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A panel of 43 Congressional lawmakers spent two weeks reconciling differences between financial regulation bills that passed the House in December and the Senate in May. They concluded their negotiations along party lines today around 5 a.m. in a Capitol Hill conference room. Description follows:

The "Volcker" rule, named after former Federal Reserve Chairman Paul Volcker, prohibits banks from making risky bets with their own funds. Financial companies can make limited investments in areas such as hedge funds and private-equity funds. It requires some big banks to spin off divisions, known as proprietary-trading desks, which make bets with the firms' money.

The bill also includes a provision that would limit the ability of federally insured banks to trade derivatives. It still allows banks to trade interest-rate swaps, certain credit derivatives and others—in other words the kind of standard safeguards a bank would take to hedge its own risk. Banks, however, would have to set up separately capitalized affiliates to trade derivatives in areas lawmakers perceived as riskier, including metals, energy swaps, and agriculture commodities, among other things.

Government-controlled Fannie Mae and Freddie Mac remain a multibillion dollar drain on the U.S. Treasury, and largely untouched by this proposal.

The legislation would redraw how money flows through the U.S. economy, from the way people borrow money to the way banks structure complicated products like derivatives. It would erect a new consumer-protection regulator within the Federal Reserve, give the government new powers to break up failing companies and assign a council of regulators to monitor risks to the financial system.

The legislation gives the Securities and Exchange Commission new powers to regulate Wall Street and monitor hedge funds, increasing the agency's access to funding. The Commodity Futures Trading Commission would also have new powers to force most derivatives to face more scrutiny from regulators and other market participants. To pay for some of the new government programs, the bill would allow the government to charge fees to large banks and hedge funds to raise up to $19 billion spread over five years. The assessment is designed to eventually pay down a part of the national debt. (WSJ, 6/25/2010)