Give Sen. Chris Dodd, D-Connecticut, credit. If anyone knows where the skeletons are buried in the financial institutions, he does. Remember last year he was one of two senators and a gaggle of other VIPs who received sweetheart loans from Countrywide Financial in an obscure program that waived points, lender fees and company borrowing rules.
Just last week Dodd, chairman of the Banking Committee, booted the last Republican out of the negotiating process and wrote with the help of Senate staff the most sweeping overhaul of financial institution regulations since the Great Depression.
Today, Dodd presented the verbose1,476-page bill described by the New York Times:
The bill would enshrine Washington’s role in policing Wall Street, creating a nine-member council, led by the Treasury secretary, to detect systemic risks to the markets and placing the Federal Reserve in charge of all of the nation’s largest and most interconnected financial institutions.
It falls short of President Obama's plan for an independent federal consumer protection agency in which Dodd said lacked enough votes to pass the Senate. It is close in many aspects to the House bill passed earlier.
The strategic points in the Dodd bill as reported by the Washington Post:
--A consumer Financial Protection Bureau, instead of a freestanding agency, to protect borrowers from abuse by lenders. It would be housed inside the Federal Reserve, funded by the Fed, but with a director appointed by the president. It would have the authority to write consumer protection rules that would apply to all mortgage companies, credit card issuers and other lenders. It also would have the authority to examine for compliance all banks with more than $10 billion in assets, all mortgage companies, and other large non-bank lenders, such as payday lenders.
-- The creation of a Financial Stability Oversight Council chaired by the Treasury Secretary and comprised of the heads of other regulatory agencies. The nine-member council would serve as a kind of board of directors for the Federal Reserve's regulatory responsibilities. It could encourage the Fed to impose new rules to address emerging risks to the financial system and the broader economy; it could accept the Fed's request to place non-bank financial companies under the Fed's jurisdiction, and it could approve the Fed's request to force an unstable company to shrink.
-- A new liquidation process for companies that cannot be salvaged. The decision to dismantle a company would require the approval of Treasury, the Fed and the Federal Deposit Insurance Corp., which already handles the resolution of failed banks and would also administer the failures of non-bank financial companies. The government would collect $50 billion from the largest financial firms to create a fund for such resolutions. Any additional costs would be collected from the industry after the fact.
-- To largely preserve the existing patchwork of federal banking regulators. The Federal Reserve would oversee banking companies with more than $50 billion in assets, a group of about 40 companies. Smaller banking companies with national charters would be regulated by the Office of the Comptroller of the Currency. Those with state charters would be regulated by the FDIC. The bill would eliminate the Office of Thrift Supervision, which oversees banks focused on mortgage lending. Those firms would be regulated by the OCC.
-- To extend federal regulation to new corners of the financial system. Credit rating agencies such as Moody's and Standard & Poor's would be overseen by a new office of the Securities and Exchange Commission, and would be subject to regulatory action and private lawsuits for the first time. Trading in derivatives would be regulated and some trades publicly reported for the first time. Hedge funds withassets of more than $100 million would be required to register with the SEC and to disclose financial information to regulators.
Dodd said he had bipartisan support of nine of his 11 provisions, the exceptions being consumer protection and corporate governance.
Bank lobbies are funding the U.S. Chamber of Commerce in opposing the regulations. It has rolled out a $100 million campaign to “defend and advance economic freedom.”
The banking lobby voiced its displeasure with the idea of a new agency, and advocated simply relying on the same regulators that let the house burn down in the first place.