Following are the key elements of the 2,300-page bill:
(Full text of the bill, as approved by a Senate-House conference committee, can be read here)
TITLE I. SYSTEMIC RISK
A council of regulators chaired by the secretary of the Treasury would be created to monitor big-picture risks in the financial system. The Financial Stability Oversight Council could identify firms that threaten stability and subject them to tighter oversight by the Federal Reserve. The Fed and the council could break up firms that have not responded to earlier measures and pose an urgent threat.
TITLE II. ENDING BAILOUTS
The bill would set up an "orderly liquidation" process that the government could use in emergencies, instead of bankruptcy or bailouts, to dismantle firms on the verge of collapse.
The goal is to end the idea that some firms are "too big to fail" and avoid a repeat of 2008, when the Bush administration bailed out AIG <AIG.N> and other firms but not Lehman Brothers <LEHMQ.PK>. Lehman's subsequent bankruptcy froze capital markets.
Under the new rule, firms would have to have "funeral plans" that describe how they could be shut down quickly.
The Federal Deposit Insurance Corp's costs for running liquidations would be covered in the short term by a Treasury credit line, then recouped by sales of the liquidated firms' assets. In case of shortfalls, costs could be further covered by claw-backs of any payments to creditors that exceeded liquidation value, and fees charged to other large firms.
The FDIC could guarantee the debts of solvent insured banks to prevent bank runs. But this could only happen if the boards of the FDIC and the Fed decided financial stability was threatened, Treasury approved the terms, and the president activated a rapid process for congressional approval.
TITLE III. SUPERVISING BANKS
The U.S. Office of Thrift Supervision, which was widely criticized in the run-up to the 2007-2009 credit crisis, would be closed and most of its duties shifted to the Comptroller of the Currency.
Banks would be barred from converting their charters to escape regulatory enforcement actions.
The FDIC's deposit insurance coverage would be permanently raised to $250,000 per individual from $100,000.
TITLE IV. HEDGE FUNDS
Private equity and hedge funds with assets of $150 million or more would have to register with the Securities and Exchange Commission, exposing them to more scrutiny. Venture capital funds would be exempted from full registration.
Investment advisers would have to manage assets of $100 million or more to be federally regulated, an increase from the present $30 million level. The change would shift some of the oversight for small firms from the SEC to the states.
TITLE V. INSURANCE
A new federal office would be created to monitor, but not regulate, the insurance industry, which is now policed only at the state level. The move would appease opponents of centralized regulation by keeping real power out of Washington's hands, while giving big insurers that want a single regulator a foothold they might be able to expand from in the future.
TITLE VI. VOLCKER RULE AND BANK STANDARDS
Under a rule proposed by White House economic adviser Paul Volcker, the bill would bar proprietary trading unrelated to customers' needs at banks that enjoy government backing, with some of the details of implementation left up to regulators.
Banks could continue to invest up to 3 percent of their Tier 1 capital in private equity and hedge funds, not to exceed 3 percent of any single fund's total ownership interest.
Private equity and hedge fund interests above the new caps would have to be divested over time, under the Volcker rule.
In addition, the largest banks' ability to expand would be limited by a new cap on share of industry-wide liabilities.
Non-bank financial firms supervised by the Fed would face limits on proprietary trading and fund investing as well.
Bank holding companies within five years would have to stop counting trust-preferred securities and other hybrids as Tier 1 capital, a key measure of a bank's balance sheet strength.
Firms with assets under $15 billion could count current holdings of hybrids as Tier 1 capital, but not any new ones.
The bill would also require credit exposure from derivative transactions to be added to banks' lending limits.
In addition, bank capital standards could not sink below those already on the books, and a 15-to-1 leverage standard could be imposed on firms that threaten financial stability.
The bill would also make bank holding companies follow higher capital standards observed by bank subsidiaries.
Analysts expect the Volcker rule and related changes to cut profit at firms such as Bank of America <BAC.N>, Goldman Sachs <GS.N>, Morgan Stanley <MS.N> and JPMorgan Chase <JPM.N>.
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