With Republicans taking control of the House of Representatives, but the Democrats still the majority party in the Senate, we will be watching moves on financial regulation over the early months of the next Congressional session.  Mark Thoma, economist at the University of Oregon, made some top-line predictions in his column this morning on CBS's Money Watch.  In short, Thoma expects that some recent reforms--Dodd-Frank, Basel III--will survive, but will not be changed much.  If the Republicans get any repeal efforts through Congress, the White House will use veto power.  If the Democrats push efforts to add regulatory measures to existing legislation, Thoma expects Republican leadership to successfully block them.

The most important change in regulation is the resolution authority regulators now have over large financial institutions that get into trouble. When the crisis hit, regulators did not have the authority they needed to take over a failing financial institution. That authority exists for traditional banks, and is used frequently, but it had never been extended to financial institutions that are part of what is known as the shadow banking system. That left regulators with only two choices, neither of them good ones. They could let large institutions fail and risk a meltdown of the entire system, or they could bail out the banks and, in the process, reward those who caused the problems in the first place. If a traditional bank had been involved, they would have had other options that allowed them to minimize the costs of a meltdown while imposing losses on equity holders and removing management, but no such option existed for shadow banks.

Will resolution authority survive? I don’t expect that resolution authority will be impacted much if at all by the change in the political atmosphere. Both sides of the political fence are in general agreement that this is a good idea.

The second important regulatory change in the Dodd-Frank legislation is the Volcker rule. This rule limits the ability to make speculative investments with government insured money. The regulatory restrictions the legislation imposes are weaker than many people would prefer, and banks are already pushing against the boundaries.

Will the Volcker rule be changed? Any attempt to further weaken this provision would likely be vetoed, but nothing will be done to strengthen the bill should banks discover ways to bypass the legislation’s intent.

A third feature to highlight in the Dodd-Frank legislation is the attempt to make derivative markets more transparent by forcing the trades through organized markets. Again, I don’t expect big changes here, but Republicans have, in general been more sympathetic to arguments that some derivatives must be traded outside of over-the-counter markets. They will likely push for exceptions, and the more exceptions that are granted, the more likely it is that banks can find creative ways to bypass the legislation. So this could, over time, weaken this provision of the bill.

Read What Impact Will the Election Have on Financial Reform? here.