It’s taken over a year and a half, but Congress has finally come together and created a far-reaching piece of financial reform legislation. The ambitious bill looks to refine practices across all facets of the financial industry—from how debit card penalties to how financial derivatives are traded and monitored. Despite months of ongoing negotiations and heated debate, many fundamental issues still weren’t addressed—including underwriting practices and how to handle mortgage giants Fannie Mae and Freddie Mac. Both the Senate and the House must still approve the revised version of the legislation, but this is all but a guarantee. And although it will be sometime before the provisions outlined in the legislation take effect, there is already much skepticism as to how effective the regulation will be.

“Banks will raise prices to offset the costs of the bill and will be innovative enough to get around a new rule which would ban proprietary trading by banks unrelated to their clients,” said Dick Bove, a financial strategist for Rochdale Securities.

In the final weeks of negotiations leading up to the agreement reached early this morning, the banking lobby was hard at work trying to water down the legislation. And, to a large extent, they succeeded. One of the main sticking points was a plan to require banks to separate their traditional banking practices and investment banking, which was dubbed the “Volcker Rule.” In the end, the Volcker Rule was defanged, and banks will be able to maintain the status quo with little more than a hiccup.

“It really could have been worse,” one banking lobbyist said to CNBC. “People are going to have to make changes and it is going to cost money, but it not going to ultimately change their ability to do business.”

I certainly am not an expert on the financial reform legislation or understand all of the nuances in the bill—although I doubt anyone does—however, I’ll try to breakdown some of the main points and explain how they’ll impact the key players, including those of us on Main Street.

Derivatives: As you probably know, derivatives were one of the catalysts for the financial meltdown, and their regulation was one of the main goals of the bill. As can be imagined, this was one of the most hotly debated topics. In the end, banks retained the right to stay involved in foreign-exchange and interest-rate swaps, although most other swaps—including energy, metal, equity, agricultural and uncleared default swaps—must now be conducted through a separate entity on exchanges and clearing houses.

Propriety Trading: The Volcker Rule aimed to divide traditional banking and proprietary trading completely, which would make it impossible for banks to use deposits for their own investing. However, in the final version of the legislation, banks will be allowed to use 3 percent of their equity for proprietary trading. This may seem like a paltry number, but most banks already operate in this range, so only the most aggressive investors (i.e. Goldman Sachs and JPMorgan Chase) will have to make any significant changes.

Too Big To Fail: Unless you are directly connected to the banking industry, chances are you weren’t too thrilled about the $800 billion TARP that bailed out Wall Street. The financial reform legislation outlines an orderly process for dismantling failing institutions to prevent future taxpayer bailouts.

Consumer Protection: For years credit issuers have been using fine print and vague language to take advantage of uninformed borrowers, but a new bureau in the Federal Reserve would provide oversight to help protect consumers. The regulators will have authority to create and enforce rules pertaining to both mortgages and credit card lending. However, car dealers were able to wiggle their way out of the bill.

Rating Agencies: Before the toxic assets became toxic, the various rating agencies assured investors they were prudent investments by granting them AAA ratings. Under the new legislation, these agencies will have liability if they “recklessly” give out ratings like this in the future and are subject to new oversight from the SEC.

I understand that many of the main issues still need to be addressed, but it seems like the bill is a solid starting point. The fact of the matter is that nobody fully understands the financial industry—not Lloyd Blankfein, Christopher Dodd, Barack Obama, Warren Buffet…NOBODY—and it would be impossible to draft a piece of legislation that solved all of the problems in one fell swoop—but you have to start somewhere.

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