After a marathon final day of debate, the regulatory reform process ended in the early hours of Friday in the same dramatic manner it had been conducted for more than a year: with a near breakdown followed eventually by a miraculous save.

After several hours of late-night wrangling, conferees resolved the two most problematic questions: how to finalize a ban on proprietary trading and limit banks' investment in hedge funds and private equity firms, and whether to force banks to spin-off their derivatives trading desks.

The resolution of those and other pending issues meant the regulatory reform bill is now complete and will return to the full House and Senate for votes next week, where it is expected to pass.

Although there is certain to be more rhetoric and debate next week over the merits of the bill, the end of the conference committee means the final legislation can no longer be altered, short of unforeseen circumstances.

"Nobody thought we could get this done," said Senate Banking Committee Chairman Chris Dodd, speaking immediately after the conference concluded. "It took a crisis to bring us to the point where we could actually get this done."

Although at some points the bill looked like it could still fall apart, lawmakers reached final agreement roughly 20 hours after debate first began early Thursday.

Sen. Blanche Lincoln, the chairman of the Senate Agriculture Committee, refused to budge on a provision that would force banks to spin off their swaps desks, while moderate House Democrats threatened to vote against the bill if the derivatives measure was not removed.

The final version of the Volcker Rule also remained in limbo, with Senate Democrats and Republicans sparring over how much to allow banks to invest in private-equity firms and hedge funds. Ultimately, the Lincoln amendment was essentially split into two, so that banks would have to conduct some derivatives activities in an affiliate while it could conduct others in the bank itself.

The derivatives provision was the last to be dealt with and for a time looked like it would not be resolved. Banks have vigorously opposed the Lincoln amendment, arguing it would cost them billions of dollars to spin off their derivatives units.

Regulators, too, had argued against the provision, saying it would drive derivatives trades overseas or underground, where they would not be regulated.

For weeks, banking lobbyists and moderate Democrats had been assured the provision would be watered down or eliminated as the final legislation was settled. But Lincoln had continued to hold the line as her political power was bolstered by her primary victory on June 8. The issue finally came to a head Thursday after the New Democrats, a coalition of moderate members, threatened to oppose the final bill if the provision was not removed.

That resulted in a wave of negotiations between Lincoln and House Democrats over the final provision. Around midnight, House Agriculture Committee Chairman Collin Peterson, D-Minn., suggested the basic solution where some swaps should be forced into an affiliate while others would be allowed within the bank. The Treasury Department was instrumental in helping to craft the new language.

"What can be retained by banks will be interest rate swaps, foreign exchanges, credit derivatives relative to investment grade entities that are cleared, gold and silver and hedging for the bank's own risk," Peterson said. "What would be required to go under the affiliate would be cleared and non cleared commodities, energies and metals... and all equities and any non cleared credit default swaps."

Peterson said the split was based on what activities banks could already engage in. "Currently banks are not allowed to invest in commodities, energy; they are not allowed to invest in equities or trade in equities or agriculture," he said. "These are things that are currently not allowed in banking, so why we would allow them to do the derivatives that are related to those things that are currently not allowed in banks? So we took those provisions and put them in the affiliate. These are generally the most risky parts of these derivatives."

He was backed by House Financial Services Committee Chairman Barney Frank, who said the amendment was "the best compromise we can get."

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