WASHINGTON — A key Senate committee chairman unveiled a sweeping 1,136-page bill Tuesday that, if enacted, would mandate the most comprehensive overhaul of financial regulation since the Great Depression.
The legislation would affect both average Americans and the well-heeled on Wall Street. It would bring unregulated entities such as hedge funds under closer supervision, give the government the power to shut down large financial firms, and merge numerous federal banking regulators under a single roof.
The bill proposed by Senate Banking Committee Chairman Christopher Dodd, D-Conn., would give ordinary folks tough protections against predatory lending and abuses by credit card companies, and would create a government agency to oversee mortgages, credit cards and other consumer-credit products.
Dodd's legislation includes much of what already is in legislation that's expected to pass the House of Representatives in early December, including what's called a Council of Regulators in the House bill and in Dodd's bill would be an Agency for Financial Stability. It would determine when and how to break up big financial firms whose failure could poison the broader financial system.
However, the Senate bill differs in one significant and controversial way: It would strip the Federal Reserve and the Federal Deposit Insurance Corp. of their bank supervisory powers and merge federal bank regulation into a single entity, a new Financial Institutions Regulatory Administration.
The reason, Dodd said in a news conference Tuesday, is that in the run-up to the global financial crisis, banks and other financial firms were able to shop for the regulator of least supervision. Additionally, many regulators had oversight over some of a financial firm's operations but not necessarily over its full range of activities.
To address this, the House legislation would fold the Office of Thrift Supervision, which regulates savings and loan institutions, into the Office of the Comptroller of the Currency, which regulates federally chartered national banks.
Dodd's bill would go further. It would fold the National Credit Union Administration into the new single supervisor, and get the Fed and the FDIC out of the supervision business. The Securities and Exchange Commission and the Federal Trade Commission also would surrender some banking oversight powers. Under this plan, all banks large and small would answer to one regulator.
"The current system takes into account different shapes and sizes and business models," said Scott Talbott, the chief lobbyist for the Financial Services Roundtable, which represents big financial firms. He complained that Dodd is offering a dangerous "one size fits all approach."
Dodd faces a tough re-election battle next year, made tougher by allegations that he got a sweetheart mortgage deal from disgraced lender Countrywide Financial, a major player in the housing crisis, which became a full-blown global financial crisis. He denied Tuesday that he was trying to score political points by punishing the Fed for its failure to prevent the crisis.
"There is nothing punitive in this bill. I really want the Federal Reserve to get back to its core enterprises," mainly setting monetary policy, Dodd said.
Under the House legislation, the Federal Reserve would watch over the entire financial system with an eye out for potential threats to the economy as a "systemic risk" regulator. Dodd would confine the Fed to its main missions of promoting full employment while keeping a lid on inflation by conducting monetary policy, mainly through setting short-term interest rates.
A Fed official, speaking only on the condition of anonymity because the complex Dodd bill hadn't been fully reviewed, said it was too early to gauge what changes the legislation might bring for the independent central bank.
"We will consider and evaluate the draft language in light of our responsibilities for promoting economic growth, price stability, employment and financial stability," the official said.
While the House bill was crafted with close input from the Treasury Department, Dodd's was drafted with help from the FDIC, whose chairman, Sheila Bair, has clashed repeatedly with Treasury Secretary Timothy Geithner.
Dodd said the times demanded a bold plan.
"This is not the time for timidity," he said.
"Look, I could have tried to draft something that was already a compromise of ideas, but I think it would be a huge mistake," he added later. "You are given very few moments in history to make this kind of a difference."
Senate Republican leaders frowned on Dodd's bill.
"This is just another thousand-page bill not important to the general public. ... I don't think the public is clamoring for another thousand-page bill. I don't yet see bipartisan support for that bill," said Senate Minority Leader Mitch McConnell, R-Ky.
Although Dodd hopes that his committee will pass the measure by Christmas, it's likely to languish in the full Senate until health care legislation is finished, which Dodd conceded could be well into next year. Then his measure would have to be reconciled with the competing House bill.
Success for Dodd will depend on moderates, both Democrats and Republicans. There's been scant bipartisanship during the House debate on financial regulation, but moderate Senate Republicans sounded conciliatory Tuesday.
"Let's face it, financial regulation is pretty arcane. It's not something people wake up every day and think about," said Sen. Bob Corker, R-Tenn. "I think we have a great opportunity to do something that is bipartisan and will stand the test of time."
Sen. Susan Collins, R-Maine, supported Dodd's call to have an independent appointee head the Agency for Financial Stability. The House bill would have the treasury secretary head this body, which could dismantle large failing institutions.
However, many Republicans fiercely oppose Dodd's proposal to create a Consumer Financial Protection Agency, which is also in the House legislation. The panel would consolidate powers that now are scattered across several agencies.
"I think it's a very serious mistake. It would undermine the availability of credit, especially to people in small business," said Sen. Judd Gregg, R-N.H., charging that it would be run by "some academics that don't have any knowledge of the marketplace."
"The consumer panel is too big," added Sen. Tom Coburn, R-Okla.
Moderate Democrats such as Virginia Sen. Mark Warner also have concerns. Appearing with Dodd at a news conference Tuesday, Warner gave only qualified support.
"I think there are some real differences around the consumer agency, but on a lot of other issues I think there is a great deal of agreement," Warner said. "There is much more work to be done."
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