Global financial regulation has changed little since the 2008 banking crisis, but that won't be the case much longer.

U.S. and EU authorities are expected to hammer out the final shape of a new regulatory order in 2010 that will fundamentally change how world banks and markets operate.

Stricter limits on leverage and capital will emerge, leading eventually to slimmer profits for banks, policy analysts said. Formerly unregulated off-exchange derivatives markets will have to conform to new procedures.

Lenders' power to package and securitize mortgages and other forms of debt will face new limits, while hedge funds -- once the darlings of high finance -- will face new scrutiny.

Procedural hurdles remain to be crossed by reform advocates. In the United States, the House of Representatives has approved a bill, but the Senate has not and the prospect for that was clouded on Wednesday by news that Senate Banking Committee Chairman Christopher Dodd will not seek reelection.

Two senior Democratic aides said Dodd will make his announcement on Wednesday at a news conference, raising questions about his plans. In addition the retirement of another senator casts doubt on the Democrats' slim majority in the Senate. Democratic Senator Byron Dorgan said on Tuesday that he will not seek reelection.

Banking lobbyists and Republicans are working to block the reforms. Senate debate on the proposed changes will resume this month, with analysts expecting passage of legislation in early spring, if Dodd stays committed to reform and Democrats can muster the votes.

The Senate and House would then have to agree on a single measure to send to President Barack Obama. That could happen in April or May, according to policy analysts.

In Europe, EU member states and the European Parliament must still rule on a range of proposed regulations for banks, markets, insurers, hedge funds and private equity groups.

The reform package will be more far-reaching than anything we've seen since the Great Depression, and there is a high likelihood it will pass, said the Eurasia Group, a research and consulting firm that closely follows Washington politics.

JAN. 13 KEY IN U.S. AND EU

The first big headlines of the year on financial regulatory reforms will likely come on January 13, a key date on both sides of the Atlantic.

The European Parliament will hold a confirmation hearing that day with Michel Barnier, the Frenchman that the European Commission has proposed oversee the EU's financial services industry and play a core role in drafting legislation.

Britain, the bloc's biggest financial center, will look for clues as to how interventionist Barnier is likely to be.

One of the biggest things at the European level is what they are calling the markets infrastructure directive. It started life about regulating derivatives but is becoming a complete redesign of financial trading in Europe, said Simon Gleeson, a partner at the law firm Clifford Chance.

Barnier is expected to unveil this draft law, which will include mandatory clearing of as many off-exchange derivatives contracts as possible, by July.

Also on January 13, the U.S. Congress' Financial Crisis Inquiry Commission will begin its first public hearing, a two-day session with testimony from the CEOs of Goldman Sachs, JPMorgan Chase and Morgan Stanley.

The commission's work, culminating in a report to Congress due December 15, will be mainly retrospective, seeking explanations for the crisis that rocked economies worldwide. But it is likely to spur Senate debate going forward.

SENATE RETURNS

The Senate will reconvene on January 20, with hearings expected to commence promptly in the banking committee.

EU states and the European Parliament will begin finalizing adoption of a new supervisory structure for banks, markets and insurers, due to be in place by the end of this year.

New EU rules to regulate hedge funds and private equity groups are also set to be finalized in coming months.

The next few months will test transatlantic lawmakers' ability to make sure U.S. and EU efforts don't diverge.

Both sides have made it clear they are trying to make sure there are no conflicts, but both sides are creatures of their legislators, said Graham Bishop, an EU financial services industry expert.

The regulation agenda is being driven globally by the G20 group of leading nations, which should help jurisdictions sing the same songs, Bishop added.

The Basel Committee on Banking Supervision, a global body of regulators and central bankers, will soon start assessing the impact of its December package of reforms to toughen up bank capital and liquidity requirements across the world.

This will be key to the committee's harder task of calibrating or fixing the new higher levels of capital banks will have to hold from the end of 2012 to help avert more huge public bailouts in a future crisis.

(Reporting by Kevin Drawbaugh in Washington and Huw Jones in London; Editing by Andrew Hay)

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