Legislation by Senator Dodd would overhaul banking regulators

By Binyamin Appelbaum and Brady Dennis
Washington Post Staff Writer
Wednesday, November 11, 2009

A regulatory bill that Sen. Christopher J. Dodd (D-Conn.) introduced Tuesday would create three agencies aimed at policing threats to the economy, preserving banks in good health and protecting borrowers from abuse.

The bill would effect an overhaul of government far exceeding the reforms proposed by the Obama administration this summer or those under consideration by the House. It would bulldoze the existing regulatory establishment, stripping power from agencies including the Federal Reserve and the Federal Deposit Insurance Corp., and erect in its place a triumvirate of new regulators with sweeping, unprecedented powers.

Administration officials and House leaders have described some parts of the plan as untenable. Industry groups, Republicans and regulators have attacked much larger portions as unnecessary or irresponsible. Dodd said Tuesday that the bill is a draft, intended to start conversation, but that he believes the proposed reforms are necessary.

"I could have tried to draft something that was, sort of, already a compromise of ideas here," Dodd said. "But I think you make a huge mistake by doing that. You're given very few moments in history to make this kind of a difference, and we're trying to do that."

The much-anticipated bill, more than 1,100 pages long, adopts many of the administration's proposals, including the creation of an agency devoted to protecting consumers of financial products. But Dodd, the powerful chairman of the Senate Banking Committee, is at loggerheads with the administration over his proposal to consolidate banking regulation in a single agency, as well as his desire to limit the reach of the Fed.

Under the administration's plan, the Fed would continue to regulate some banks, in part to inform its monetary policy. The FDIC similarly would continue to regulate banks, in part to inform its responsibility to clean up the ones that fail. Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, has said he favors the administration's approach. But Dodd's bill would remove that work from both agencies, though they would retain access to information.

Dodd said Tuesday that stripping the Fed of some tasks would allow it to focus on its role in setting monetary policy to control economic growth.

Industry's angry reaction

Industry groups responded to the proposals with outrage.

"To some degree, it looks like they're just blowing up everything for the sake of change," said Ed Yingling, president of the American Bankers Association. "If this were to happen, the regulatory system would be in chaos for years. You have to look at the real-world impact of this."

In total, Dodd's bill would create three new bureaucracies. An Agency for Financial Stability would police systemic risks. A Financial Institutions Regulatory Administration would oversee the banking industry. A Consumer Financial Protection Agency would safeguard borrowers and other bank customers.

There is broad agreement among Democrats that the government needs new power to demand information from financial companies and markets and to place limits on activities that pose risks to the broader economy. The administration wants the Fed to play this role, with advice from a council of other regulators. Dodd's bill would instead employ a much more powerful version of the council, which would consult with the new banking regulator.

In addition to usurping powers from the Fed and the FDIC, the regulator envisioned by Dodd would replace the Office of the Comptroller of the Currency and the Office of Thrift Supervision. The plan includes a department that would oversee the particular needs of community banks.

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