FAQ: Wall Street reform bill

WASHINGTON (CNNMoney.com) -- Senate Democrats want to bring a Wall Street reform bill to the floor as soon as Monday.

But, as of now, Republicans say they oppose debate until a bipartisan compromise is reached. And, unless one Republican joins the 59 Senate Democrats in voting to begin debate, it won't happen.

Q. What do the parties agree on?

Both parties say they want a bill. "This is not a situation where anybody I know in the Senate wants no bill to pass," said Senate Minority Leader Mitch McConnell, R-Ky., on "Fox News Sunday." "But it is important to pass a good bill."

There's broad agreement to prevent bailouts, increase capital cushions at banks, protect consumers and shine a light on complex financial contracts, known as derivatives, that are now traded in private. The problems come when the two parties try to say how they'll solve them.

Q: What would the Senate bill do about banks that are "too big to fail?"

The bill, proposed by Banking Committee chairman Christopher Dodd, D-Conn., would create a council of regulators who keep an extra eye on firms whose failure would threatens the economy. It would also empower the Federal Deposit Insurance Corp. to step in and take down big Wall Street banks, tapping a pot of money -- $50 billion -- that banks pay into.

Democrats say that since the $50 billion would come from banks, and would be used only to help wind down an institution, it would not constitute a taxpayer-funded bailout. Republicans disagree, saying any action by the government toward propping a bank, even if it's only to keep it operating until it can close, constitutes a bailout.

"The message should be unambiguously that nothing is too big to fail and if you fail, we're going to put you to sleep," Banking Committee ranking member Richard Shelby said Sunday on NBC's "Meet the Press."

Q: How would a bill deal with risky bets?

The Dodd proposal would make complex financial contracts known as derivatives more transparent, pushing them onto clearinghouses and exchanges. It would make those involved post collateral, backing up the bets.

Republicans say they agree with regulating derivatives, but not all of them. For example, airlines and farmers benefit from making such bets to shed the risk of swings in commodity prices and interest rates. They also believe too much regulation will push the trades to overseas markets.

"What people don't I think appreciate so much is that all of these tools are used for capital formation. They help companies hedge their risk," said Sen. Bob Corker, R-Tenn. "They help companies create capital, and I think if we start drawing lines in the sand where we take these tools away, what we really do is hamper companies' ability to access capital.

Q: What would an independent consumer financial protection regulator do?

The Senate measure would create an independent regulator inside the Federal Reserve that would have strong powers aimed at helping consumers. New rules can get vetoed by a council of regulators. The House, in a bill passed late last year, goes further with a stand-alone agency.

The new regulator could ban penalty fees charged when high-interest mortgages are paid off early. It could let you take credit card disputes to court rather than be forced into mediation. And it could start a financial literacy drive to warn seniors about financial fraud and teach veterans to shop and compare auto loans.

On CNN's "State of the Union with Candy Crowley" on Sunday, Sen. Robert Menendez, D-N.J., said the agency's role "is to empower consumers to give them plain English language opportunities for them to understand and be part of a system that protects" them.

Critics say that if the consumer regulator's rules are too tough and cut too deeply into banks' balance sheets, the banks could become unstable and insolvent.

Q: What's the Volcker rule?

The Volcker rule, named for former Federal Reserve chairman Paul Volcker, limits the size and scope of banks' investment activities. The rule prevents banks from owning hedge funds and trading on their own accounts. The Senate Agriculture panel enhanced this effort on Wednesday by passing a bill that would force banks to spin off their swaps desks that make these trades.

But critics say big banks that got back on their feet quickly and paid back their TARP bailouts after the recent financial crisis did so in large part from their investment activities. Preventing such activities could push firms to move their business to other countries.

Shelby opposes the Volcker rule, but says something needs to be done to "end once and for all the casino atmosphere on Wall Street."