Dodd offers sweeping bank oversight plan

Draft legislation from Dodd would create 3 new agencies and consolidate others in bid to prevent another financial crisis - goes further than House bill.

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By Jennifer Liberto, CNNMoney.com senior writer

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WASHINGTON (CNNMoney.com) -- A far-reaching Senate proposal to overhaul the financial system would create three new agencies, while wiping out existing ones, to monitor risky bank practices and protect consumers.

"This is not a time for timidity in this area. This is a time for some sweeping and bold changes," Sen. Chris Dodd, D-Conn., said Tuesday. "It's been a long time coming."

The draft bill, which is more than 1,100 pages, proposes far more sweeping changes to the existing regulatory system than the House or White House.

The most striking difference between the Senate proposal and others is that it strips more banking oversight and consumer protection powers from the Federal Reserve, leaving the Fed mostly in charge of monetary policy.

"It's not designed to basically punish the Federal Reserve at all," Dodd said. "But rather to enhance their role and their independence. You start loading up the Fed with additional responsibilities and that independence could be threatened."

Super Regulator: One of the new players under Dodd's bill would be a super regulator to oversee all banks and banking-like firms, according to draft legislation.

The new entity, called the Financial Institutions Regulatory Administration, would take the place of the Office of the Comptroller of the Currency and the Office of Thrift Supervision. It would also assume banking oversight powers currently held by the Federal Reserve and the Federal Deposit of Insurance Corp.

The Dodd proposal would wipe out federal thrift charters and force thrifts, like institutions that focus on mortgages, to become banks. That proposal goes further than a House regulatory reform bill, which only gets rid of the Office of Thrift Supervision but keeps the thrift charter.

Dodd's idea for a single banking regulator is sure to be controversial. It was considered by the White House earlier but pushed aside. But the idea has support on the Senate Banking Committee.

The banking industry started taking aim late Tuesday. American Bankers Association president Edward Yingling said the ABA opposes the single regulator, saying it "failed miserably in Great Britain."

"ABA supports comprehensive reform, but not this reform," Yingling said.

Small community banks, in particular, don't like the single banking regulator. Right now, the FDIC works in conjunction with the states to regulate state-chartered banks. This proposal would create a special community banking division within the super banking regulator.

"We think over time the cycloptic regulator would focus its eye on the biggest banks and the state chartered banks would become its stepchildren," said Steve Verdier, a top lobbyist for the Independent Community Bankers of America.

Regulating too-big-to-fail banks: The Dodd plan would also create another new agency called the Agency for Financial Stability. That agency would be headed by a board of directors that included the Treasury secretary, the Federal Reserve chairman and other top regulators.

The stability agency would oversee the kinds of widespread risky practices that threaten the financial system. It also would wield new powers to break up too-big-to-fail companies.

The House bill, spearheaded by Financial Services Committee Chairman Rep. Barney Frank, D-Mass., proposes a similar oversight council. But in the House version, the Federal Reserve would keep much of its powers to monitor the largest firms and make sure they do things like beef up capital cushions.

The Dodd bill would create a third agency that is likely to be a major sticking point with Republicans and lobbyists for big banks: a Consumer Financial Protection Agency to oversee bank products like mortgages and credit cards. The House bill has a similar proposal, but exceptions to stronger rules have been carved out for industries like auto dealers and title insurers.

The Senate bill "does not have compromises that touch on some of the controversial areas that the House legislation did, and that's primarily because they're at the beginning of the process," said Travis Plunkett, lobbyist for the Consumer Federation of America.

The Senate legislation, like the House bill, would impose new restrictions on the derivatives market and on credit rating agencies. It would also require large hedge funds to register with the Securities and Exchange Commission.

It would also reshape the way that the 12 regional Fed Reserve Boards are structured.

The Dodd legislation would give Washington more say, allowing the Washington Fed to choose most of the regional board directors. The president would get to appoint the regional Fed Bank chairmen with Senate confirmation.

Currently, a majority of the members on District Fed Bank boards are elected by the banks in each district. And those district boards appoint their own district board president.

"The whole idea of being chosen by the very institutions you're going to be having responsibility over seems somehow inherently contradictory," Dodd said.

Next steps unclear: Dodd explained more about his proposal at a noon press conference. He is facing a tough re-election campaign next year and is said to feel pressure to push through a big piece of financial regulation.

However, the regulatory reform agenda has a long way to go.

Dodd said on Tuesday he'd like to start working on the actual legislation the first week of December. However, his draft proposal may have trouble in his own committee. The draft he's releasing came without a thumbs up from the ranking Republican Sen. Richard Shelby, R-Ala. Shelby's spokesman said Tuesday that Shelby had yet to see the bill.

"I had hoped today to be standing here with a consensus bill, but I understand that's not always possible," Dodd said.

That doesn't bode well for the prospect that financial legislation will move in the Senate, where bipartisan cooperation is crucial to the passage of controversial proposals.

"There are parts of this bill that are going to need, I think, more discussion," said Sen. Mark Warner, D-Va., who has been critical of some Democratic proposals on financial regulation. "I look forward to working not only with our colleagues, but with our colleagues on the other side of the aisle, to see if we can still get a bipartisan solution."

Take, for example, the credit card restrictions that were enacted earlier this year. Veteran congressional watchers, and Dodd himself, suggested at the time that the bill wouldn't have passed the Senate without compromises to appease Republicans and even conservative Democrats.

"We believe the odds are against Dodd and Shelby cutting a deal before the committee votes. After the vote, we question if Shelby would have a political incentive to help Dodd score a victory and thus help him get re-elected," said Jaret Seiberg, an analyst for Concept Capital Washington Research Group.

On the other side of the Capitol, the House has made strides in recent weeks on regulatory reform and plans to return next week to take up some controversial amendments.

One such amendment is expected from Rep. Paul Kanjorski, D-Pa., who wants to empower regulators with new powers to break up companies deemed too big and threatening to the financial system. To top of page

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