Regulators to set details of new rules

WASHINGTON - Banking regulators have shared the blame for the financial crisis that buckled Wall Street. Now, they are the ones lawmakers are counting on to give final shape to the overhaul of financial rules.

In section after section of the 1,560-page Senate bill, lawmakers leave many of the details for the regulators to figure out. These are the same bank and market overseers - the Federal Reserve, the Office of the Comptroller of the Currency, the Securities and Exchange Commission - who took a beating for not watching Wall Street more closely and for failing to see the danger before it struck in 2008.

When it comes to key decisions about how to rein in complex, previously unregulated securities; how to liquidate large, interconnected failing financial firms, and even how to protect consumers, the bureaucracies in charge of setting the rules get plenty of discretion.

Lawmakers and Obama administration officials confronted the question time and again: when to be specific and prescriptive, when to give the regulators latitude.

For the financial industry, the more leeway regulators have, the more they can influence the rules.

"It gives them wiggle room and pressure points," said Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group, a nonprofit organization in Washington.

Of prime interest to the industry will be the final rules on derivatives, how much money and assets they must have on hand as capital, and to what degree they will have to give up their securities trading activities.

On each of those matters, the House legislation passed in December and the Senate's, passed Thursday, leave key decisions to regulators. For the next few weeks, all eyes will be on House and Senate negotiators who will blend both bills. In many respects, the bills are similar, and there should be no conflicts.

Overall, the bills aim to prevent a recurrence of the crisis that deepened the recession and cost millions of Americans their jobs and their savings. The legislation would create an oversight council of regulators to watch for risks in the financial system. It would create a consumer-protection entity to police lending, and enshrine a mechanism for liquidating large, interconnected firms.

On Friday, Senate Banking Committee chair Chris Dodd and House Financial Services Committee chair Barney Frank said they expect to have a bill ready for President Obama to sign by July 4.

When it comes to capital standards, the House prescribes a specific leverage cap on financial institutions of 15-1 debt-to-net capital ratio. The Senate requires banks with more than $250 billion in assets to meet capital standards at least as strict as those applying to smaller banks.

But policymakers are taking a second look at the Senate provision, saying that standard could have unintended consequences. The final capital standards could be left to government bank overseers.