Published: Tuesday, 10 Nov 2009 | 4:00 PM ET

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A U.S. Senate proposal to create a federal super cop to police banks faces formidable opposition from the industry, current regulators and a senior House lawmaker who recently blasted the idea.

Getty Images Senator Chris Dodd (D-Ct.)

Christopher Dodd, chairman of the Senate Banking Committee, unveiled Tuesday his highly anticipated version of financial regulatory reform, which calls for consolidating all federal policing of banks in a new body called the Financial Institutions Regulatory Administration, or FIRA.

There has been little defense of the current system, which scatters responsibility among four banking regulators.

But a single federal regulator scares small banks who fear their interests will be secondary to those of financial giants, and irks current regulators who do not want to lose power.

Also, Representative Barney Frank, Dodd's reform architect counterpart in the House of Representatives, said late last month there was "no remote chance" of that much consolidation.

The Obama administration also does not go as far as Dodd's proposal.

Dodd promoted the idea enthusiastically during a news conference Tuesday, flanked by several Democratic senators. No Republican senators have yet publicly endorsed his bill.

"For firms that play by the rules, this single prudential regulator will provide clarity, cut red tape and make it easier to compete," the Connecticut Democrat said.

"But those institutions that would undermine the security of our economy will no longer be able to shop for the weakest regulator." Currently, banks can choose between the Federal Reserve, the Federal Deposit Insurance Corp (FDIC), the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) as their primary regulator.

Lawmakers have said some institutions, such as mortgage lender Countrywide and giant insurer American International Group Inc, exploited the system and chose the most friendly regulator.

The administration and Frank want to merge the OCC and OTS, while allowing the Fed and FDIC to retain their supervisory powers.

Dodd's plan would preserve state bank regulators, but would abolish the OCC and OTS and transfer their powers, along with the supervisory roles of the Fed and FDIC, to the new Financial Institutions Regulatory Administration.

FDIC Chairman Sheila Bair said Tuesday that there are ways to streamline banking regulation without going fully to a single regulator. The latter approach, she said, may not accomplish much.

"In the abstract some may think it is a good idea," Bair said to reporters during a bankers conference in New York. "I think there is some risk because you are putting all your eggs in one basket, but in terms of attacking the root causes of this crisis, it's difficult for us to see how these things are related."

Bankers criticized Dodd's single regulator proposal Tuesday. The Independent Community Bankers of America said the diversity in the size of banks should be reflected through a diversity of regulators.

Dodd's bill would create a division of community bank supervision within the Financial Institutions Regulatory Administration, but the industry group said it still "adamantly opposes" a single federal banking regulator.

The American Bankers Association, which represents banks of all sizes, said the single regulator idea failed "miserably" in Great Britain and would inevitably undermine the state- chartered banking system.

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