A Q&A on federal financial reform plans

It's been a little more than two years since the investment bank Bear Stearns collapsed under the weight of securities backed by bad mortgages.

Since then, Wall Street had to be bailed out and hundreds of banks across the country have failed. People have lost homes and jobs as the country sank into a recession. President Barack Obama took office in part because the financial markets were broken. Now, with health care legislation passed, Washington's focus turns toward legislation reshaping the financial system.

What does the financial reform package mean for me?

As a taxpayer, it means if a large, influential financial institution finds itself in trouble, you won't pay much to help shut it down in an orderly way. Instead, the industry itself would pay into a fund that would cover such an event.

As an investor, it means that you should have more information about where you put your money, whether it's derivatives, stock funds or other investments. If you feel you've been ripped off, a consumer hotline and streamlined regulation should make it easier to report abuses and get them resolved.

As a borrower, the new rules and agency may protect you from currently unregulated, predatory lenders. Other than banks, many lenders now are not regulated, including mortgage brokers. The rules new also would make it easier to understand and evaluate offers from credit card companies, mortgage brokers and other lenders.

What are the specific problems that the financial regulation bill is trying to fix?

The bill, proposed by Sen. Chris Dodd, is trying to fix a variety of problems, many of which contributed to the financial markets' collapse and the recession.

One of the biggest of those problems is weak regulation of non-bank lenders, such as predatory mortgage lenders who made the subprime loans that inflated the housing bubble.

Other issues include:

The lack of oversight over non-bank institutions, hedge funds and credit rating agencies.

Financial institutions that are "too big to fail."

Derivatives traded on unregulated markets.

The bill also addresses the fact that no single agency guards against companies or activities taking actions that put the economy at "systemic risk."

How does the bill address those issues?

In its 1,336 pages, the bill would:

Establish a Consumer Financial Protection Bureau that would have the authority to enforce regulations on large banks, mortgage lenders and other non-bank institutions. Among other things, those regulations could include bans on deceptive practices that induce people to borrow more than they can afford.

Add a Financial Stability Oversight Council that would watch for activities that threaten the economy and require large, complex banks to have plans for an orderly shutdown in case of disaster.

Make it easier for federal agencies to shut down complex companies themselves.

Streamline bank regulation, which is now performed by four separate federal agencies.

Who's against the bill?

Many Republicans in the Senate have expressed opposition, for varying reasons:

Some are opposed to a new regulatory agency on ideological grounds.

Others have claimed that a $50 billion fund to finance shutdowns of large firms amounts to another taxpayer bailout, but the firms affected would be charged to pay for the fund.

Banking lobbyists oppose further regulation.

The U.S. Chamber of Commerce says rules against derivatives trading and other provisions in the bill would prevent businesses from functioning efficiently.

If the bill passes, will it fix the problems it's intending to fix?

For sure, it would be easier for the government to take control of large non-bank institutions that are spinning out of control, like Bear Stearns, AIG and Lehman Brothers did in 2008 as their problems dragged the economy down with them. It also will bring some clarity to the derivatives market and it will enforce standards on lenders who are now unregulated. For more complex problems, like providing for an orderly way to shut down massive financial institutions on the brink of failure, it may be impossible to tell if works unless that day comes.