Financial reform has been a lot like the record-setting 11-hour Wimbledon match. Just when you thought the match was over, it kept going.

After a year of dramatic debate, we're in the final stages of the second act for financial reform. We thought the final bill was in place until Tuesday, when Sen. Scott Brown, R.-Mass., said he wouldn't vote for the bill if it included $19 billion in fees for the nation's large banks. Conference committee was reopened and a compromise was struck.

Wednesday night, the House passed the historical rewrite of financial regulation. The bill now goes to the Senate for a vote following the July 4 recess. Just before the vote, I spoke with one of the key architects and negotiators of the bill, Rep. Paul Kanjorski, D-Pa., about the "hopefully" final bill and whether it will rectify the underlying causes of the financial crisis.

Kanjorksi is the chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government-Sponsored Enterprises. He is the author of the amendment that deals with institutions that are "too big to fail" and a lead negotiator on the House side for the bill.

Jennifer Schonberger: There was an unexpected twist Tuesday with the financial reform bill after Senator Brown said he would not vote for the bill due to $19 billion in new bank fees. After opening up the bill again in conference committee, making a new compromise, do you think we'll get passage?

Paul Kanjorski: ... On the Senate side it's my understanding that they're not going to take it up until they return from recess. So that leaves it a little bit up in the air. That's a little disappointing from the standpoint that we thought we had resolved all of the questions at the end of the conference. Then of course Senator Brown decides to state that he's unsatisfied with the fee arrangement.

We opened up conference committee one time and changed the structure. They're now complaining about that structure. I haven't heard whether Senator Brown is on board or not. But I don't think we should open it up anymore. I would have preferred that we allow the Senate [to] vote on it first before we put it to the House because I don't want to make this a common occurrence. Every senator is able to kill the bill.

Schonberger: You've been at the heart of forming legislation -- your too big to fail amendment -- and at the heart of negotiations for financial reform. Have we ended too big to fail? Will the bill prevent future crises?

Kanjorski: We've adopted my amendment ... it is an amendment to authorize regulators to exercise certain powers. It is not a mandatory position for setting rules or limitations as to how companies that are in the financial field should operate. It merely authorizes the regulators to use a series of standards to determine whether or not a particular financial company comes into that category of being riskful.

If it does, it prescribes various remedies from forcing the company to get a plan to correct itself and have better risk management, add additional capital, restrict products in which they may engage. If all those things fail or if the company is unresponsive to the regulator, then ultimately the regulator would have the authority to disband the organization. So if the regulators use the authority we should not have companies that are too large to fail in the future. But that's a big if. We're relying on the good offices of present and future regulators that will be appointed.

I believe the power in the hands of our existing regulators right now is quite significant to accomplish the ends the Congress wants. There's no way of guaranteeing what future regulators will look like. If they fail to exercise this authority, we're right back where we were -- that is in trouble with companies that are too big to fail. But as long as I'm in Congress I'm going to oversee this and come down very hard on the regulators to make sure they function.

In truthfulness, all we have to do is use this authority against one financial company that's too large to fail [to set an example]. I think right now most of these large financial institutions think it just won't be used. Now that's the very reason we put in the Volcker Rule as a mandatory rule. In my discussions with Mr. [Paul] Volcker he gave me his experience as chairman of the Federal Reserve. He said it's extremely difficult in his opinion to get regulators to use all the powers they have.

Schonberger: So then why not rely more heavily on the rule of law instead of the subjective decisions made by regulators?

Kanjorski: We should have, [but] it was quite clear that we could not have gotten my amendment adopted if we had put in mandatory rules. I'm surprised we got it as far as we did because it goes further than anything has ever gone before in terms of laying down the right of a government regulator to get intricately involved in a private corporation and exercise influence and restrict actions ...

Now the Volcker Rule is the same type of power that is contained within my amendment, but [Volcker] felt that unless you made it mandatory a regulator would never institute the rule or use the authority they had, or it would be extremely difficult. We were able to get it through, but there were exceptions made ...

.... Overall I think we have a strong Volcker Rule and a strong too big to fail amendment. I think we presently have in place the regulators that would use that authority and do a good job and actually get to the end that we had in mind -- that is end too big to fail.

Schonberger: What will the regulations surrounding derivatives mean for companies like Caterpillar (NYSE: CAT) or Cargill that use derivatives to hedge against fluctuations in fuel prices or the input costs of raw materials?  

Kanjorski: In many of those instances we've considered giving them exemptions -- and there's nothing wrong with that. If you want total transparency, total regulation and total control you're going to eliminate some business opportunities and some protections in the business field. By virtue of doing that you're going to either drive those people out of that particularly risky business or else you're going to drive their costs up to such an extent that can't operate. In either instance you destroy that segment of the business. So we're looking to reduce the risk and I think to a large extent this bill accomplishes that.

Schonberger: Part of the crisis was due to the amount of leverage these big financial institutions -- I'm referring to the big five now (Morgan Stanley (NYSE: MS), Goldman Sachs (NYSE: GS), JPMorgan Chase (NYSE: JPM), Citigroup (NYSE: C), and Bank of America (NYSE: BAC)) -- took on. In some cases they were leveraged 30 to 1, but I don't see any leverage requirements in this bill. Do you think it was a mistake not to include caps on leverage?

Kanjorski: ...The one difficulty about concrete leverage is it's inflexible. There isn't any standard or average operation. Something that would be highly leveraged at 10 to 1 is ridiculous leverage for it to be limited to that because it's not as riskful. What you have to do -- which we've done -- is we've empowered the regulators to consider leverage as one of the factors as to whether there is a high risk to the business and take action if necessary.

Schonberger: The next big question is Fannie Mae and Freddie Mac (NYSE: FRE). I know you've been holding a series of hearings on how to reconstruct our nation's housing finance system. Where do you stand on that issue now?

Kanjorski: I'm hoping [to tackle that] after financial regulatory reform gets through. But we have to emphasize and indicate to the American people and the industry that to a large extent a good portion of revising Fannie Mae and Freddie Mac, or the housing finance industry is contained in this [financial reform] bill. It's in the areas where we worked on the process. We've changed the way mortgages will be written; we've changed the way appraisals for real estate are done. We've changed all kinds of mechanisms in what existed as the normal financing -- not only in real estate, but in so many other areas.

Now we come back to the institutions themselves. We've held several hearings and we're going to hold several more. I'm hopeful, if we get the time in the fall, certainly the beginning of the next Congress, to have a package put together as to how to handle Fannie and Freddie.

Now we're not going to just disenfranchise them and destroy them with the signature of the president on a law. We can't do that. We've got to figure out how to shift their obligations over to another forum, and how to create institutions that can handle secondary market operations for mortgages. We're looking at the alternative choices. Quite frankly none of them are terribly appealing -- they all have weaknesses. But we want to try to escape constructing institutions that are so large and risky that carry so much of the applied full faith and credit of the U.S. We want to take that risk away from the taxpayer and the government. I'm looking at even breaking them into 10 to 15 different types of Fannies and Freddies. That could be a potential solution.

For more from Congressman Kanjorski: