View Full Version : Dodd introduces bill that would strip the FED of some of it's powers

11-11-2009, 05:54 PM
The bill is online at the second link


Senate Dems move to curb Fed's powers

By ANNE FLAHERTY, Associated Press Writer Anne Flaherty, Associated Press Writer – Tue Nov 10, 5:17 pm ET

WASHINGTON – Senate Democrats on Tuesday proposed stripping the Federal Reserve of its supervisory powers and creating instead three new federal agencies to police banks, protect consumers and dismantle failing institutions.

The 1,136-page bill, released by Senate Banking Committee Chairman Chris Dodd, would represent a significant shift in power in federal oversight of the U.S. market. The Fed has been a dominant figure in managing the economy, although many lawmakers blame the central bank for not doing enough to prevent last year's crisis.

"We saw over the last number of years when (the Fed) took on consumer protection responsibilities and the regulation of bank holding companies, it was an abysmal failure," said Dodd, a Connecticut Democrat.

Dodd's proposal prompted cheers from consumer advocates and other Democrats, including Sen. Mark Warner, D-Va., an influential moderate who said swift action was necessary to prevent future government bailouts of big banks.

"Never again should the American taxpayers have to hear about 'too big to fail,' where the American taxpayer has to pick up the slack," Warner said.

But the financial industry quickly pushed back.

The bill "would produce conflicts among regulators, undermine the state-chartered banking system and impose extensive new regulatory burdens on those banks that had nothing to do with creating the financial crisis," said Edward Yingling, president of the American Bankers Association.

While Republicans were expected to oppose much of the bill, Sen. Bob Corker, a Tennessee Republican on Dodd's committee, issued a statement setting an optimistic tone.

"I'm more hopeful than I was a few weeks ago that we will be able to come up with a bipartisan bill," said Corker, who has worked closely with Warner on banking issues.

Among the top points of contention is Dodd's desire to create a Consumer Financial Protection Agency to protect consumers taking out home loans or using credit cards against predatory lending and surprise interest rate hikes.

Republicans and industry officials say that creating another bureaucracy will make it harder for banks to do business and would limit the availability of credit.

Other provisions in Dodd's bill would:

• Consolidate federal supervision of banks under a "Financial Institutions Regulatory Administration."

• Abolish the Office of the Comptroller of the Currency and the Office of Thrift Supervision, and strip the Federal Deposit Insurance Corporation and the Fed of their bank supervision duties.

• Create an "Agency for Financial Stability" that would enforce new rules and dismantle complex financial firms if they threaten the broader economy.

• Regulate privately traded derivatives, hedge funds and other private pools of capital so that regulators have a sense of how much risk is being assumed by financial firms.

• Impose new rules on investment rating agencies.

• Limit the Fed's ability to provide emergency loans to mostly healthy institutions, instead of failing firms.

The Senate Banking Committee was expected to take up the legislation next week and vote by early December. Dodd said he expects to need Republican support to get the bill through Congress and that he remains optimistic consensus could be reached.

The bill will also have to be reconciled with the House version. Rep. Barney Frank, chairman of the House Financial Services Committee, said he expects a floor vote in December on his proposal.

Like Dodd, Frank wants to strip the Fed of its consumer protection powers and create a separate agency dedicated to the mission. Both House and Senate bills also would limit the Fed's ability to provide emergency loans and create a council of regulators to monitor the risks posed by large financial firms.

But the House bill wouldn't consolidate federal banking supervision and would ultimately put the Fed in charge of enforcing new requirements for large and influential firms.

Frank said Dodd's announcement on Tuesday confirmed that "we are moving in the same direction" and will enact legislation soon.


Dodd's Banking Bill Takes The Fed Down A Notch Or Two: HELP US DIG THROUGH IT

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"This is not a time for timidity," Senate Banking Committee Chairman Chris Dodd (D-Conn.) said Tuesday as he unveiled what he called a "sweeping, bold, comprehensive, long overdue" restructuring of the financial regulatory regime - one that, unlike competing proposals, limits rather than expands the powers of the Federal Reserve.

Specifically, Dodd's bill takes away the Fed's regulatory power in some key areas. "I really want the Federal Reserve to get back to its core enterprises," Dodd said. "We saw over the last number of years when they took on consumer protection responsibilities and the regulation of bank holding companies, it was an abysmal failure. So the idea that we're going to go back and expand those roles and functions at the expense of the vitality of the core functions that they're designed to perform is going in the wrong way."

The bill would also end the practice of allowing banks to select the directors of the regional Federal Reserve banks. That was a last-minute addition that came after the committee's top Republican, Sen. Richard Shelby of Alabama, told HuffPost he wanted to end the conflict of interest.

Dodd's bill is comprehensive, coming in at over 1,000 pages and tackling topics from derivatives reform to consumer financial protection.

Dodd said the bill would create a Consumer Financial Protection Agency to regulate such things as credit cards and home mortgages. Banks that are "too big to fail" would, as a final resort, be required to reduce their size and consequently the risk they pose to the financial structure if regulators demanded it. A single banking regulator would be created from the patchwork system that currently allows banks to shop for the fattest and laziest cop.

The bill would create a single bank regulator, responsible for all of the nation's 8,200 banks. The plan takes bank supervision away from the Federal Reserve, Federal Deposit Insurance Corporation and the 50 state banking supervisors, and combines the Office of the Comptroller of the Currency (which regulates national banks like Citibank and Bank of America) and Office of Thrift Supervision (which regulated failed lenders Washington Mutual and IndyMac) to create this new agency. Thrifts -- banks that concentrate their lending in home mortgages -- would be eliminated, and forced to become banks. This is something Dodd has been talking about for some time, and it's different than the proposals put forward by Rep. Barney Frank's House Financial Services Committee and the White House.

The bill also creates a national insurance regulator -- something that's always been the province of the 50 states.

Nearly all derivatives would be traded over an exchange with no exemptions for major end users. It expands regulation of payday lenders, hedge funds and dealers in asset-backed securities.

Ratings agencies would be required to increase transparency and be held accountable for blowing calls.

Dealers of mortgage-backed securities would be required to keep some "skin in the game" - in other words, they'd have to retain some ownership of a product they sell, in order to remove the incentive for them to unload garbage on unsuspecting investors.

Finally, the bill gives shareholders greater say over the operation of a financial institution as well as the compensation of its executives.

"If we don't' reform the system, sure as shooting, another crisis will happen, and happen soon," said Sen. Chuck Schumer (D-N.Y.), who joined Dodd at a press conference.

Schumer emphasized that the bill would allow the Securities and Exchange Commission to keep the fees it collects so that it isn't chronically under-funded.

Sen. Jeff Merkley (D-Oregon) described the current situation as unsustainable and responsible for last year's crisis. "Every single element of this system fell short," he said.

Dodd said that despite removing a fair amount of regulatory authority from the Federal Reserve, the bill shouldn't be seen as a criticism of Chairman Ben Bernanke himself. "This is not about ego," he said. "It's about putting together an architecture that works."

Dodd's bill protects the independence of financial accounting standards, which HuffPost first reported was under threat on the House side.

Dodd would leave the accounting standards board under SEC, where it currently resides.

Dodd was asked what the differences between his bill and House Financial Services Committee Chairman Barney Frank's are. "Small question you have for me," he said, laughing. "What's similar is we're heading in the right direction with bold changes." He identified two key differences in the way that Frank's bill empowers the Federal Reserve to manage system risk, which his doesn't. And he said, he doesn't have carve-out exemptions for certain users of derivatives.

Other than Shelby's one contribution, there's not much GOP reflected in the bill - indicating, Dodd said, that the bill is a strong one.

"I could have crafted something that was a bipartisan compromise, but that would have been a huge mistake," he said.
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11-12-2009, 05:59 AM
WASHINGTON — A key Senate committee chairman unveiled a sweeping 1,136-page bill Tuesday that, if enacted, would mandate the most comprehensive overhaul of financial regulation since the Great Depression.

The legislation would affect both average Americans and the well-heeled on Wall Street. It would bring unregulated entities such as hedge funds under closer supervision, give the government the power to shut down large financial firms, and merge numerous federal banking regulators under a single roof.

The bill proposed by Senate Banking Committee Chairman Christopher Dodd, D-Conn., would give ordinary folks tough protections against predatory lending and abuses by credit card companies, and would create a government agency to oversee mortgages, credit cards and other consumer-credit products.

Dodd's legislation includes much of what already is in legislation that's expected to pass the House of Representatives in early December, including what's called a Council of Regulators in the House bill and in Dodd's bill would be an Agency for Financial Stability. It would determine when and how to break up big financial firms whose failure could poison the broader financial system.

However, the Senate bill differs in one significant and controversial way: It would strip the Federal Reserve and the Federal Deposit Insurance Corp. of their bank supervisory powers and merge federal bank regulation into a single entity, a new Financial Institutions Regulatory Administration.

The reason, Dodd said in a news conference Tuesday, is that in the run-up to the global financial crisis, banks and other financial firms were able to shop for the regulator of least supervision. Additionally, many regulators had oversight over some of a financial firm's operations but not necessarily over its full range of activities.

To address this, the House legislation would fold the Office of Thrift