Skeptical centrists greet Senator Dodd’s sweeping financial regulatory reforms

Sen. Chris Dodd on Tuesday unveiled sweeping legislation to overhaul
the financial system that must gain support from wary centrists in both
parties to make it through the Senate.

Dodd (D-Conn.), the chairman of the Senate Banking Committee, released a 1,136-page bill to revamp huge swaths of the nation’s financial regulatory system, consolidate agencies and create three new federal offices.

{mosads}Dodd himself emphasized repeatedly on Tuesday that the measure was a discussion draft, and he expected it to undergo significant changes and compromises in the coming weeks and months. After nearly a year of hearings and private negotiations with committee members, Dodd unveiled his bill without any Republican support.

“I had hoped today that we’d be standing here with a consensus bill, but I understand that isn’t always possible when you want it to happen,” Dodd said. Senate Minority Leader Mitch McConnell (R-Ky.) slammed Dodd’s effort, saying it “is yet another thousand-page bill, not support by any Republicans.”

But much of the debate will be among centrist Democratic and Republican senators on the committee, many of whom said they were aiming to amend the bill, not to oppose it outright.

“This is not like healthcare, and it’s not like climate change,” said Sen. Bob Corker (R-Tenn.). “We all want to see a really good bill pass.”

The much-anticipated bill represents a starting point for senators to begin marking up one of President Barack Obama’s main priorities this year following the worst financial crisis since the Great Depression. Dodd plans to begin a markup the first week of December, while the House is eyeing a vote that week on financial overhaul legislation shepherded by House Financial Services Committee Chairman Barney Frank (D-Mass.).

The Obama administration has urged lawmakers to pass financial legislation this year, but it is now unlikely that a final bill will head to the president’s desk before 2010.

Like legislation proposed by both Frank and the Obama administration, Dodd’s bill would create a controversial new Consumer Financial Protection Agency (CFPA) to regulate products like credit cards and home mortgages. The financial industry and Republicans are overwhelmingly opposed to the idea. Sen. Judd Gregg (R-N.H.) on Tuesday called it a “serious mistake.”

Sen. Jon Tester (D-Mont.) said on Tuesday that he is still reviewing Dodd’s bill, but that he has reservations about the new consumer agency.

“If the CFPA can actually maybe consolidate some of the regulation and make it so there are not as many gaps in it, maybe it merits it,” Tester said. “If it’s just another layer put on top of a bunch of layers, then we’re going to have to work with that.”

Sen. Mark Warner (D-Va.) said he had questions about the balance of rulemaking and enforcement power in some of the bill’s provisions. “I have parts of the discussion draft that I have not wholly reviewed or that I have issues with,” Warner said.

{mosads}Dodd’s bill would also establish a new “Agency for Financial Stability” that would identify and respond to risks to the stability of the financial system. The agency would be led by a chairman appointed by the president and confirmed by the Senate. The agency could establish regulations on capital, leverage and liquidity requirements that could increase on a “graduated basis” for certain bank holding companies.

Dodd also aims to create a “Financial Institutions Regulatory Administration.” The new office would consolidate the bank supervision responsibility of the four existing regulators: the Federal Reserve, Office of the Comptroller of the Currency, Office of Thrift Supervision and Federal Deposit Insurance Corporation (FDIC). Dodd would leave the insurance fund responsibilities with the FDIC.

Edward Yingling, president of the American Bankers Association (ABA), strongly opposed that provision in the bill and said it would “tear apart” the existing regulatory structure.

The Federal Reserve, which has been heavily criticized by Democrats and Republicans, would lose significant powers under the bill. Dodd’s bill would shift the Fed’s consumer protection responsibilities to the new consumer agency, shrink the Fed’s bank supervision powers and prevent the central bank’s emergency lending powers from supporting specific financial firms. Dodd intends for the Fed to have a limited role in setting monetary policy.

Rob Nichols, president of the Financial Services Forum, said the consolidated bank regulation has “genuine merits,” but he had concerns with the bill’s impact on the central bank.

“We do have some concerns about the degree to which the proposal would remove the Federal Reserve from supervision, since supervision informs in important ways the Fed’s responsibilities as the monetary authority and lender-of-last-resort,” Nichols said.