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6 key points of the financial regulation legislation

Sen. Christopher Dodd's second draft of financial reform legislation tracks closer to the legislation that passed the House in December, eliminating several of the bold reforms he proposed last fall. But Republicans remain opposed, despite Dodd's decision to incorporate their proposals on some issues. Back to story »

KEY POINTS

WHAT IT MEANS

1.

A Consumer Financial Protection Bureau, housed inside the Federal Reserve, would write and enforce rules protecting borrowers from abuse by lenders.

The location of the agency is a nod to Republicans and conservative Democrats who oppose the creation of a freestanding consumer agency, but everything else about this proposal is designed to please liberals, giving the consumer agency sweeping powers and imposing few checks on that authority.

2.

A Financial Stability Oversight Council, chaired by the Treasury Secretary, would coordinate federal efforts to identify and manage risks to the financial system and the broader economy.

Dodd wanted to give the council broad responsibility for policing systemic risks. After massive administration pressure, he agreed instead to give much of that power to the Fed. The oversight council will instead function essentially as the Fed’s board of directors on regulatory issues, signing off on its decisions.

3.

A new process would allow for the liquidation of large, failing financial firms.

Companies could be liquidated by joint agreement of the Treasury Department, the Fed and the Federal Deposit Insurance Corp., which already administers bank failures and would play a similar role in the new process. Costs would be paid from a $50 billion pot of money gathered from large financial companies.

4.

Credit rating agencies would be regulated, and liable for errors.

Breaking with the administration and the House version of financial reform, Dodd’s bill would hold Moody’s, Standard & Poor’s and other ratings agencies potentially liable for their judgments about the safety of bonds and other investments. The industry also would be regulated by the Securities and Exchange Commission.

5.

Banks would face new limits on trading and investment activities.

The bill would restrict banks from running their own investment portfolios or hedge funds, an administration proposal known as the “Volcker Rule” that Dodd initially had rejected. The bill also would regulate the massive trade in derivatives, increasing the proportion of such trades that are publicly reported.

6.

Some renovations to the structure of federal banking regulation.

Dodd abandoned his earlier proposal to create a single banking regulator after critics argued the upside was not worth the effort. The bill still would eliminate the Office of Thrift Supervision. The Fed’s authority over smaller banks would be split between the FDIC and the Office of the Comptroller of the Currency.

By Binyamin Appelbaum -- The Washington Post
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