FACTBOX-Major U.S. financial regulation reform proposals

May 21 (Reuters) - The U.S. Senate approved landmark Wall Street reform legislation on May 20 that was proposed by Democrats and backed by President Barack Obama to tighten financial regulation after the 2007-2009 financial crisis.

It must now be merged with a similar measure backed by the U.S. House of Representatives in December. Further changes could be made to the bill in what is expected to be a House-Senate conference committee.

A final version will go to Obama to sign it into law. That could happen by July 4, analysts say.

Here are the Senate bill's key elements, how they compare to the House bill, and winners and losers:

PREVENTING MORE BAILOUTS

* Objective: Squash the idea that some financial firms are so central to the economy that they are "too big to fail." The aim is to avoid a repeat of 2008, when the Bush administration signed off on costly taxpayer bailouts of firms such as AIG (AIG.N) but caused a panic by refusing to bail out Lehman Brothers, whose bankruptcy froze capital markets worldwide.

Seeking a middle ground between bailout and bankruptcy, the Senate bill sets up an "orderly liquidation" process that would allow authorities to seize large firms in distress. Costs of such actions would be covered by sales of liquidated firms' assets and, in case of shortfalls, fees on other large firms.

* House-Senate dynamic: The House bill would set up a somewhat simpler liquidation process that would include a $200 billion prepaid fund to cover its costs.

* Winners and losers: If the new strategy works, the economy is better protected from financial sector crises. Big financial firms could take a hit from paying fees.

PROTECTING CONSUMERS

* Objective: Stop abusive home mortgages, credit cards.

The Senate bill would create a consumer protection bureau within the Federal Reserve to regulate such products.

State authorities would be able to enforce new rules issued by the watchdog but could not cross state lines to charge nationally regulated banks. Federal authorities would still be able to overrule state laws under certain conditions.

House-Senate dynamic: The House bill calls for an independent consumer protection agency, while the Senate bill puts it in the Fed to appease Republicans.

The House bill exempts many businesses from the watchdog's oversight. The Senate bill has fewer outright exemptions. A fight is under way on whether to exempt auto dealers.

Winners and losers: Consumers can expect stronger protections. Credit card firms and mortgage lenders face tougher rules, regardless of where the watchdog is set up.

VOLCKER RULE

* Objective: Ban risky trading unrelated to customers' needs at deposit-insured banks whose federal backing enables them to borrow money more cheaply than rivals.

Obama proposed this ban on "proprietary trading" in January along with his adviser, former Federal Reserve Chairman Paul Volcker. It may become law, but probably not as written.

Under the Senate bill, the Volcker rule would be adopted, but regulators would write its details, possibly weakening it.

Democratic Senators Jeff Merkley and Carl Levin offered an amendment that would have given regulators stricter orders, while also requiring large nonbank financial institutions to set aside more capital for speculative activity, and prohibiting financial firms from betting against their customers. Republicans blocked the Merkley-Levin amendment from coming up for a vote.

* House-Senate dynamic: The Volcker rule is not in the House bill, but it would let regulators bar proprietary trading in cases where it threatens financial system stability.

* Winners and losers: Large firms could lose profits if the rule is enacted. But the Senate bill, as written, falls well short of making that a certainty. Volcker says the rule would help prevent the next financial crisis.

OVER-THE-COUNTER DERIVATIVES

* Objective: Regulate and reduce risks in the $615 trillion over-the-counter derivatives market, which helped amplify the crisis. The market is presently unregulated.

The Senate bill proposes new rules to push as much OTC derivatives traffic as possible through central clearinghouses and increase transparency through exchange trading.

It also would require banks to spin off their swap-trading units into affiliates. Banks and regulators oppose this. Analysts say this provision may be dropped in conference.

* House-Senate dynamic: The two bills are similar, but the House exempts a wider range of end users from central clearing and excludes the swap-trading desk "push-out" provision.

* Winners and losers: Wall Street firms -- Goldman Sachs (GS.N), JPMorgan Chase (JPM.N), Citigroup (C.N), Bank of America (BAC.N), Morgan Stanley (MS.N) and Wells Fargo (WFC.N) -- dominate the OTC derivatives market. The substantial profits they reap from it could be sharply reduced.

SYSTEMIC RISK

* Objective: Create a new entity to spot and head off the next crisis. The Senate bill sets up a nine-member council of regulators, chaired by the Treasury secretary.

* House-Senate dynamic: The House bill proposes a council chaired by the Treasury but gives the Fed a bigger role.

* Winners and losers: Big banks and financial firms would be forced into a tighter regulatory straitjacket.

POLICING BANKS

* Objective: Rationalize the jigsaw puzzle of bank supervision to stop problems from festering.

* House-Senate dynamic: Few differences remain now between the Senate and House bills. Both call for closing the Office of Thrift Supervision.

* Winners and losers: OTS will close.

INCREASED CAPITAL REQUIREMENTS

* Objective: Ensure that financial firms have enough capital to ride out times of crisis.

The Senate bill directs regulators to increase capital requirements on large financial firms as they grow in size or engage in riskier lending practices. It would ensure that bank holding companies and other firms operate under standards at least as stringent as those applied to banks.

* House-Senate dynamic: The House bill includes a similar requirement.

* Winners and losers: Large bank holding companies such as Bank of America and Citigroup will likely be required to set aside more assets.

EXECUTIVE PAY AND SHAREHOLDER RIGHTS

* Objective: Give shareholders more say on executive pay and more clout in electing directors.

* House-Senate dynamic: Both bills back these ideas. The House is less forceful on director nominations.

* Winners and losers: Corporate managers could lose their stranglehold on the director nomination process. Shareholders could gain more say on pay but it would largely be symbolic.

REGULATING HEDGE FUNDS

* Objective: Hedge funds must register with the government, and open their books to more scrutiny, but the Senate bill exempts venture capital funds and private equity funds.

* House-Senate dynamic: The House bill calls for registration of hedge funds worth $150 million or more. The Senate's cut-off level is $100 million. The House bill exempts venture capital funds from full registration, while requiring offshore funds to register. The Senate bill does not do this.

* Winners and losers: Regulators would gain a window into a murky market. An estimated 55 percent of hedge funds are already registered. Those that are not would have to do so.

FIXING SECURITIZATION

* Objective: Make the securitization market more transparent and accountable.

The Senate bill forces securitizers to keep a baseline 5 percent of credit risk on securitized assets.

* House-Senate dynamic: The bills are similar.

* Winners and losers: Investors in securitized products would be better protected. Securitizers -- from lenders to Wall Street bundlers -- face stricter oversight and higher costs.

CRACKING DOWN ON CREDIT RATING AGENCIES

* Objective: Increase the accuracy of credit ratings that investors use to determine the risk level of debt offerings, and boost oversight of the agencies that issue these ratings.

The Senate bill would upend the industry's business model. It would set up a panel to match rating agencies on a semi-random basis with debt issuers, with the goal of easing pressure the agencies face to assign overly rosy ratings. The panel would also examine ratings to ensure accuracy, and encourage greater competition from smaller agencies.

The Senate bill also exposes raters to more legal risk and reduces rules that mandate the use of unneeded ratings.

* House-Senate dynamic: The House bill would not set up a panel to stand between between debt raters and debt issuers.

* Winners and losers: Major rating agencies -- Moody's Corp (MCO.N), Standard & Poor's (MHP.N) and Fitch Ratings (LBCP.PA) -- likely will face stricter oversight and more competition.

DEBIT AND CREDIT CARDS

* Objective: Reduce fees that card issuers charge consumers and merchants.

The Senate bill would enable regulators to limit the fees that card issuers charge merchants for debit-card transactions, but it would not limit credit-card transaction fees.

It would allow merchants to encourage customers to use one kind of card over another, or to pay by cash or other means.

* House-Senate dynamic: The House bill does not limit transaction fees.

* Winners and losers: The fee limits in the Senate bill represent a big win for merchants and a setback for big card firms such as JPMorgan Chase, MasterCard Inc (MA.N) and Visa Inc (V.N). It remains to be seen whether they will be included in the final version sent to Obama's desk.

FED SCRUTINY

* Objective: Shed greater light on some of the Federal Reserve's operations.

Emergency lending by the central bank during the crisis would undergo a one-time congressional investigation, while the Fed would have to disclose the names of those it assisted.

* House-Senate dynamic: The House bill would extend congressional scrutiny to Fed decisions on interest rates.

* Winners and losers: Longtime Fed critics on the left and right who have criticized the Fed's secrecy can claim victory. Fed officials oppose the more intrusive oversight provisions passed by the House but have said they can live with the Senate version. (Reporting by Kevin Drawbaugh and Andy Sullivan; Editing by Kenneth Barry)