The Dodd-Frank Bill.

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The House-Senate conference committee on financial reform finished its work at 5:49 a.m. today, concluding a session that began Thursday morning and continued through the night. The result is the Dodd-Frank bill. The final text is not yet available, but going off a number of reports, here are some key items:

  • Volcker rule: The rule was based on the language provided by Sens. Merkley and Levin, a win for reformers that will place real restrictions on banks' risk-taking and profits. But negotiators also included a compromise -- designed to attract the vote of Sen. Scott Brown -- that would allow banks to invest up to 3 percent of their capital in a private-equity or hedge fund. This is, however, significantly less than many are currently invested.
  • Derivatives: A last-minute compromise to Sen. Blanche Lincoln's swaps-desk ban looks to force banks to spin off most of their riskiest derivatives trading into separately capitalized subsidiaries, although some more prosaic trades to hedge risk will be kept in-house. It looks like most of the reporting, clearing, and exchange-trading rules from the Senate bill also survived conference, but this is definitely a provision where we'll have to examine the fine print.
  • Surprise! $19 Billion Bank Tax. Though the ex ante dissolution fund didn't make the cut thanks to wild and deliberate misinformation about its purpose, the committee did impose a risk-based assessment on the largest banks to collect $19 billion needed to cover the costs of implementing financial reform. Not bad.
  • The Auto Dealers Win. While reformers can be pleased that the Consumer Financial Protection Bureau will become an independent regulator housed in the Fed, it does have a glaring loophole: It won't regulate auto lending thanks to a massive lobbying campaign by auto dealers. As we've discussed, this is ridiculous: Lenders are taking advantage of people, including servicemembers, and there's no reason to exempt a market that's grown larger than credit cards from commonsense consumer regulation.

Here's a nice breakdown of the major provisions in the bill. You can also expect more analysis here as we look at the final language.

The bill appears to largely resemble the Senate version, with some additional loopholes and some improvements -- particularly on Volcker -- thanks to the conference process. While complaints that Dodd-Frank doesn't "reshape" Wall Street and leaves too many good reforms on the table aren't inaccurate -- and they provide an agenda for the future -- the bill itself deserves to be held to a different standard: Will it fix serious holes in financial regulation and empower regulators? Will it limit risk and reduce bank profit? Does it include landmark provisions like a new consumer regulator and derivatives reform? Does it seriously diminish the potential for future bailouts? The answer to all of those questions is "yes," and that makes this legislation quite an accomplishment.

-- Tim Fernholz

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