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The financial reform bill will change the way banks do business in everything from credit cards to credit default swaps. What it won't do is fundamentally reshape Wall Street, and it doesn't seem likely to prevent bad bets by bankers from causing another crisis. The legislation is "largely a fig leaf," says Dean Baker, co-director of the Center for Economic & Policy Research in Washington. "Given where we were when this got started, I'd have to imagine the Wall Street firms are pretty happy."

The overhaul allows banks to remain in the profitable derivatives business and won't shrink those deemed "too big to fail," leaving largely intact a U.S. financial industry dominated by six companies with a combined $9.4 trillion of assets. The changes also do little to address the danger posed by banks relying on the fickle credit markets for funding that can evaporate in a panic, like the one that spread in late 2008.

A deal reached by members of a House and Senate conference just after dawn on June 25 diluted provisions from the tougher Senate bill, limiting rather than prohibiting the ability of banks to trade derivatives and invest in hedge funds or private equity funds. Senator Scott Brown (R-Mass.) made his support conditional on a loosening of restrictions on hedge fund and private equity fund ownership by banks. Brown won another concession when he demanded that the committee remove a $19 billion fee on banks and hedge funds that had been tacked on at the last minute. The June 28 death of Senator Robert C. Byrd (D-W. Va.), who supported the bill, means a final vote won't take place until mid-July.

Senator Blanche Lincoln (D-Ark.) had originally advocated forbidding banks from trading swaps if they receive federal support such as deposit insurance. That could have forced banks to spin off those businesses. In the final legislation, bank holding companies such as JPMorgan Chase (JPM) and Citigroup (C) will be required to move less than 10 percent of the derivatives in their deposit-taking banks to a broker-dealer division over the next two years. Goldman Sachs (GS) and Morgan Stanley (MS), the two biggest U.S. securities firms before they converted into banks in 2008, have smaller deposit-taking units and already hold most of their derivatives in their broker-dealer arms. The derivatives rules are "nowhere near as bad as what the banks might have feared," William T. Winters, former co-chief executive officer of JPMorgan's investment bank, told Bloomberg Television on June 25.

Another portion of the legislation that was amended in the final conference was the so-called Volcker rule, named for Paul A. Volcker, the former Federal Reserve chairman who championed it. Originally the rule would have prevented any systemically important bank holding company from engaging in proprietary trading, or betting with its own money, as well as investing its own capital in hedge funds or private equity funds.

In the final version, the banks will be allowed to provide no more than 3 percent of a fund's equity and will be limited to investing up to 3 percent of their Tier 1 capital—which includes common stock, retained earnings, and some preferred stock—in hedge funds or private equity funds. That represents a ceiling of about $3.9 billion for JPMorgan, $3.6 billion for Citigroup, and $2.1 billion for Goldman Sachs, according to the companies' latest quarterly reports.

Further diluting its impact, the Volcker rule doesn't take effect for 15 to 24 months after the law is passed. Then the banks have two years to comply, with the potential for three one-year extensions after that. They could seek five more years to withdraw money from funds that invest in "il- liquid" assets such as private equity and real estate, says Lawrence D. Kaplan, an attorney at Paul, Hastings, Janofsky & Walker in Washington. "I don't think it will have any impact at all on most banks," Winters said of the amended Volcker rule.

Some provisions of the new law may require banks to raise more capital as a buffer against setbacks. But they will still be able to borrow heavily in the short-term credit markets to fund their operations, rather than rely on deposits, which are more stable. Their dependence on market-based funding made firms like Goldman Sachs and Morgan Stanley vulnerable to the panic of 2008. "Something has to be put in place to cause banks to have deposit-based liabilities and not market-based liabilities," says Benjamin B. Wallace, a securities analyst at money manager Grimes & Co.

The legislation will make the financial system safer, says James Ellman, president of Seacliff Capital, a hedge fund that specializes in financial industry stocks. Even so, he says, "It won't satisfy anybody who wanted really strict additional regulation of banks."

The bottom line: The financial reform bill imposes a raft of new rules, but critics say it does not go to the heart of the problems that created the crisis.

Harper is a reporter for Bloomberg News. Keoun is a reporter for Bloomberg News.