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Major Parts of the Financial Regulation Overhaul

Consumer Agency

Effect: Creates a federal regulator to write and enforce rules protecting consumers of financial products like checking accounts, mortgages and payday loans. Increases the authority of state regulators to enforce protections.

Notable differences between House and Senate bills: The Senate bill gives the federal regulator broader authority, including over loans made by auto dealers. The House bill creates a free-standing regulator, while the Senate bill places it inside the Federal Reserve.

Columns and steps
Columns and steps

Proposals omitted or defeated: The administration proposed requiring lenders to offer each borrower a “plain vanilla” loan, like a 30-year, fixed-rate mortgage, to illuminate the range of possibilities, but the proposal didn't make it into either bill.

Derivatives

Effect: For the first time, establishes federal oversight of derivatives, complex products that bet on the future movement of underlying securities. Requires most deals to be insured by a third-party clearinghouse and traded on public exchanges.

Notable differences between House and Senate bills: The Senate bill bars banks from derivatives trading. It also requires a larger share of derivatives to pass through clearinghouses and trade on exchanges.

Proposals omitted or defeated: A ban on derivatives called naked credit-default swaps, in which investors essentially purchase insurance on the performance of assets they don’t own. The Senate voted down this amendment.

Financial Regulation

Effect: Creates a council of regulators to watch for systemic risks. Gives the Federal Reserve new authority over large financial companies. Consolidates banking regulators, merging the Office of Thrift Supervision into the Office of the Comptroller of the Currency.

Notable differences between House and Senate bills: The House bill places tighter limits on the Fed, authorizing regular audits, and limiting its authority to impose new restrictions and to make emergency loans.

Proposals omitted or defeated: Senator Christopher J. Dodd, Democrat of Connecticut, proposed creating a single agency to regulate financial companies. There are still three: the Office of the Comptroller of the Currency, the Fed and the F.D.I.C. A proposal by the Bush administration for a single agency to regulate financial markets also never materialized. There are still two: the Securities and Exchange Commission and the Commodity Futures Trading Commission.

Too Big to Fail

Effect: Authorizes regulators to impose restrictions on large, troubled financial companies. Creates a process for the government to liquidate failing companies at no cost to taxpayers, which is similar to the F.D.I.C. process for liquidating failed banks.

Notable differences between House and Senate bills: The House bill would cover costs with a $150 billion fund collected from the largest financial companies. The Senate bill would recoup costs from the same group of large companies after the fact.

Proposals omitted or defeated: An amendment to impose size limits on the largest financial companies failed in the Senate

Shareholder Protections

Effect: Requires companies to have executive compensation set by independent directors. Gives shareholders a nonbinding vote on those decisions.

Notable differences between House and Senate bills: The Senate bill also requires so-called clawback provisions that force executives to repay any earnings based on inaccurate financial statements.

Proposals omitted or defeated: An early populist swell of support for a “bonus tax” on top earners never found its way into either bill. Neither did any other limits on compensation.

Proprietary trading

Effect: The Senate’s bill includes the Volcker Rule, which restricts banks from making "proprietary" investments that do not benefit clients, including in hedge funds and private equity funds. The provision particularly affects banks like Goldman Sachs, which make much of their income from this type of activity.

Notable differences between House and Senate bills: The House bill does not contain any version of the Volcker Rule, which President Obama proposed in January, after the House bill had already passed.

Proposals omitted or defeated: The Senate never voted on an amendment to restore the barrier between commercial banking and Wall Street trading, adopted as part of the Glass-Steagall Act of 1933 and repealed in 1999.An early populist swell of support for a “bonus tax” on top earners never found its way into either bill. Neither did any other limits on compensation.

Investor Protections

Effect: Requires companies selling certain complex financial products, most notably mortgage-backed securities, to retain a portion of the risk. Allows investors to sue credit ratings agencies.

Notable differences between House and Senate bills: The House bill also requires risk retention when banks sell investors basic products like mortgages. It also requires brokers to act in the interest of their clients. The Senate bill would create a new federal system for assigning work to ratings agencies to limit the influence of banks over the ratings of their own products.

Proposals omitted or defeated: The Senate never voted on amendment to change the business model of ratings agencies, in which banks pay for ratings on the products that they sell to clients.

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