U.S. and EU authorities are expected to hammer out the definite shape of a new regulatory order in 2010 that will fundamentally change how world banks and markets operate.

Stricter limits on leverage and capital will emerge, leading eventually to slimmer profits for banks, policy analysts said. Formerly unregulated off-exchange derivatives markets will have to conform to new procedures.

Lenders’ power to package and securitize mortgages and other forms of debt will face new limits, while hedge funds — once the darlings of high finance — will face new scrutiny.

Procedural hurdles remain to be crossed by reform advocates. In the United States, the Senate has not yet approved a reform bill, but the House of Representatives has.

Banking lobbyists and Republicans are working to block reforms. Senate debate will resume this month, with analysts expecting passage of legislation in early spring. The Senate and House will then have to agree on a single measure to send to President Barack Obama. That could happen in April or May.

In Europe, EU member states and the European Parliament must still rule on a range of proposed regulations for banks, markets, insurers, hedge funds and private equity groups.

But it all looks to be on track for adoption, barring unforeseen political shocks, analysts said.

“The reform package will be more far-reaching than anything we’ve seen since the Great Depression, and there is a high likelihood it will pass,” said the Eurasia Group, a research and consulting firm that closely follows Washington politics.

“Upcoming midterm elections (in America) will encourage populist approaches,” the group said in a research note.

Source/Full Story:  Reuters

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