Senate-House struggle ahead on Wall St reform

WASHINGTON (Reuters) - Approval of a landmark Wall Street reform bill in the U.S. Senate looks likely and that points toward the next step -- a House-Senate agreement.

The House of Representatives approved a bill in December. The Senate may approve its bill on Thursday or Friday after the measure passed a procedural test vote.

Final legislation must be agreed on by both chambers before it can be sent to President Barack Obama to be signed into law.

Here's a look at how this could be achieved.

HOUSE-SENATE CONFERENCE

The likeliest path toward agreement is a House-Senate conference committee, although that is not the only way.

Conference committees usually consist of appointed members from each chamber who draft legislation they can agree on. It then has to be approved by both the House and the Senate.

Another path is for the House and Senate to amend a bill from one chamber or the other in a back-and-forth process, but this is time-consuming and cumbersome. Democrats want to move on to other issues, such as funding the war in Afghanistan.

The White House said on Thursday it expects a conference. This approach is also favored by Barney Frank, the Democratic chairman of the House Financial Services Committee.

In either case, some major issues will have to be tackled.

* PREVENTING MORE BAILOUTS

The House bill creates a $200 billion fund to help pay for Federal Deposit Insurance Corp (FDIC) actions to dismantle insolvent, non-bank financial firms.

The Senate bill does not contain such a fund, although it does empower the FDIC to take similar actions.

* CONSUMER PROTECTION

The House bill proposes a new, fully independent U.S. Consumer Financial Protection Agency to regulate mortgages, credit cards and other products. The Senate bill sets up a new consumer bureau within the Federal Reserve, instead.

* VOLCKER RULE

The Senate bill contains the Obama administration's proposed "Volcker rule," but gives regulators wide latitude to write the rule's details and implement it as they see fit.

The rule would bar banks from buying and selling investments with their own money unrelated to customers' needs, which is known as proprietary trading. It would also get them out of the hedge fund business and limit their future growth.

The Senate's approach to the rule could be further tightened under amendments still to be considered.

The House bill was approved before Obama and White House economic advisor Paul Volcker proposed the rule in January. But the House bill does contain language empowering the Fed to ban risky firms from proprietary trading if it sees fit.

* SYSTEMIC RISK REGULATION

The House bill creates an inter-agency council to police systemic risk in economy. It relies heavily on the Fed as its agent for executing policy. The Senate bill sets up a council, as well, but gives the Fed a smaller role.

* OTC DERIVATIVES

Both bills seek to redirect much of the activity in the unpoliced $600-trillion over-the-counter derivatives market, including credit default swaps, into more accountable channels, such as exchanges and central clearinghouses.

But the Senate bill includes a provision that would force banks to spin off their swap-trading desks into affiliates. This provision, added by Democratic Senator Blanche Lincoln, is absent from the House bill.

The House bill exempts a wider range of "end users" of OTC derivatives from central clearing.

The White House opposes it, but a Republican amendment still pending on the Senate bill could add an auto dealer exemption. Otherwise, the Senate bill has fewer exemptions.

* FED MONETARY POLICY

The House bill subjects Fed monetary policy for the first time to new scrutiny by a congressional watchdog. The Senate bill does not, although it calls for a one-time audit of the Fed's emergency lending during the 2007-2009 financial crisis.

(Reporting by Kevin Drawbaugh; Editing by Andrew Hay)