Brian Beutler March 31, 2010, 10:09 AM

As anybody who followed the year-long fight over health care reform no doubt recalls, sometimes the most turbulent part of the legislative process comes after both the House and Senate have passed different versions of a bill. Though financial regulatory reform legislation isn’t as likely to twist in the wind for months a la health care, there will still be several differences between the two packages that need to be ironed out.

One regulatory reform expert, Doug Elliott of the Brookings Institution, points to two major potential flashpoints: consumer financial protection, and measures designed to give the federal government power to unwind failed financial institutions.

“The Consumer Financial Protection Agency is the biggest political issue,” Elliott told me yesterday. “The [House] view is alligned with the administration’s proposal for a strong independent agency. The [Senate] bill is not that far off it. It would be inside the Fed but it would be independent in every other respect.”

There’s just one wrinkle. While the House already passed its bill, the Senate has yet to act—and Republicans have laid down a strong line against creating a new independent agency.

“There will be no Republican support for the Senate bill without further watering down of the CFPA,” Elliott said.

“I couldn’t support the bill in its current form,” Sen. Bob Corker (R-TN), a Republican negotiator thought to be amenable to reform, told the Wall Street Journal. “I am absolutely not throwing in the towel. I have no plans to support the current legislation. I hope we’ll get back to the negotiating table.”

And administration officials have suggested they’re sympathetic to the political math in the Senate, where passing major legislation usually requires 60 votes to overcome a Republican filibuster. “Senator Dodd [chairman of the Banking Committee] is trying to balance a complicated — he’s got a complicated job,” said Treasury Secretary Timothy Geithner on MSNBC earlier this month. “You know, he’s trying to get a bill that’s got enough votes to pass. And, of course, we want to give him as much support — you heard the president say that, you know, we’re going to fight against efforts to weaken this and we’re going to take every opportunity to strengthen it as it goes through the process.”

House principals, including Financial Services Committee Chairman Barney Frank oppose weakening the new entity. But Democratic aides acknowledge they’re also staking out a strong negotiating position, and if Democratic leaders are faced with a choice between making a major concession on the CFPA, and seeing the bill go down to defeat, they may well opt for the former.

The other issue—known as “resolution authority”—is a bit more complicated, but no less politically fraught. Both the House and the White House support the idea of subjecting non-bank financial institutions to the same regulatory treatment that banks receive via the FDIC. In the Senate, though, Republicans have a somewhat different idea: instead of enlisting the government to massage financial institutions back to health, Republicans want the government to actually go further, and liquidate such institutions.

The danger, according to Elliott, is that during a major systemic crisis, when many major financial institutions are failing, that threat will become non-credible—and institutions will treat it thus. But Dodd already basically gave the GOP what they want.

Elliott says “it’s a great political point for Republicans,” who can argue that they want the government to wield a heavier hammer over risk-taking institutions. But it might not work.

All of which is a longer way of saying that there’s a lot of work left to do on Capitol Hill.

Barney Frank, Chris Dodd, Democrats, Financial Reform, House of Representatives, Republicans, Senate