WASHINGTON — While 2010 was an all-out scramble by Democratic leaders to harness outrage over the financial crisis to push regulatory reform over the finish line, the legislative outlook for this year is quite different.

Republicans, who will have much more power to set the agenda since winning control of the House and picking up seats in the Senate, largely opposed the Dodd-Frank Act and are intent on stalling or stopping its implementation.

In the Financial Services Committee especially, GOP lawmakers are eager to slow the pace of legislation and have shown little appetite for additional regulation.

"We'll not try to set the world's record on how much legislation we can put out and how many hearings we can have and markups," said Rep. Randy Neugebauer, who will chair the oversight subcommittee. "You know it was a marathon, the 111th Congress was. I think we will be more deliberative, more participatory. We will not be in a hurry, but we will be methodical to make sure we get to the bottom of an issue."

Clearly the dominant, pressing unfinished financial services issue is restructuring the mortgage finance system and figuring out what to do with the government-sponsored enterprises.

"The biggest issue to me is to deal with the Fannie Mae, Freddie Mac piece and to really create some certainty and a glide slope as it relates to residential finance, and … it needs to be something that is thought through," said Sen. Bob Corker, R-Tenn., a member of the Senate Banking Committee. "That's the elephant in the room. That's the big issue. That's the one that is the most important from the standpoint of our country's overall health."

However, it's difficult to predict how far Congress will get on the GSE issue in 2011, particularly with both sides wary that any move might worsen the housing market.

As a result, oversight of the Dodd-Frank Act has become the prevailing theme for lawmakers as they discuss their agendas.

"We just passed this huge new piece of legislation and now all these agencies and regulators that are impacted are going to be writing rules to implement that," Neugebauer said. "I felt like the legislation itself was very forward-reaching, and I'm very concerned that the regulators and agencies may take it even further than that. And so I think we have to be very careful that that's not the case."

What impact that will have is hard to tell. Some observers said regulators may feel pressure from Congress to dial back on some of the harsher requirements of Dodd-Frank.

"When you hold an oversight hearing … you can actually have an impact," said William Longbrake, an executive-in-residence at the University of Maryland. "Oftentimes either a letter or the hearing would lead to subtle or not-so-subtle changes in program administration, so oversight hearings can impact regulatory activities."

Lawmakers are expected to focus on, among other things, the budget and activities of the Consumer Financial Protection Bureau; the Federal Deposit Insurance Corp.'s plans for resolving systemically important institutions; implementation of the Volcker Rule; and new derivatives regulation. "With financial reform, with the banks that are 'too big to fail' … we might come back to those," said Rep. Judy Biggert, who will chair the housing and insurance subcommittee. "The derivatives, I think, needs another look. That is something that got skimmed over … things like that that went through where people didn't know the unintended consequences. We want to take a look at those things."

Corrections Bill
Lawmakers may also take a stab at a "corrections" bill that attempts to recalibrate parts of Dodd-Frank. "I'd like to revisit all of Dodd-Frank," said Sen. David Vitter, R-La., who sits on the Banking Committee. "I don't have a guesstimate yet about what can actually pass, but certainly high on my list would be revisiting the new consumer bureau."

While many speculate that there is widespread support for changes, it's unclear what the vehicle would be to carry them. Without a "must-pass bill," it is hard to see even a limited technical-corrections bill stay narrow when Republicans would like to take steps that are unacceptable to Democrats or the Obama administration.

"It's very tough to make substantive changes to the statute at this point, because you have Obama as the president and can veto bills, and you have a Senate still in control by the Democrats. So I think making serious, substantive changes would have to be on a bipartisan basis," said Don Ogilvie, the independent chairman of the Deloitte Center for Financial Services at Deloitte & Touche USA LLP and a former president and chief executive of the American Bankers Association. "It's very hard to get legislation passed, particularly in the two years leading up to a presidential election."

Sen. Tim Johnson, a moderate Democrat from South Dakota who is expected to chair the Banking Committee next year, said he would expect tweaks, not drastic legislative overhauls. "I don't think that major changes will take place on Dodd-Frank," he said. "It's a matter of minor changes taking place. There is not only resistance from the Senate, but the veto is possible too, so we should focus on realistic solutions to our problems."

Paul Miller, a managing director and group head of financial services research at FBR Capital Markets, warned that even a slimmed-down corrections bill would open up a "can of worms for Democrats."

"They feel that if they reintroduce the bill to do some fixes with it, then the Consumer Financial Protection Bureau is back into play, and that's something that the Democrats don't want to give up on," Miller said.

Consumer Bureau
The most talked-about area for legislation to change Dodd-Frank is the consumer bureau. There is widespread speculation that Republicans will attempt to gut the agency by crippling its funding.

Republicans will "try to take a look at some of this stuff such as the consumer agency for example, making it at least at a minimum subject to appropriation oversight so it's not a totally independent relative stream of revenue," said Sen. Judd Gregg, a retiring New Hampshire Republican who serves on the Banking Committee.

Gregg said such a move should be popular since lawmakers would prefer having more oversight power. "It shouldn't be very difficult at all, because why wouldn't the Congress want oversight of an agency that important?" he said.

Democrats have countered that the bureau is one of the most popular pieces of reform. They anticipated that Republicans would try to choke off the bureau's funding and intentionally crafted an agency that draws its funding from the Federal Reserve Board. (Its budget starts at 10% of the Fed's annual operating expenses, or about $500 million with the option of additional appropriations by Congress as necessary.)

"There's no way they can," said outgoing House Financial Services Committee Chairman Rep. Barney Frank. "They can't unfund it; I mean, we anticipated that. … For the CFPB, the funding is not through the appropriations process. Plus it is more popular. I'd love to put that one on the floor. … The consumer bureau is one of the most genuinely popular things we did, so let them try. But they have no chance."

While funding might be the most obvious way to prevent the bureau from being effective, another idea is to decentralize its power by altering its structure. Incoming House Financial Services Committee Chairman Spencer Bachus has said he is considering having the agency headed by a board rather than a single director.

"You are starting an agency with $600 million without having to answer to Congress. So we need to look at having a commission as opposed to a director who has a really almost carte blanche power to make lending decisions and decisions that lenders and borrowers ought to make," Bachus said.

But some industry groups are zeroing in on more targeted ways to address their concerns about the consumer bureau.

Steve Verdier, a senior vice president for the Independent Community Bankers of America, said the group is still seeking a mechanism that would give prudential regulators greater sway in shaping consumer protections.

"We'd also like to increase the role of the prudential regulators in the rulemaking of the CFPB," Verdier said. "Exactly how that gets done, it's hard to say, but there's certainly room for improvement in the role of the agencies."

The group is also seeking clarifications that ensure that an exemption for community banks from examination and enforcement by the new agency would be consistent for all state-chartered banks.

"In broad terms it has to do with the authority of the CFPB to examine banks that will primarily be examined by the Fed and I think it was everyone's intention that as part of the $10 billion examination exemption that the Federal Reserve-examined community banks be on the same footing as FDIC-examined," Verdier said. "And I think the technical language of the bill needs to be cleaned up so that everyone is treated the same way in terms of their examination."

But it's unclear how much attention the consumer bureau will receive in the Senate.

Sen. Mike Crapo of Idaho, who will become the No. 2 GOP member on the Senate Banking Committee next year, said that with Democrats controlling the agenda he believes it will be much tougher to direct attention to the consumer bureau and an even harder lift to succeed with legislation.

"Given the fact that the agenda in the Senate will be dictated by the Democratic majority not the Republican majority, I would guess that it would be difficult for us to get the focus on the consumer protection bureau as intense as it will be in the House," Crapo said.

Resolution Authority
Although the consumer bureau remains one of the most prominent issues, other issues that were big bones of contention during the Dodd-Frank debate could come back up in 2011.

Rep. Ed Royce, who will be the third-most senior Republican on the House Financial Services Committee, and several of his colleagues have warned that the resolution powers in Dodd-Frank did not end the problem of "too big to fail" firms.

They are particularly concerned about a provision that allows the FDIC to treat similarly situated creditors of systemically significant firms differently when resolving them, even though the agency has long enjoyed such power in bank resolutions.

"The creditors to the largest systemically significant institutions know that the likelihood of their being rescued in a liquidation are much higher than the creditors to smaller institutions that would be resolved through bankruptcy," said Royce, a California Republican, in an interview this fall. "As a consequence there has been introduced not only a lower cost of capital for the largest institutions, but in addition a great deal of uncertainty. … We have seen situations in which secured creditors have ended up receiving less than politically well-connected allies to the administration."

Royce said he plans to raise the issue. "This needs to be addressed," he said. "I'm hoping this is one of the issues we can help resolve so that going forward we don't run these risks of actually compounding the problem of the rate of growth in which these institutions which are perceived to have a government backstop, that the incentives for their rate of growth don't continue at a much greater pace than their competition."

Lawmakers are also raising concerns about the derivatives section of the law, which they say does not do enough to protect end users of such contracts.

Bachus and Rep. Frank Lucas, who becomes the Agriculture Committee Chairman next year, sent a letter Dec. 16 to regulators warning that the economy could be hurt if end users are not fully protected from margin, clearing and exchange trading requirements as Congress intended under the end-user exemptions in the reform law.

"As our economy slowly recovers, we have serious concerns that Dodd-Frank will force American companies which did not cause nor contribute to the financial crisis to move billions of dollars in capital onto the sidelines to comply with the law. Requiring end users to post margin will delay or prevent businesses from expanding and will limit the creation of badly needed jobs," they said in their letter.

The lawmakers also expressed concern that the regulators are too broadly defining certain terms, such as swap dealer, securities-based swap dealer and major swap participant. They urged regulators to draw out their implementation timetable, suggesting Congress will step in if they act too quickly.

But Commodity Futures Trading Commission Chairman Gary Gensler, who lobbied for stiff restrictions, is not expected to give up on any of his hard-fought wins easily. "So far the CFTC chairman seems highly reluctant to use the exemptive authority that he was given," said Dan Crowley, a partner at the law firm of K&L Gates. "By failing to exercise the discretion he was given with respect to exemptive relief, he is teeing up unintended consequences that could necessitate congressional correction."

Volcker Rule
The largest banks, meanwhile, are hoping lawmakers weaken the Volcker Rule, which bans proprietary trading and restricts investments in hedge funds and private-equity firms.

Since the law left much of the ban's implementation up to regulators, observers are anxious to see what the agencies will do.

The provision's two chief advocates, Democratic Sens. Carl Levin and Jeff Merkley, along with Sen. Tom Udall, D-N.M., submitted comment letters to the regulators urging them to resist efforts by the industry to weaken the restrictions.

On the other side of the debate, Bachus pushed back against a rigid interpretation of the Volcker Rule in a Nov. 3 letter to the Financial Stability Oversight Council. He argued that because "proprietary trading had virtually nothing to do with the crisis," the regulators should not "unfairly disadvantage U.S. financial firms."

Some predicted that defending U.S. competitiveness will become a big focus for lawmakers and that they may try to rewrite the Volcker Rule on the grounds that it would promote such a goal.

"One of the reasons why our country has been such an engine of growth is that we had very healthy, robust capital markets, and that's not the case today," said Joe Engelhard, a senior vice president with Capital Alpha Partners.

"One of the biggest components of that in terms of the regulatory structure is the Volcker Rule," Engelhard said. "I think that is going to get a lot of attention."