Dodd Unveils Sweeping Financial Overhaul Plan

Senate Banking Committee Chairman Chris Dodd has unveiled his draft proposal to remake the financial regulatory system. It's a sweeping plan that goes beyond what's being hammered out by the House and the Obama administration.

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MICHELE NORRIS, host:

Today, we are seeing another road map for financial reform. This one is a proposal from Senator Christopher Dodd, chairman of the Senate Banking Committee. It's a more ambitious plan than the package proposed by the Obama administration and the bill in the House. And in this latest legislation, the big loser would be the Federal Reserve.

NPR's John Ydstie explains.

JOHN YDSTIE: Chairman Dodd was the last to present a reform proposal, but his is also the most sweeping effort to address the regulatory failings that contributed to the financial crisis. Most importantly, he would consolidate the power of all four of the current federal bank regulators into one super regulator, the Financial Institutions Regulatory Administration.

Senator CHRISTOPHER DODD (Chairman, Senate Banking Committee): Our proposal will replace the myriad government agencies that failed - in my view - to rein in the risky schemes, with a single, accountable federal banking regulator.

YDSTIE: In doing this, Dodd would strip the Federal Reserve and the FDIC of their power to regulate banks and completely eliminate other bank regulators: the Controller of the Currency and the Office of Thrift Supervision that regulates savings and loans. That goes much further than the Obama administration's proposal and the bill developed by the House Banking Committee. They only eliminate the Office of Thrift Supervision.

Dodd's bill, which has the support of Democratic members of the Senate Banking Committee, would also go beyond the administration and the House by creating another brand new institution. It would monitor and identify risks to the whole financial system posed by large institutions and complex financial products. The new agency for financial stability would also take power that the administration and House plans give to the Federal Reserve. Dodd maintains he isn't punishing the Fed.

Sen. DODD: Well, I don't see it that way. There's nothing punitive in this bill. I know that people think that. I really want the Federal Reserve to get back to its core enterprises.

YDSTIE: Like conducting monetary policy and being lender of last resort. Scott Talbot, head lobbyist for the Financial Services Roundtable, says the big financial institutions that he represents support the new systemic risk regulator that Dodd proposes. He says the industry is agnostic on the question of a single bank regulator or multiple regulators. There are pluses and minuses to both, he says. But the industry continues to oppose another feature of Dodd's package: a new consumer financial protection agency that would be a watch dog over financial products, from credit cards to mortgages.

Mr. SCOTT TALBOT (Head Lobbyist, Financial Services Roundtable): We're against creating a separate agency to protect consumers. We think you can protect consumers a more effective way by strengthening the existing regulators, rather than creating a separate agency.

YDSTIE: Asked about the political hurdles he faces in passing such an ambitious bill, Dodd said this is not a time for timidity. While the Dodd proposal differs in significant ways from it's plan, the Obama administration reacted positively to the chairman's package. Deputy Treasury Secretary Michael Barr said Dodd has proposed a tough bill.

Mr. MICHAEL BARR (Deputy Secretary, Department of Treasury): I think that we're in a strong position substantively and politically to get financial reform done.

YDSTIE: But it's not clear that any of the current reform bills can get the Republican support needed to clear the Senate.

John Ydstie, NPR News, Washington.

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Dodd Proposes Financial Reform Legislation

Senate Banking Committee Chairman Sen. Christopher Dodd of Connecticut i i

On Tuesday, Senate Banking Committee Chairman Sen. Christopher Dodd of Connecticut introduced his proposal for financial reform legislation, which calls for creating a single federal bank regulator. Charles Dharapak/AP hide caption

itoggle caption Charles Dharapak/AP
Senate Banking Committee Chairman Sen. Christopher Dodd of Connecticut

On Tuesday, Senate Banking Committee Chairman Sen. Christopher Dodd of Connecticut introduced his proposal for financial reform legislation, which calls for creating a single federal bank regulator.

Charles Dharapak/AP

Senate Banking Committee Chairman Christopher Dodd on Tuesday called for sweeping new government powers to prevent another economic collapse, protect consumers and dismantle failing institutions.

Dodd's 1,100-page draft, inspired by last year's financial meltdown and President Obama's call for new financial regulations, is aimed at minimizing "economic turmoil and protect[ing] the interest of taxpayers," the Connecticut Democrat wrote.

President Obama has demanded that Congress rewrite the federal regulations governing Wall Street to close legal loopholes and prevent the kind of fraud and abuse that fed the crisis.

"The financial crisis exposed a financial regulatory structure that was the product of historic accidents — one after another over the past 80 years, created piece by piece over decades with little thought given to how it would function as a whole and unable to prevent threats to our economic security," Dodd said.

The draft legislation aims to create a "new architecture" that will make financial institutions "more transparent, more responsible and more accountable to the American people," he added.

Some of the key points of the bill include:

— Establishing a consumer financial protection agency that will end abusive practices and provide clear and accurate information to Americans.

— Ending the era of "too big to fail" regulation in order to prevent large and complex companies from harming the U.S. and global economy. This would include imposing new capital requirements on such companies and requiring them to write their own "funeral plans" in the event that they fail.

— Creating a single federal bank regulator in lieu of a system in which multiple regulators have unnecessary overlap and conflicting regulators. Dodd said the system now in use enables large banks to shop for a regulator that fits their needs rather than the public interest.

Democrats lined up to support Dodd's proposal on Tuesday. Among those was Sen. Charles Schumer (D-NY), who said this legislation "will reform Wall Street and protect Main Street" from future financial crises.

Schumer said the proposal would help bolster the Security and Exchange Commission's enforcement abilities, guaranteeing a stable source of funding for the agency by allowing it to retain the fees it collects.

"Right now the SEC doesn't have the money it needs to hire enough analysts [and] update its technological resources," he said, citing its flawed handling of the Bernard Madoff case as a textbook example. "The SEC is just overwhelmed and overmatched by the people it regulates."

Schumer also said the legislation would provide a number of pro-shareholder measures including having a say on pay — the ability to vote on compensation packages for executives.

The Financial Services Roundtable, an industry group that represents big financial institutions, has some reservations about the bill.

"We're against creating a separate agency to protect consumers," said Scott Talbott, the chief lobbyist for the group. "We think you can protect consumers a more effective way by strengthening the existing regulators rather than creating a separate agency."

Talbott said his members support Dodd's proposal for a new systemic risk regulator. But large banks haven't expressed a preference regarding whether it's best to have a single or multiple regulator, he added.

The Obama administration reacted positively to Dodd's bill.

"I think we're in a strong position, substantively and politically, to get financial reform done," said Michael Barr, the Treasury Department's assistant secretary for financial institutions.

But Republicans haven't signed on yet.

Among the top points of contention is Dodd's desire to create a new agency to protect consumers who take out home loans or use credit cards against predatory lending and surprise interest rate hikes.

Republicans counter that creating another bureaucracy will make business harder for banks and limit the availability of credit.

The Senate Banking Committee is expected to review the legislation next week, paving the way for a floor vote by early next year.

The House was already on track with its own proposal. Rep. Barney Frank, chairman of the House Financial Services Committee, said he expects a floor vote in December.

Dodd's plan differs slightly from Frank's bill and the administration's proposal in that it would do more to scale back the powers of the Federal Reserve, which many lawmakers blame for the economic crisis.

For example, Frank has proposed that the Fed be in charge of enforcing tougher regulations on large and influential financial firms so that they don't grow "too big to fail." A council of regulators would monitor these firms and make recommendations.

Under Dodd's bill, the Fed would have less reach. An "agency for financial stability," managed by a board that includes Fed representation, would enforce new rules and dismantle complex financial firms if they threaten the broader economy.

Both the House and Senate bills are likely to put limits on the Fed's ability to provide emergency loans and eliminate its oversight of consumer protections.

Also unlike the House bill, Dodd's proposal would establish a single federal regulator for banks, called the "Financial Institutions Regulatory Administration."

The single regulator would get rid of two existing federal bank regulators — the Office of the Comptroller of the Currency and the Office of Thrift Supervision. It also would strip the Federal Deposit Insurance Corp. of its oversight of state banks and the Fed of its supervisory powers of bank holding companies.

From NPR staff and wire reports

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