RPT-FACTBOX-Keys to financial regulation reform in U.S. Senate

(Repeats to fix typo in headline)

March 5 (Reuters) - A revised bill on financial regulation reform will come out soon in the U.S. Senate from Banking Committee Chairman Christopher Dodd, a Democrat.

The revised bill will be the next step in a long drive, with months to go, by the Obama administration and congressional Democrats to tighten bank and capital market oversight.

It will be narrower than a bill approved in December by the House of Representatives, which itself was pared back from reforms proposed by President Barack Obama in mid-2009.

Below is a look at some of the probable contours of the Dodd legislation and its prospects, based on discussions with lawmakers, congressional aides and lobbyists:

* CONSUMER PROTECTION

Dodd is likely to call for creating a financial consumer protection watchdog as a division of another agency, probably the Federal Reserve, rather than as an independent agency.

Obama last year proposed an independent Consumer Financial Protection Agency (CFPA) to regulate mortgages, credit cards and other financial products, an approach still favored by the White House and endorsed by the House.

Dodd backed the independent CFPA idea in November when he unveiled a draft reforms package.

But Republicans refuse to consider the idea. Senator Richard Shelby, top Republican on Dodd's committee, has said the CFPA should be housed inside a banking regulatory agency that can veto rules proposed by the consumer watchdog.

Dodd has also explored putting the watchdog inside the Treasury Department or the Federal Deposit Insurance Corp.; the Fed option is the latest attempt at a compromise.

Lobbyists for banks and Wall Street firms, whose profits would be threatened by the CFPA, months ago made killing or weakening it their top goal in a broad push against reforms.

* BANK SUPERVISION

Dodd is expected to call for a modest streamlining of the nation's patchwork bank supervision system, a retreat from his November proposal to consolidate into one regulator the supervisory authority now housed in several agencies.

The latest approach in the Senate negotiations would let the Fed keep oversight of large bank holding companies, such as Citigroup and Bank of America, but surrender responsibility for some state-chartered banks to the FDIC, which already oversees other state-chartered banks.

The Office of Thrift Supervision (OTS), which polices savings and loans, still looks likely to close down, merging into the Office of the Comptroller of the Currency (OCC), which now regulates national banks. The OCC may remain in its present place as a Treasury Department unit.

The House bill approved in December called for closing OTS and merging it into OCC, but it preserved the Fed's and the FDIC's traditional bank supervision roles. Senators seem to be moving toward an agreement that is closer to the House bill.

* VOLCKER RULE

Obama's late proposal unveiled in January to ban proprietary trading at banks looks likely to make it into legislation only in significantly reduced form.

Dodd will probably have language in his bill that empowers regulators to order restructuring moves at large firms in distress. That could include shutting down proprietary trading desks, as well as hedge fund and private equity operations, like those targeted by the Volcker rule, proposed by the president and authored chiefly by White House economic adviser Paul Volcker..

Similar language is already in the House bill.

The administration has voiced continued support for the Volcker rule.

OVER-THE-COUNTER DERIVATIVES

Imposing a new set of rules on the unpoliced $450-trillion OTC derivatives market, including credit default swaps, is a provision "that's got to be" in the bill, Dodd has said.

Obama has called for forcing as much traffic as possible in the market through exchanges, equivalent electronic trading platforms or, at least, central clearinghouses.

The handful of Wall Street firms -- Goldman Sachs (GS.N), JPMorgan Chase (JPM.N), Citigroup (C.N), Bank of America (BAC.N) and Morgan Stanley -- that dominate the market have fought increased oversight.

The House bill included new regulations for OTC derivatives, but exempted a wide range of end-users of the financial contracts from mandatory central clearing.

The draft unveiled by Dodd in November has narrower scope for exemptions. Dodd has since largely turned over work on this issue to Democratic Senator Jack Reed and Republican Senator Judd Gregg. They have provided little insight into the details of their discussion.