What's in the Financial Reform Bill? The 5 Key Changes

(July 15) -- The financial reform bill (what's the financial reform bill, you ask?) was passed in the Senate today and will head to President Barack Obama's desk next. The bill has split the country -- or that part of the country paying attention -- along party lines: Democrats say Wall Street needs to be reined in to protect the economy; Republicans say the government is overstepping its authority by inserting itself too far into the market. The bill drew three Republican votes, from Sen. Scott Brown of Massachusetts and Sens. Olympia Snowe and Susan Collins of Maine. Sen. Russ Feingold of Wisconsin was the only Democrat to vote against the bill, saying it didn't go far enough.

A 60-39 vote and 2,300 pages later, only the future can tell us who was right and who was wrong. Surge Desk cuts through the financial language to provide you with the five changes in the bill that you need to know about.

1. The economy gets a new monitor, and failing firms a new undertaker.
Headed by the secretary of the treasury, the Financial Stability Oversight Council will watch for major risks in the overall economy and will have power to step in and dismantle failing firms that pose a "systemic risk," like Bear Stearns, Lehman Brothers and Merrill Lynch all did. Failing firms will no longer be bailed out with taxpayer money; instead they will be liquidated.

2. Consumers get a new watchdog.
A new consumer financial protection agency will be created to combat lending abuse. The agency will keep an eye on mortgage lenders and credit card companies and will put a cap on the fees debit card companies can charge retailers.

3. Stricter oversight of hedge funds, private equity firms and the derivatives market (which was at the heart of the subprime mortgage fallout) will be implemented.

4. Capital reserves will increase.
Large banks will have to increase the amount of capital they hold in reserve in the event loans go bad. The increased reserves will reduce their potential profits, but this rule won't go into effect for five years so as not to discourage lending now as the economy continues to recover.

5. We'll hear even more about the Volcker Rule.
Named for economist and former Fed Chairman Paul Volcker, who proposed the original plan, the Volcker Rule limits a bank's ability to make speculative investments that don't benefit their customers to 3 percent of its capital. Speculative investments include investments in hedge funds and private-equity funds. Banks are also banned from proprietary trading, the risky practice of using their own money for trades instead of their customers' money.