Factbox: Keys to financial regulation reform in U.S. Senate

(Reuters) - A revised bill on financial regulation reform is set to be released next week in the U.S. Senate by Democratic Banking Committee Chairman Christopher Dodd.

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

It will likely be narrower than one approved in December by the U.S. 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 will call for creating a financial consumer protection watchdog. Now that he has broken off talks with Republicans on this issue, Dodd's path forward is more open.

He may carry on with a plan to make the watchdog a division of another regulator. Possible homes for it, as discussed in recent weeks by lawmakers, are the Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corp.

Or Dodd may return to his original proposal from November -- making the watchdog an independent federal agency. This alternative is flatly opposed by Republicans and lobbyists for the banking industry and Wall Street.

Obama in mid-2009 proposed an independent Consumer Financial Protection Agency (CFPA) to regulate credit cards and consumer loans like the subprime mortgages that helped inflate the real estate bubble behind the financial crisis.

The independent agency approach was endorsed by the House in its bill in December and still has White House support.

* RESOLUTION FUND

To put an end to the assumption that some financial firms are "too big to fail," Dodd will propose a new government process for shutting down large, troubled firms.

With the aim of avoiding debacles like the 2008 collapse of former Wall Street giant Lehman Brothers and the bailout of former insurance giant AIG, Dodd will propose empowering government regulators to seize distressed firms and unwind them in a bankruptcy-like process.

He may call for creating a $50-billion fund to help pay for such wind-downs, although many senators want to avoid that.

The House bill set up a similar "resolution authority" and the idea is a top priority of the administration.

* 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 Dodd bill will call for closing the Office of Thrift Supervision (OTS), which polices savings and loans, and merging it into the Office of the Comptroller of the Currency (OCC), which now regulates national banks.

Senators have discussed letting the Fed keep oversight of large bank holding companies with assets exceeding $100 billion. That would cover about 23 major firms, including Citigroup and Bank of America.

Details of this approach have not been nailed down. For instance, it is still unclear if the Fed would remain an "umbrella regulator" with other agencies doing detailed bank examination work, or whether its duties could change.

Senators have also talked about stripping the Fed of responsibility for some state-chartered banks, whose oversight would shift to the FDIC, which already does similar work.

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.

* VOLCKER RULE

Obama's January proposal to ban proprietary trading at banks may get into Dodd's bill only in reduced form, although five Democratic senators introduced a separate bill on March 10 that would not only enact the Volcker rule, but widen it.

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 rule proposed by the president and White House economic adviser Paul Volcker.

Similar language is already in the House bill.

The new legislation introduced in the Senate would apply the rule to banks and large nonbank financial institutions.

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, JPMorgan Chase, Citigroup, Bank of America 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 their work.

* EXECUTIVE PAY AND SHAREHOLDER RIGHTS

Two senators, Democratic Senator Charles Schumer and Republican Senator Mike Crapo, assigned by Dodd to work out a bipartisan compromise on these issues have failed to do so.

They are in a deadlock, the details of which are unclear.

The dispute threatens proposals that would give shareholders more say on executive pay, more clout in electing directors and more compensation committee independence.

Unless a compromise can be reached, analysts expect these provisions may be dropped from the Dodd bill.

The House bill called for letting shareholders cast annual, non-binding votes on executive pay.

The House also endorsed empowering the Securities and Exchange Commission to write rules giving shareholders access to proxy statements for nominating corporate directors.

* SYSTEMIC RISK REGULATION

Most Democrats and Republicans agree on the need for a new regulator to monitor the financial landscape and spot threats to stability before they worsen and cause the next crisis.

The idea of a council of agency heads to do this has wide support, despite reservations within the administration, which proposed last year that the Fed take on the job.

The House bill proposed an inter-agency council chaired by the Treasury, with the Fed as its chief policy agent.

Dodd will likely also recommend a systemic risk council. His inclination to make the Treasury secretary the council's chairman faces some resistance from lawmakers who fear the secretary could politicize the council.

* HEDGE FUNDS

The Dodd bill is likely to require hedge funds to register with the government, but not venture capital funds or private equity funds, as Dodd had proposed in November.

The House bill called for registration of hedge funds worth $150 million or more. Dodd's cut-off level was $100 million.

The House bill exempted venture capital funds from full registration, while specifically requiring registration by offshore funds, while the Dodd bill did not.

(Reporting by Kevin Drawbaugh, Rachelle Younglai, Caren Bohan, David Lawder, Glenn Somerville and Karey Wutkowski; Editing by Andrea Ricci)