Trader Talk

Published: Tuesday, 10 Nov 2009 | 3:21 PM ET

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Wall Street shivers over the Dodd bill. Senator Chris Dodd (D., CT) has unveiled his long-awaited regulatory reform bill. It's 1,100 pages.

While there are many provisions, the one getting the most immediate attention consolidates the supervisory power of the four current bank regulators and abolishes two of them--the Office of Thrift Supervision and the Office of the Comptroller of the Currency.

It creates a single new bank regulator, the Financial Institutions Regulatory Administration (FIRA).

What does all this mean? First and foremost, the Federal Reserve would lose their role as direct bank supervisors.

This, Wall Street fears, is the beginning of the end of the independence of the Federal Reserve.

There's other power grabs buried in the bill, including one that would give lawmakers more power in choosing the directors at the Fed's 12 regional banks.

The ultimate fear is that the people who control fiscal policy (Congress and the White House) will begin controlling and interfering with the people who set monetary policy (the Fed).

How? Fed Chairman Ben Bernanke has made it clear that the Fed's ability to maintain an "effective monetary policy" depended on its role as a bank supervisor.

Lose the ability to be a bank supervisor, and you have to negotiate with the people who are.

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