Dodd Unveils Sweeping Financial Regulation Plan
LINDA WERTHEIMER, host:
As we mentioned earlier in the program, Congress is moving towards overhauling the way banks are regulated. Yesterday, Senator Christopher Dodd unveiled a new financial regulation bill.
We're going to talk to David Wessel about it. He's the economics editor of The Wall Street Journal and a frequent commentator on our program.
Good morning, David.
Mr. DAVID WESSEL (Economics Editor, Wall Street Journal): Good morning.
WERTHEIMER: How significant do you think this bill is? How sweeping are the changes that it proposes?
Mr. WESSEL: Well, its a pretty sweeping bill, to say the least. It's 1,336 pages. Now that's not as long as the health care bill, but there's a lot of room in there to change things. It reshuffles the regulatory deck in ways. It'll change the way the government regulates banks, changes the way banks and other financial firms make their money, creates a $50 billion fund to - that'll be - come from the banks to avoid taxpayer bailouts like the one two years ago at this time with Bear Stearns, and it gives the government new ways to close institutions like Lehman Brothers or AIG so it doesnt have to go through this rigmarole again of propping them up.
WERTHEIMER: And how are banks reacting to these ideas?
Mr. WESSEL: Well, its kind of interesting. They dont like some parts of the bill. They hate the idea of a separate consumer regulatory agency that we discussed earlier on the program. But I think they're being very cautious because they know this is a work in progress, and they want to be at the table.
There are lots of things in these bills that the banks dont like. They dont necessarily picket them in public, but they work very hard behind the scenes to change the wording just enough to protect their profits, and that's been going on for several months and it's going to continue.
WERTHEIMER: And the Federal Reserve - a year ago, it looked like Congress was gunning for the Fed. They might strip many of its powers. But in this bill, that does not appear to have happened.
Mr. WESSEL: Right. That actually is one of the most interesting evolutions of this particular legislation in the Senate. Chris Dodd, the chairman of the Banking Committee, the Connecticut Democrat, was pretty hostile to the Fed at the beginning of the process. And he proposed to take away the Fed's responsibility and authority over the banking system, saying that, basically, the Fed failed in its job to do this and created a whole new federal agency that was supposed to oversee all the banks.
In this version of his bill, he's changed that completely. The Fed actually won significant victory here. They managed to keep control of the oversight of the three dozen biggest banks. But it's a mixed blessing. They had to give up the smaller banks in this version, and that upsets some people at the Fed. And they also lose a little bit of their autonomy. For instance, in this bill, the president of the United States would appoint the president of the Federal Reserve Bank of New York. Today, that's a decision that the Fed makes on its own. So it's definitely a victory, but not without some concern at the Fed.
WERTHEIMER: So now what? What are the biggest obstacles that Senator Dodd faces in getting a bill passed?
Mr. WESSEL: Well, this is actually Senator Dodd's second proposal for a financial regulatory bill. The first one was a flop. He'll get this one through committee, there's no doubt about that. But he's likely to get only Democratic votes. All his efforts to get some Republican on the Banking Committee to hold hands with him and get a bill out have failed. That means he faces a tall obstacle when it gets to the Senate floor, because he'll need at least a couple Republican votes to get this out of the Senate so that they can then try and meld the differences with the House and actually get a bill through. The fact that the bill has gotten this far is - has something to do with how important it is to the administration.
Treasury Secretary Tim Geithner has been working really hard to get the Senate to actually do something. For the White House and Senator Dodd, the tactics are pretty clear: push a bill through, or let Republicans stop it, and then accuse them of siding with the unpopular banks.
WERTHEIMER: David Wessel, thanks very much.
Mr. WESSEL: You're welcome.
WERTHEIMER: David Wessel is the economics editor of The Wall Street Journal.
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