FACTBOX-Major U.S. financial regulation reform initiatives

April 24 (Reuters) - The Obama administration and senior congressional Democrats are moving to tighten U.S. financial regulation to prevent another banking crisis. Changes will affect banks, insurers, credit rating agencies, hedge funds, private equity firms, brokerages, and exchanges while greatly extending the government's reach into the financial sector.

Here are the major issues:

CREDIT CARDS

A U.S. Senate committee and a House subcommittee have approved bills to crack down on the credit card industry by limiting fees and barring retroactive interest rate increases on existing balances, among other steps.

The Federal Reserve finalized new credit card rules last year, but some lawmakers were unhappy with the Fed's long, 18-month implementation period. The Senate bill calls for a nine-month implementation; the House bill for one year from approval, or by July 2010, whichever comes first.

The Senate bill barely passed committee, clouding its chances for full Senate approval. The House bill stands a better chance with Democrats in firm control in that chamber.

Senior administration officials met on April 23 with top executives from banks with big credit card units, calling for a halt to unfair rate increases.

Political risk exposure: American Express Co (AXP.N), Bank of America (BAC.N), Capital One Financial Corp (COF.N), Citigroup (C.N), Discover Financial Services (DFS.N).

UNWINDING FAILING FIRMS

The administration has sent Congress draft legislation to empower the government to seize and unwind large, failing financial firms that are not banks.

No clear procedure for doing this now exists, as shown by the erratic, case-by-case bailouts of troubled firms such as insurer American International Group Inc (AIG.N).

A seizure would require approval of the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp, in consultation with the White House. The Treasury and FDIC would decide whether to offer financial aid to the seized firm or to put it into conservatorship.

The U.S. House Financial Services Committee plans to hold hearings on the legislation in late April and early May.

SYSTEMIC RISK REGULATOR

Treasury wants a single, independent regulator to oversee systemically important firms and critical payment and settlement systems, but has not said which agency should get this job. No agency formally does it now.

Some in Congress favor giving it to the Federal Reserve, but some are skeptical that the Fed is up to the task.

Alternative legislation has been introduced in Congress to establish an inter-agency council on financial stability.

EXECUTIVE PAY

The House has approved a bill to curb "excessive" employee pay at firms getting government bailout funds.

It would let the Treasury block compensation and bonuses not based on performance standards. It would apply to all employees, not just executives, at bailed-out firms.

The bill now moves to the Senate, where Republicans have more power and could water it down. Some analysts expect passage of a modified version that exempts some forms of compensation and applies only to future bonuses.

HEDGE FUNDS, PRIVATE EQUITY

Treasury has recommended that all advisers to hedge funds, private equity funds and venture capital funds, whose assets under management top a not-yet-determined level, must register with the U.S. Securities and Exchange Commission.

The recommendation imposes investor and counterparty disclosure requirements on funds' SEC-registered investment advisers. The SEC would share the reports it gets from funds with the systemic risk regulator, which would decide whether any hedge fund poses a systemic threat and should be subjected to higher standards for systemically important firms.

Political risk exposure: Bridgewater Associates, D.E. Shaw Group, Farallon Capital Management, Citadel Investment Group, Fortress Investment Group (FIG.N).

SHORT SELLING

The SEC has floated five proposals to curb short selling, drawing fire from short sellers who feel they are being made scapegoats for the financial crisis.

The agency is taking public comment for 60 days on the proposals, which include reinstituting the "uptick rule," which allows such bets that a stock will fall only when the last sale price was higher than the previous price.

An SEC roundtable meeting will be held on the issue on May 5. Final action is months away.

MORTGAGES AND SECURITIZATION

A House bill would clean up mortgage lending by holding lenders more accountable, barring "steering" of borrowers into higher-cost loans and exposing lenders to more legal risk.

Two new standards would be set. One would force lenders, assignees and securitizers to consider a borrower's "reasonable ability to repay." Another would require that borrowers in a refinancing get a "net tangible benefit," under the bill.

Financiers that securitize mortgage debt would be exposed to greater liability, although the bill would bar class action lawsuits and otherwise limit borrowers' legal options.

Borrowers facing foreclosure would have more rights, as would rental tenants in properties going into foreclosure.

In addition, regulators would have to write rules requiring lenders to retain at least 5 percent of the credit risk in any unconventional mortgages they securitize.

The House Financial Services Committee will hold a hearing on the bill on April 23.

MORTGAGE BANKRUPTCY

Legislation meant to help distressed homeowners by allowing U.S. bankruptcy court judges to adjust the terms of mortgages on primary residences has stalled in the Senate.

Democrats backing the bill -- known as "cramdown" and opposed by most of the banking industry -- have been unable to line up the 60 votes needed to clear the way for it. The House approved a cramdown bill in March.

STUDENT LOANS

President Barack Obama's 2010 federal budget proposed ending the giant federally guaranteed student loan program and moving most of the nation's $90 billion in student lending into the direct-loan program run by the Education Department.

The proposal is subject to review by Congress and possible changes. If adopted, the White House said it would save taxpayers billions of dollars a year and end "entitlements for financial institutions that lend to students."

The student loan industry is resisting the administration's proposal and has put forth alternative strategies.

Political risk exposure: Sallie Mae (SLM Corp) SLM.N, Student Loan Corp STU.N, JPMorgan Chase & Co (JPM.N).

BANK CAPITAL STANDARDS

U.S. regulators are expected to craft stricter capital standards that improve upon Basel II standards, which give financial firms flexibility to judge their own risk profiles.

Financial institutions will also face new liquidity requirements, which bank regulators expect to issue guidance on during the first half of this year.

DERIVATIVES CLEARING AND SETTLEMENT

Exchange operators have scrambled to build credit default swap clearinghouses under recent regulatory decisions.

IntercontinentalExchange (ICE.N) has begun clearing U.S. index-based CDS, while rival CME Group (CME.O) has all regulatory approvals.

U.S. regulators originally wanted CDS funneled through a central counterparty by the end of 2008. They have agreed in principle to share policing of CDS clearing. But questions remain on whether the Fed, backed by ICE, or the Commodity Futures Trading Commission, backed by CME, will take the lead.

CREDIT RATING AGENCIES

The SEC has a proposal to wean the financial system off its heavy reliance on credit ratings, but it is opposed by the mutual fund and brokerage industries.

Democratic Senator Jack Reed has drafted legislation to allow investors to sue credit rating agencies if they failed to "conduct a reasonable investigation" of a rated security.

Reed's bill has not yet been introduced and is still subject to changes. It would also call for an SEC office to coordinate activities for regulating credit rating agencies.

Political risk exposure: Moody's Corp (MCO.N), Standard & Poor's (MHP.N), Fitch Ratings (LBCP.PA). (Reporting by Kevin Drawbaugh, Karey Wutkowski, Patrick Rucker, Rachelle Younglai, John Poirier and Jonathan Spicer; Editing by Richard Chang)