Global financial regulation has changed little since the 2008 banking crisis, but that won't be the case much longer.
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.
The first big headlines of the year will likely come on Jan. 13 — a key date on both sides of the Atlantic.
The European Parliament will hold a confirmation hearing that day with Michel Barnier.
He is the Frenchman the European Commission has proposed oversee the European Union's financial services industry and play a core role in drafting legislation.
Britain, the bloc's biggest financial center, will look for clues as to how interventionist Barnier is likely to be.
"One of the biggest things at the European level is what they are calling the markets infrastructure directive. It started life about regulating derivatives but is becoming a complete redesign of financial trading in Europe," said Simon Gleeson, a partner at the law firm Clifford Chance.
Barnier is expected to unveil this draft law, which will include mandatory clearing of as many off-exchange derivatives contracts as possible, by July.
Also on January 13, the U.S. Congress' Financial Crisis Inquiry Commission will begin its first public hearing — a two-day session with testimony from the CEOs of Goldman Sachs, JPMorgan Chase and Morgan Stanley.
The commission's work — culminating in a report to Congress — will be mainly retrospective, seeking explanations for the crisis that rocked economies worldwide.
But it is likely to spur Senate debate going forward.
The Senate will reconvene on Jan. 20, with hearings expected to commence promptly in the banking committee, chaired by Democratic Senator Christopher Dodd.
He will be the standard-bearer early in 2010 for the reform initiatives being pursued by the Obama administration. The House of Representatives approved its bill on Dec.11.
EU states and the European Parliament will begin finalizing adoption of a a new supervisory structure for banks, markets and insurers, due to be in place by the end of this year.
New EU rules to regulate hedge funds and private equity groups are also set to be finalized in coming months.
The next few months will test transatlantic lawmakers' ability to make sure U.S. and EU efforts don't diverge.
"Both sides have made it clear they are trying to make sure there are no conflicts, but both sides are creatures of their legislators," said Graham Bishop, an EU financial services industry expert.
The regulation agenda is being driven globally by the G20 group of leading nations, which should help jurisdictions sing the same songs, Bishop added.
The Basel Committee on Banking Supervision, a global body of regulators and central bankers, will soon start assessing the impact of its December package of reforms to toughen up bank capital and liquidity requirements across the world.
This will be key to the committee's harder task of "calibrating" or fixing the new higher levels of capital banks will have to hold from the end of 2012 to help avert more huge public bailouts in a future crisis.
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