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Sen. Dodd to introduce plan to overhaul financial regulatory system

By Brady Dennis
Washington Post Staff Writer
Monday, March 15, 2010; A12

Senate banking Chairman Sen. Christopher J. Dodd will try to strike a delicate balance Monday as he introduces a new measure to overhaul the nation's financial regulatory system, including provisions aimed at shoring up support among fellow Democrats but also incorporating compromises he reached with Republicans.

"It's a bit of a high-wire act," Dodd (Conn.) said in an interview Sunday.

Staff members labored throughout the weekend to piece together the far-reaching legislation, trying to find language that would please Democrats on Dodd's committee but would preserve the hope of eventually winning GOP support.

People familiar with the bill said that Dodd plans to include provisions that would allow shareholders of public companies more of a say on executive pay and in nominating directors, an idea that has faced fierce opposition from Republicans and many financial firms. He also might include language that could force big banks to abide by certain state consumer protection provisions.

On the other hand, they said, Dodd will propose housing a new consumer regulator in the Federal Reserve, a compromise that has garnered Republican support but is anathema to liberal Democrats and consumer advocates who argue that the Fed failed miserably in protecting consumers in recent years. Such groups have insisted on an independent, standalone agency like the one the Obama administration proposed and the House passed last year.

Dodd's bill also would be much kinder to the Fed, a significant departure from the version he proposed last fall, when he said he would strip the Fed of its oversight authority. Under the plan, the Fed would retain supervision of bank holding companies with more than $50 billion in assets, according to people familiar with the bill, who spoke on the condition of anonymity because the draft was not complete. The agency would stand to lose oversight of thousands of bank holding companies that fall below that threshold, as well as hundreds of state-chartered banks.

Dodd said Sunday that his legislation will incorporate many of the compromises he reached in recent weeks with Sen. Bob Corker (R-Tenn.), with whom he had been negotiating before announcing Thursday that he would forge ahead alone. Still, he acknowledged that key elements will remain controversial.

He called the latest version "a roadmap," and said that because of the limited number of legislative days remaining in the year and with the health-care debate looming large, he felt he needed to move as quickly as possible. "I've got to act now," Dodd said. "It really is time to put down a product and begin the process of making decisions." Still, he said, "I'm not shutting the door to compromise. The door is open."

Republicans on Dodd's committee have urged him in recent days not to push a bill through too quickly, insisting that doing so could thwart any hope of a bipartisan agreement. Sen. Richard Shelby (Ala.), the ranking Republican on the panel, reiterated that view Sunday.

"Proceeding with care is more important than proceeding with haste, especially on something of this magnitude and complexity," he said.

In an interview Sunday from his home in Tennessee, Corker agreed but said he understands why Dodd feels pressure to move forward.

"From his perspective, I think he did what he needed to do. It's obviously very disappointing to me," said Corker, who has said he thought that he and Dodd were on the verge of an agreement when Dodd pulled the plug last week.

Corker, who said he spoke with Dodd over the weekend, said he expects the Democrat to introduce a bill that will be "a little to the left" of the compromises they reached. In particular, he said, he expects Dodd to propose giving the new consumer regulator more enforcement power over banks and non-bank lenders than Republicans have been willing to grant. People familiar with the measure said Dodd would seek to give the regulator enforcement power over banks with more than $10 billion in assets, as well as over some large nonbank lenders, such as mortgage brokers.

"He'll move to where he can pick up all the Democrats," Corker said. "He's got to go his own way on that one, we understand."

Corker said Dodd's new bill almost certainly would not get his and other Republicans' support. Still, he said it will be "a huge improvement" over the initial proposal that Dodd released last November.

"It will be a much better bill," Corker said. "I think this last month has helped produce a far better product."

People familiar with the bill said other measures include the establishment of a systemic risk council, composed of a collection of regulators and chaired by someone appointed by the president. In addition, firms such as Morgan Stanley and Goldman Sachs, which converted into bank holding companies during the financial crisis, would not be allowed to revert to their old status without government approval.

The bill also would create a mechanism that would allow the government to take over and wind down large, troubled financial firms. That resolution authority, as it is called, would be funded in part by an upfront fee paid by firms and possibly by assessments in the wake of a failure.

Dodd said staff members worked through the night Saturday and were headed for another late night Sunday, putting final touches on the bill. He said he hoped the result would be a proposal that prompts lawmakers to take a stand on the issues and move toward common ground.

"You've got to make choices. You've got to say yes or no," Dodd said. "It's decision-making time."

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