has been scrapped, said Corker, who called such rearranging "one of the silliest efforts I've seen."

Early warning system: The Senate, like the House, wants to create some sort of panel of regulators who could sound an alarm before companies are in position to trigger a financial crisis. In this way, the bill would attempt to prevent failures such as those of Lehman Brothers that can deepen financial meltdowns across the globe.

In the Senate, lawmakers have leaned toward giving Treasury a key role in such oversight, while the House had the Federal Reserve take the lead.

Derivatives: With an eye toward preventing future collapse like that of American Insurance Group (AIG, Fortune 500), the Senate will attempt to shine a brighter light on some of the different kinds of complex financial products. It would pass some of these derivatives on to clearinghouses, which would help pinpoint the value of such trades.

However, there's still a lot of disagreement among lawmakers about which derivatives would continue unregulated, such as those traded by big agricultural and airline companies to mitigate risk.