'Comprehensive' Financial-Reform Plan Unveiled by Dodd

Senate Banking Committee Chairman Christopher Dodd Monday unveiled a new, more moderate blueprint for sweeping financial reform in an attempt to win bipartisan support.


At an afternoon news conference, Dodd revealed highlights of a new bill, calling it "comprehensive in its scope," and addresses the "failures" that led to the financial crisis of 2008-2009.

The blueprint has 11 major components, covering such diverse areas as banking, hedge funds, derivatives, executive pay and insurance.

Dodd said his bill would end the "too-big-to-fail" concept, protect consumers, limit risk-taking, and rein in compensation packages.

The Dodd plan reconfigures banking regulation; creates a new consumer watchdog for financial products as well as a systemic-risk council with the authority to handle the resolution of too-big-to-fail firms; and introduces new safeguards against risk-taking in the marketplace.

Dodd has been working closely with several GOP committee members, most notably Bob Corker of Tennessee, after his original draft bill was essentially dead on arrival in November.

Corker said the bill "has a number of policies I cannot support, but I will continue working through the amendment process in committee and on the floor to hopefully make it a bill that can receive broad bipartisan support."

"This proposal provides a strong foundation to build a safer financial system," President Obama said in a statement. "As the bill moves forward, I will take every opportunity to work with Chairman Dodd and his colleagues to strengthen the bill and will fight against efforts to weaken it."

Here's a summary of the key components.

The systemic risk council would have nine members, chaired by the Treasury Secretary. With a two-thirds majority vote, the council could force "a large, complex company, to divest some of its holdings if it poses a grave threat to the financial stability of the United States," according to the plan.

The new structure would create "a safe way to liquidate failed financial firms; imposing tough new capital and leverage requirements that make it undesirable to get too big," the outline stated..

The Consumer Financial Protection Agency, CFPA, would have an independent budget with a chairman appointed by the president. It would have rule-making, examination and enforcement authority. The CFPA would be housed under the Federal Reserve, which "does not have one iota of authority over it," Dodd said.

The CFPA would have "authority to examine and enforce regulations for banks and credit unions with assets of over $10 billion and all mortgage-related businesses." according to the plan.

The Dodd proposal creates a new banking regulator, resulting from the merger of the Comptroller of the Currency and Office of Thrift Supervision. It would supervise banks and savings and loans with assets under $50 billion.

Christopher Dodd (CT - D)
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Christopher Dodd (CT - D)

The Fed would handle banks and other firms with assets over $50 billion that pose a systemic risk to the system, such an AIG. State-charted banks would be regulated by the FDIC if their assets are below $50 billion.

The Volcker rule, mean to limit risk taking by Wall Street firms, is also part of the bill, but would delegate authority to regulators, not the Congress.

The provision "requires regulators to implement regulations for banks, their affiliates and bank holding companies, to prohibit proprietary trading, investment in and sponsorship of hedge funds and private equity funds, and to limit relationships with hedge funds and private equity funds," according to the blueprint.

OTC derivatives will be regulated by the SEC and the CFTC, handled by centralized clearing houses, traded on exchanges and in some cases mandate margin and capital requirements for market players.

Under the plan, hedge funds will be more closely monitored. Ones that manage over $100 million must register with the SEC "as investment advisers and to disclose financial data needed to monitor systemic risk and protect investors,"

Measures to rein in executive pay would give shareholders a say on pay.

Dodd: Not Trying to 'Punish' Banks

Dodd said his bill was not meant "to punish" financial firms.

The provisions are somewhat similar to much of what leaked out from the Dodd-Corker negotiations during a month of discussions, but do not represent the detail some expected. Dodd and his staff are still working on the full bill, which is likely to exceed 100 pages.

Dodd surprised Republicans late last week when he said he would submit a bill Monday and begin markup of the legislation a week later, even though negotiations had not yielded agreement on all of the issues. Dodd, who is not running for re-election, said "there was not a lot of time left" to move a completed bill through Congress during an election year.

Corker and other GOP members sent Dodd a letter Friday urging him to slow down the process, saying the "proposed timetable will not allow members sufficient time to fully understand the details of [the] legislative proposal."

The Dodd outline has many similarities to one approved by the House late last year. but waters down several key provisions. Financial Services Committee Chairman Barney Frank (D-Mass.) worked very closely with the White House on that bill. President Obama, for instance, is an ardent proponent of a a strong, independent CFPA.

Any bill by Dodd is likely to face opposition at the committee level as well as in the full Senate, which will slow down the legislative process.

Earlier today, the panel's ranking Republican member, Richard Shelby of Alabama, said his party would meet Democrats "at least half way" on the legislation.

Dodd is trying to appease progressive Democrats, who want to protect consumers, without provoking Republicans, who are wary of too much government interference in the marketplace.

Frank has said that he wants any Senate bill to be reconciled with the House one in a open-hearing, full-conference mode, so voters can follow the votes of participants.

In a statement, Frank said Dodd's bill forms "a very solid basis for a House-Senate conference, to produce the tough regulatory reform that that President Obama has rightly asked for."

Financial reform has also been the object of enormous lobbying by consumer and business groups, especially on the issue of the consumer agency.

“Chairman Dodd has unveiled a bill which we believe hits the right notes on some aspects, like too-big-to-fail and streamlining of bank regulation," the Financial Services Roundtable, a major trade group, said in a statement. "The Roundtable believes that consumer protection should not be separated out from the regulators which govern the products."

The Center for Responsible Lending commended Dodd for his proposal, saying "any reform package must include a strong consumer financial protection agency that is independent from banks’ veto power over consumer protections, can write and enforce rules that address all abusive lending practices and cover all providers, including payday and auto lenders, and restores states’ abilities to write and enforce rules governing predatory financial practices."

Financial reform has assumed greater importance to both political parties since health care reform stalled two months ago.