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Senate May Narrow Proposed Regulatory Role for Fed

By Brady Dennis
Washington Post Staff Writer
Thursday, September 10, 2009

The Obama administration's vision for revamping the nation's financial regulatory system could face significant revisions in the Senate, where proposed reform legislation departs from the White House proposal on several key points, according to staff members, lobbyists and a lawmaker briefed on the plans.

A bill taking shape in the Senate Banking Committee could give the Federal Reserve far less authority than the administration sought in the reform proposal it unveiled in June. Senators on both sides of the aisle have expressed a lack of confidence in the Fed in the wake of the financial crisis, challenging everything from the central bank's transparency to its ability to protect consumers.

Some lawmakers oppose giving the Fed responsibility for monitoring systemic risk in the economy, as proposed by the administration, favoring instead vesting that authority with a council of regulators.

"We really do take what the administration did as advisory. We have our own ideas," said one Democratic staff member familiar with the legislation who was not authorized to speak on the record. "We've been thinking about this a long time."

The bill also may seek to further consolidate banking regulation into fewer agencies than the administration proposed. Of the five primary federal bank regulators, the White House plan calls only for eliminating the Office of Thrift Supervision.

Some Democrats and Republicans on the banking committee have expressed their preference for putting all bank regulation under one agency. Sen. Mark Warner (D-Va.) wrote in a recent opinion piece in the Financial Times that such a move would "create a more powerful and effective federal bank regulator while preserving the dual banking system with both state and federal chartering and allowing Federal Reserve and FDIC to focus on their core responsibilities for monetary policy and deposit insurance, respectively."

One remaining wild card is the administration's proposal to create a new agency to oversee consumer financial products, including credit cards and mortgages. Banking lobbyists and groups such as the U.S. Chamber of Commerce have vehemently opposed the idea, saying it would create another layer of government regulation, stifle innovation and limit consumer choices. Consumer advocates, meanwhile, have campaigned in support of the proposal.

Legislation creating the new agency almost certainly will emerge this fall from the House Financial Services Committee, chaired by Rep. Barney Frank (D-Mass). But its fate in the Senate remains more precarious, as a bipartisan collection of senators has expressed skepticism about how effective the new regulator would be.

"There's going to be a lot of twisty turns on that issue before it's resolved," Warner said Wednesday.

Banking committee staffers have briefed lawmakers on their progress thus far and solicited input from Democrats and Republicans alike on a variety of regulatory proposals.

"There's still some very good chance of bipartisan collaboration in the Senate," Warner said. "This ought not to be about orthodoxy. In my mind, it's not ideological. It's about fixing it."

That push to fix the system might benefit from a decision this week by Sen. Christopher J. Dodd (D-Conn.) to remain in charge of the banking committee, rather than leaving to take over as chairman of the Health, Education, Labor and Pensions Committee, which the late Sen. Edward M. Kennedy (D-Mass.) chaired for more than two decades. Dodd had been helping to guide the panel's health-care efforts in Kennedy's absence.

"We have important work to do on the Banking Committee, and I intend to see it through as chairman," Dodd said in a statement announcing his decision Wednesday.

Some in the banking industry had quietly rejoiced at the possibility that Dodd would give up his post, saying that he had become a less reliable industry ally in the face of a tough reelection campaign in 2010.

Dodd has tried to distance himself from the financial industry, which has a heavy presence in his home state, by running ads that claim he "has given K Street lobbyists the blues." Many lobbyists would have preferred the inevitable delay brought by a change in leadership and say that Dodd's prospective successor as banking chairman, Sen. Tim Johnson (D-S.D.), has traditionally been friendly to the financial industry.

Dodd's continued presence means that the regulatory reform legislation could proceed uninterrupted this fall, depending in part on how the high-profile debate over health-care reform unfolds. Also, aides say, Dodd and ranking Republican Richard C. Shelby (Ala.) have maintained a solid working relationship as they confronted some of the most incendiary issues of the past year, including executive compensation, credit card reform, housing and bankruptcy legislation, and the contentious $700 billion financial industry bailout.

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