It looks like we're well on our way to having a financial reform bill. And there's a lot of opinion on whether it's worth its weight in paper--the bill runs to nearly 2,000 pages. The President still intends to sign a bill by July 4th, and there's reason to be optimistic. To be sure, there will still be a lot of work left to do. The bill, as noted by the New York Times, "is notably short on specifics, giving regulators significant power to determine its impact--and giving partisans on both sides a second chance to influence the outcome." That said, there are enough specifics to speak about the broad impact.

Here are some key issues:

• Too big to fail. Has this problem been solved? I would score this as a draw. The issue turned out to be less controversial than many thought. The heads of the FDIC, the Federal Reserve and the Treasury would receive new authority to wind down big financial firms (even non-commercial banks like, say, a Lehman Brothers). The FDIC would act as receiver, as it does well now, selling off assets. Banks and other large firms would have to create "funeral plans" that would dictate how they could be broken up and shut down. There is no limit on the size of a bank, however, and that has some riled up.
• Volcker Rule. The jury may still be out on this. On paper, it looks like a win for regulators. The Volcker Rule would not strictly separate commercial banks from owning and operating hedge funds and private equity, which was originally envisioned. Banks were successful in getting the language modified such that banks can invest up to 3 percent of their core capital in such investments. For the industry, this is good news of sorts. Banks were often asked by buy-side firms to have "skin in the game," the idea being that if the bank had capital in the fund, it would be managed better. No banks have a reason why they can only invest a little bit. Still, it does help prevent really stupid decisions by banks. Some think the results at Phibro make the point.
• Lincoln Amendment. Like the Volcker Rule, it was watered down. The early rhetoric was too strong for the reality, and the banks really pulled out a last-minute win. The bill leaves it up to regulators to determine exactly what derivatives and securities will be in play. Banks will be working hard to make sure the list is ultimately beneficial to them. Broadly speaking, interest-rate swaps, foreign exchange swaps, and gold and silver swaps will remain tradeable within the bank. Hence an odd fact: most of the derivatives market is now exempt from the law's restriction. That said, this was always aimed at credit default swaps. These swaps, along with equities and other swaps, will have to be conducted via entities spun-off from the main bank; commercial banks will have the hardest time adjusting. And of course more CDSs will be forced to clearinghouses or swap exchange facilities over time.
• The Fed. The rhetoric early on was tough, as some people wanted to limit the Federal Reserve Board to setting monetary policy and acting as lender of last resort. In the end, the Fed escaped draconian Congressional audits and oversight. And the board gained even more supervisory power. It will also house the new consumer protection bureau.
• Issues not dealt with. As we've noted before, the bill does address the thorny issue of what to do about Fannie Mae and Freddie Mac. We'll have to see what happens. You could say the same for the credit rating agencies. While the Al Franken amendment received strong support, it was ultimately dropped in favor of a provision that would require two years of more study. The idea is to end the inherent conflict of interest involved in picking agencies to rate your debt. Hopefully, we'll see some action after the study. Even now, however, credit rating agencies will be subject to greater liability. They could be sued if they "recklessly" failed to review key information.  - Jim