Concessions on financial reform bill yield few gains in Senate

By Brady Dennis
Washington Post Staff Writer
Tuesday, March 16, 2010

Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate banking committee, introduced a revised bill on Monday to overhaul financial regulation that included compromises forged with Republicans in recent months but fell short of winning endorsement from conservatives, including members in his own party.

Even though Dodd whittled the scope of his initial November bill to address concerns that the proposals could give government too heavy a hand in the financial markets, it remains unclear whether he can find the votes to shepherd the legislation through the Senate.

"Our regulatory structure, constructed in a piecemeal fashion over many decades, remains hopelessly inadequate," Dodd said at a news conference. "There hasn't been financial reform on the scale that I'm proposing this afternoon since the 1930s. . . . It is certainly time to act."

Liberals and conservatives, as well as financial lobbyists and consumer advocates, could each find elements of the new bill that appealed to them. Dodd backed off his initial vision for a standalone consumer protection agency, an idea rejected by Republicans and much of the financial industry. He instead agreed to house the agency within the Federal Reserve, though he vowed to preserve its independence. At the same time, he included provisions to rein in big banks and give shareholders of public companies more of a voice; both are measures that appeal to fellow Democrats.

And yet, groups as disparate as the American Bankers Association and the activist Americans for Financial Reform found reason to voice displeasure with aspects of the far-reaching legislation.

The fate of the bill remains in doubt because Dodd has been unable to win any Republican backing, even after months of negotiations, first with the banking committee's ranking Republican, Richard C. Shelby (Ala.), and more recently with freshman Sen. Bob Corker (R-Tenn.). Dodd had hoped that in the course of his talks with Corker, other Republicans eventually would sign on to a deal. Sources in both parties said, for one, Dodd had his eyes on Sen. Judd Gregg (R-N.H.).

"I never actually saw what they reached agreement on," Gregg said Monday, when asked whether he might have joined a Dodd-Corker compromise. "I had serious reservations on some issues."

With the weeks passing and no Republicans willing to back a deal, except perhaps for Corker, Dodd last week suspended negotiations for a third time since the fall and said he would forge ahead alone.

Against the wishes of Republicans, Dodd plans to bring the bill up for debate in his committee next week, ahead of the two-week congressional recess that begins late this month. Many political observers say he will try to advance the bill through his committee with a partisan vote, in hopes of reaching a deal with Republicans once the bill heads to the Senate floor. Dodd noted Monday that "at any stage of the development of a bill, you can develop that consensus."

He referred to the 1,336-page bill as a "roadmap." Pieced together over the weekend by some of the same sleep-deprived staff members who accompanied him to Monday's announcement, the updated bill had two clear goals: to shore up Democratic support, and to force Republicans to choose between compromise and the political risk of opposing a bill aimed at curbing the risky Wall Street behavior that led to the financial crisis.

On nearly every key issue, the measure takes a relatively tough line with financial firms. The new consumer protection agency, for instance, would have the authority to write and enforce rules for banks with more than $10 billion in assets, as well as mortgage companies, credit card issuers and other large nonbank lenders -- a broader scope than Republicans have been willing to grant.

Dodd's bill also would give shareholders of public companies more say on executive pay and in nominating directors, an idea that has faced fierce opposition from Republicans and many financial firms.

In addition, the measure adopts a version of the "Volcker Rule," a proposal by the Obama administration -- from former Fed chairman Paul A. Volcker -- that would require regulators to prohibit banks from investing in or owning hedge funds and private-equity funds. Wall Street has aggressively opposed that idea.

The bill also extends federal regulation to new corners of the financial system. Credit-rating agencies such as Moody's and Standard & Poor's would be supervised by a new office in the Securities and Exchange Commission and would be subject to regulatory action and private lawsuits for the first time. Trading in derivatives would be regulated, and some trades publicly reported for the first time. Hedge funds with more than $100 million in assets would be required to register with the SEC and to disclose financial information to regulators.

The administration was particularly pleased with the draft Dodd unveiled Monday. Treasury officials have been working closely with Dodd's staff to craft the bill's language, enhancing the enforcement powers of the consumer regulator and increasing the scope of the Fed's supervision to include a wider range of banks.

President Obama said in a statement that Dodd's bill would provide a foundation for strengthening the nation's financial system.

"As the bill moves forward, I will take every opportunity to work with Chairman Dodd and his colleagues to strengthen the bill and will fight against efforts to weaken it," he said. "We will stand firm against any attempt by the financial sector to avoid their responsibilities: In any future crisis, the big financial companies must pay, not taxpayers."

While including proposals aimed at pleasing Democrats, Dodd's staff also sought language that would preserve the possibility of winning GOP support. That support won't come just yet.

"It's obviously not acceptable to me. There are problems with it," Corker said of Monday's bill. "I knew it was going to take a veer to the left; it's taken a veer to the left."

Still, members on both sides of the aisle expressed hope that a bipartisan deal -- essential for the legislation to win Senate approval -- lies somewhere down the line.

"I think there's a path here still to get a broader bipartisan bill," said Sen. Mark Warner (D-Va.). "The thing I think would be a real shame is if, 18 months after the financial meltdown, we couldn't get a good bill done. It would be irresponsible."

Rep. Barney Frank (D-Mass.), who guided a separate financial reform bill through the House last year, praised Dodd's efforts and expressed confidence that members of Congress can find middle ground.

"There are some differences between the House-passed bill and Senator Dodd's version, but they are more alike than they are different," Frank said in a statement Monday. "I believe that we will be able to work constructively together to meet the public need for a tough, comprehensive bill."

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