Highlights of Sen. Dodd's financial regulation bill

Monday, March 15, 2010; 4:12 PM

Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) proposed:

-- A consumer Financial Protection Bureau, instead of a freestanding agency, to protect borrowers from abuse by lenders. It would be housed inside the Federal Reserve, funded by the Fed, but with a director appointed by the president. It would have the authority to write consumer protection rules that would apply to all mortgage companies, credit card issuers and other lenders. It also would have the authority to examine for compliance all banks with more than $10 billion in assets, all mortgage companies, and other large non-bank lenders, such as payday lenders.

-- The creation of a Financial Stability Oversight Council chaired by the Treasury Secretary and comprised of the heads of other regulatory agencies. The nine-member council would serve as a kind of board of directors for the Federal Reserve's regulatory responsibilities. It could encourage the Fed to impose new rules to address emerging risks to the financial system and the broader economy; it could accept the Fed's request to place non-bank financial companies under the Fed's jurisdiction, and it could approve the Fed's request to force an unstable company to shrink.

-- A new liquidation process for companies that cannot be salvaged. The decision to dismantle a company would require the approval of Treasury, the Fed and the Federal Deposit Insurance Corp., which already handles the resolution of failed banks and would also administer the failures of non-bank financial companies. The government would collect $50 billion from the largest financial firms to create a fund for such resolutions. Any additional costs would be collected from the industry after the fact.

-- To largely preserve the existing patchwork of federal banking regulators. The Federal Reserve would oversee banking companies with more than $50 billion in assets, a group of about 40 companies. Smaller banking companies with national charters would be regulated by the Office of the Comptroller of the Currency. Those with state charters would be regulated by the FDIC. The bill would eliminate the Office of Thrift Supervision, which oversees banks focused on mortgage lending. Those firms would be regulated by the OCC.

-- To extend federal regulation to new corners of the financial system. Credit rating agencies such as Moody's and Standard & Poor's would be overseen by a new office of 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 assets of more than $100 million would be required to register with the SEC and to disclose financial information to regulators.

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