Dodd's overhaul goes well beyond other plans
3 new agencies would wield broad powers over financial entities

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.

The consumer protection agency proposed by Dodd hews closer to the administration's original idea than to the version circulating in the House. Federal consumer laws would operate as a national minimum, but states could choose to impose stricter regulations. The agency also would have direct oversight of all banks. In a significant concession to the political power of smaller banks, the House version limits the agency's direct oversight of banks with less than $10 billion in assets. Dodd's draft does not.

Corralling the Fed

The Dodd bill also would place the Federal Reserve more firmly under the thumb of the administration. The Board of Governors in Washington is appointed by the president, but the 12 regional reserve banks, which implement policy, are private companies with boards chosen by their owners -- the commercial banks in each region. Those boards would now be appointed by the Board of Governors, and the chairmen of those boards would require Senate confirmation.

The Securities and Exchange Commission would gain the long-sought power to fund itself by assessing fees on the financial industry, a change designed to alleviate chronic shortfalls.

Frank, who has said he plans to present a final bill for a House vote by the end of the year, said Tuesday that Dodd's draft represents welcome progress.

"Obviously the bills aren't going to be identical, but it confirms that we are moving in the same direction and reaffirms my confidence that we are going to be able to get an appropriate, effective reform package passed very soon," Frank said.

Dodd and Sen. Richard C. Shelby (Ala.), the committee's ranking Republican, have met regularly but disagree on key issues. Dodd and other Democrats said Tuesday they are still hoping to craft a bipartisan bill. "That door is very much open," Dodd said. "I'd very much like to have their input and participation."

Shelby's office said it was still reviewing the legislation.

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