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Five big decisions as House, Senate confer on financial reform

Members of Congress began work Tuesday to resolve differences in the House and Senate versions of financial reform legislation.

By Staff writer / June 15, 2010

Sen. Tim Johnson (D) of South Dakota (2nd l.), House Financial Services Chairman Barney Frank (D) of Massacusetts (standing), and Senate Banking Chairman Chris Dodd (D) of Connecticut confer during the joint House-Senate conference on financial reform.

Scott J. Ferrell/Congressional Quarterly/Newscom

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For 43 members of Congress, it's time to work out the final details of the biggest overhaul of financial regulation since the 1930s.

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Their task, starting Tuesday, is to resolve differences between the mammoth financial reform bills passed by the House and Senate – both aimed at preventing another financial crisis.

Although the basic outlines of the two bills are similar, some major issues remain in play as the congressional conferees try to get a final bill to President Obama before July 4.

Both bills would empower top federal regulators to keep closer watch on risks in the financial system – beyond just traditional banks. When a large financial firm is failing, the bills would also establish a middle option between a bailout, such as occurred in 2008 with insurance giant AIG, and standing back while a firm fails (like investment bank Lehman Brothers), potentially destabilizing financial markets.

The House-Senate conference committee, led by Sen. Christopher Dodd (D) of Connecticut and Rep. Barney Frank (D) of Massachusetts, is wrestling with bills that, when combined, total some 2,000 pages.

Here are some key areas to watch in the days ahead:

The "Volcker rule" on banks. The Senate bill contains a provision designed to ban traditional banks from engaging in proprietary trading of investments. Named for former Federal Reserve Chairman Paul Volcker, the rule is designed to limit the size and risks of large banks – which now generally see investment trading as a major source of profits.

The measure appears to have gained the momentum needed to remain in the final bill, says Paul Miller and other industry analysts at the investment firm FBR Capital Markets in Arlington, Va. It could even be strengthened using language proposed by two senators who are not members of the conference committee itself, Carl Levin (D) of Michigan and Jeff Merkley (D) of Oregon.

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