Barney Frank announced his conferees for the Wall Street reform bill Wednesday, and he made the important point that the focus on the specific names is a little misplaced. The views of the leadership, and the White House, and what can garner the requisite votes, will factor into the ultimate decisions as much as the specific conferees involved. Frank called his conferees “the agents of collective decision-making than autonomous deciders.”

As for what they should decide, David Leonhardt made a decent argument on that front, noting four main areas: derivatives, consumer protection, checks and balances on the Fed (which grows even more powerful in the Senate bill) and funding resolution authority. My desires don’t line up perfectly with Leonhardt’s, but he makes some decent points.

I prefer the set of reforms Ted Kaufman highlighted in a floor speech Tuesday. Out of the assortment of provisions in the House and Senate bills he spotlights, you could get a regulatory bill that might do some good and might actually address the issue of too big to fail.

“The current crisis in Europe has shown that this problem [too big to fail] has not gone away. It has merely morphed into another form,” said Kaufman. “As the Senate considered Wall Street reform legislation last week, the E.U. and I.M.F. scrambled to assemble an almost $1 trillion emergency package to forestall a full-blown series of sovereign debt crises throughout the continent.” [...]

“The conference report must include and strengthen provisions in the current Senate and House bills that address the ‘too big to fail’ problem,” Kaufman continued. “If we don’t get this right, we could have another full-blown banking crisis in the United States in only a few years time. Anyone who doesn’t understand that is not paying attention to the current situation in Europe and the current contagion affecting global markets.”

The current Senate and House bill provisions to address “too big to fail” include:

· Volcker Rule ban on proprietary trading within banks
· Senator Lincoln’s provision on swaps dealers
· Senator Collins’ capital standards amendment
· Representative Kanjorski’s systemic risk amendment
· Representative Speier’s leverage amendment

On the Volcker rule, Sens. Merkley and Levin sent a letter to Majority Leader Reid and Chairman Dodd asking them to take the discretionary regulations already in the bill and mandate their implementation, in the spirit of their Merkley-Levin amendment, which was denied a vote on the Senate floor. You can see the letter here.

The “section 716″ provision of the derivatives title, forcing the spinning off of swaps trading desks, is probably the least likely provision to survive conference, but also arguably the most important. It essentially sets up a modern-day Glass-Steagall protection in the derivatives market, and separates banks that have access to depositor insurance and the discount window from making dangerous trading markets. The arguments against it, that it would push derivatives into the unregulated shadows (it would probably just push them into subsidiaries of the banks, which would trade in full view), and that it would force increased capital into these new subsidiaries (trading markets of this type SHOULD be capitalized!), ring completely hollow. Kaufman said yesterday, “Forcing banks to spin off large derivatives dealers would end this moral hazard and force swaps dealers to adequately price and capitalize the risks associated with these activities.”

The Collins and Speier amendments get to leverage and capital requirements. The Collins amendment treats bank holding companies and systemically important nonbank financial firms the same as commercial banks for the purposes of capital and leverage. It also classifies capital in such a way that the largest financial institutions would have to hold more of it. Speier’s amendment set a hard 15:1 leverage ratio, period. It does not leave such matters to the discretion of historically captured regulators.

Finally, the little-remembered Kanjorski amendment is a soft version of the Kaufman-Brown “break up the banks” approach. It would require the systemic risk council to either break up or force restrictions on any financial institution that posts a “grave threat” to economic stability. This is just about the only pre-emptive action that the council would be able to take, if it makes the final bill.

Progressives are wary of backroom deals on this and they should be – it’s an even-money bet that everything Kaufman describes here will get knocked out. But an open conference, where the conferees (at the behest of the White House or lobbyists or whoever) have to vote affirmatively to knock those important pieces out, at least represents the best chance to salvage one or more.