Inside the financial overhaul bill

Congress on Friday announced a deal to revamp financial regulation that will go to a vote in the House and Senate this week. It attempts to address much of what brought about the financial crisis:

Mortgage and predatory lending. Numerous federal regulators would lose consumer protection powers to a new Bureau of Consumer Financial Protection, which will have the consumer as its sole focus. The bill contains numerous measures to halt predatory lending, bans mortgages without proof of income documentation, brings mortgage brokers under regulation and reins in subprime lending. It doesn't address mortgage finance titans Fannie Mae and Freddie Mac, now in government conservatorship.

Risk retention. After lenders made bad loans, the loans were sold into a secondary market where they were pooled with others and sold to investors as complex mortgage bonds. The risks associated with a bad loan were passed along to unsuspecting investors. The bill requires lenders to retain 5 percent of the risk, effectively giving them skin in the game. Banks sought an exemption for safer products such as 30-year fixed mortgages, but were rebuffed.

Credit rating agencies. The legislation directs regulators to establish a process by which issuers of complex bonds no longer can choose who rates their products. It also directs government agencies and pension funds to rely less on ratings as a measure of risk.

Derivatives and credit-default swaps. These insurance-like products amplified the financial crisis because it was unclear who owed what to whom. Most of these complex bets weren't settled on any exchange or clearinghouse, and most would be under the bill. Banks will have to spin off their trading desks for operations that involve betting on the future prices of oil, most metals and agricultural commodities. Banks may bet only on the performance of investment-grade debt; other such bets must be made through affiliates. The legislation doesn't address so-called "naked swaps," in which Wall Street firms bet on default for debt they don't own.

Resolution authority and "too big to fail." When sinking home prices sparked rising defaults on mortgage bonds, concerns about credit-default swaps written on these bonds spread panic on Wall Street. Regulators lacked the power to step in and dissolve sagging investment giants such as Bear Stearns and Lehman Brothers. The legislation gives new breakup authority, so the Federal Reserve will be able to order a large financial firm such as American International Group to shed some of its assets if it's considered so large that its failure would threaten the broader financial system. AIG was considered too big and interconnected to fail, and it received $182 billion in taxpayer and government life support.

Heads I win, tails you lose. The legislation prohibits commercial banks from engaging in trading on their own behalf if they also trade on behalf of clients.