Wall Street reform: What's in the bill

By Jennifer Liberto, senior writer and David Ellis, staff writer


WASHINGTON (CNNMoney.com) -- After more than a year of work and two weeks of negotiations, lawmakers finished melding different versions of Wall Street reform. And the House passed the bill on Wednesday.

Here's CNNMoney.com's breakdown of key provisions that aim to protect consumers, prevent firms from getting too big to fail and crack down on risky bets that leave taxpayers on the hook.

Consumer protection

Creating a consumer agency: Establishes an independent Consumer Financial Protection Bureau housed inside the Federal Reserve. Fees paid by banks fund the agency, which would set rules to curb unfair practices in consumer loans and credit cards. It would not have power over auto dealers.

Credit scores: All consumers have been able to get one free credit report a year from the credit rating agencies. But the bill would also allow a consumer to get an actual credit score along with a report.

Interchange fees: Lawmakers want the Fed to crack down on debit card swipe fees, which retailers pay to banks to cover the operational cost of transferring money. The Fed could cap the fees and make them more reasonable and proportional.

Banning 'liar loans': Lenders would have to document a borrower's income before originating a mortgage and verify a borrower's ability to repay the loan.

Mortgage help for unemployed: Unemployed homeowners with good credit would be eligible for low-interest loans to help them avoid foreclosures. The bill would spend $1 billion on such relief, using funds that had been directed for Troubled Asset Relief Fund bailing out the financial system.

Fixed-equity annuities: Prohibits tougher federal rules on life insurance products, in which customers pay a lump sum upfront in exchange for monthly income over time, pegged to an index. The Securities and Exchange Commission had been gearing up to step in and start requiring more disclosure for these products, often sold to seniors, that are currently regulated by state insurance commissioners. Lawmakers decided to stop the SEC from tougher federal regulation.

Too big to fail

New oversight power: Creates a new 10-member oversight council consisting of financial regulators to look out for major problems at financial firms and throughout the financial system. The Treasury Secretary gains a key role in enforcing tougher regulations on larger firms and watching for systemic risk. The council also has veto power over new rules proposed by new consumer regulator.

Unwinding powers: Gives the FDIC new powers to take down giant financial firms in the same way it takes down banks. Banks would be taxed to reimburse the federal government for the cost of resolving these firms after a failure occurs.

Breaking up banks: Gives regulators strengthened powers to break up financial companies that have grown too big, but only if the firms threaten to destabilize the financial system.

Checking on the Fed: Allows Congress to order the Government Accountability Office to review Fed activities, excluding monetary policy. Audits would be allowed two years after the Fed makes emergency loans and gives financial help to ailing financial firms.

Forcing 'skin in the game': Firms that sell mortgage-backed securities must keep at least 5% of the credit risk, unless the underlying loans meet new standards that reduce risk.

Financial system fees: Banks would pay more in premiums for deposit insurance to the Federal Deposit Insurance Corp., which would cover some $5.7 billion of the cost of implementing the Wall Street reform bill. The rest of the tab, $11 billion, would be offset with untapped dollars authorized for the 2008 federal bailout fund, the Troubled Asset Relief Program.

Risky bets

Regulating derivatives: Attempts to shine a light on complex financial products called derivatives that many blame for bringing down American International Group (AIG, Fortune 500) and Lehman Brothers. Would force most derivatives to be bought and sold on clearinghouses and exchanges. Some derivatives, including those traded by agriculture companies and airlines to mitigate risk, would still be unregulated.

Spinning off swaps desks: Big banks that want to engage in nontraditional bets, such as on mortgage products or certain commodities, would have to spin off their swaps divisions.

Reining in risky bets: Limits giant Wall Street banks from making trades on their own accounts, although with a long lead time and opportunities for delays up to seven years. While the original proposal would have banned banks from owning hedge funds, the bill would allow banks to sink up to 3% of capital into hedge funds or private equity funds.

Improving credit ratings: Agencies that rate securities must disclose their methodologies. The Securities and Exchange Commission would have to study a way to find an independent way to match credit rating agencies with financial firms seeking ratings. After two years, they'd have to implement such a process, or appoint a panel to independently match ratings agencies with firms that need securities rated.

Curbing executive pay: The bill would also impose new rules for how all publicly-traded companies, not just banks and other financial firms, pay top executives. Shareholders will be given a nonbinding advisory vote on how top executives are paid while in office. Shareholders also get a nonbinding advisory vote on executives' outsized severance payments, or so-called "golden parachutes."

The new rules would also beef up oversight of pay practices within the financial industry, which some critics have suggested helped fuel the crisis by encouraging workers to place risky bets. The bill, for example, would require industry regulators to draft their own set of rules aimed at eliminating risky pay practice among banks and other financial firms. To top of page

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