BACKGROUND: The US financial reform bill

Jul 16, 2010, 10:32 GMT

Washington - US President Barack Obama is set to sign into law next week a major overhaul of the financial regulatory system, following congressional passage of the legislation on Thursday.

The aim is to curb the risky Wall Street practices that led to the 2008 financial crisis by extending the government's hand into virtually all corners of the financial sector. The reforms are the most sweeping since the Great Depression of the 1930s.

Below is a brief overview of the bill's key aspects:

- A Consumer Financial Protection Agency will be created within the Federal Reserve, with broad powers to stop banks from issuing misleading financial products on everything from credit cards to home mortgages and student loans.

- The Treasury secretary will head a 10-member council of regulators to watch for signs of systemic threats to the entire financial system.

- The government will be given new authority to step into failing financial firms and direct an orderly wind-down outside of the bankruptcy process. Shareholders and healthy banks will be required to pick up the cost for such wind-downs, not the taxpayer.

- The government is given the go-ahead to set new standards for how much capital and liquidity banks should hold in reserve. Those standards could be based on an international agreement that world leaders hope to reach by the end of this year.

- Previously unmonitored hedge funds, private equity firms and credit rating agencies will have to submit to increased oversight by registering with the Securities and Exchange Commission, a government regulator.

- Banks can only invest limited amounts of capital in private equity and hedge funds, while a large portion of derivatives trading markets will have to go through central clearing houses.

- The Federal Reserve will have greater powers to break up large Wall Street firms if they are deemed a risk to the broader financial sector.

- Company shareholders will be given the right to hold a non- binding vote on the pay packages of top bank executives.