Regulators likely to oppose Sen. Christopher Dodd's bank-overhaul bill

WASHINGTON — The chairman of the Senate Banking Committee on Tuesday unveiled his version of legislation to overhaul the nation's financial regulations, which sharply differs from the Obama administration's plan by proposing the creation of a single federal banking regulatory agency and stripping significant power from the Federal Reserve.

The 1,136-page proposal by Sen. Christopher Dodd, D-Conn., is likely to be strongly opposed by the Fed and the three other bank regulatory agencies.

Dodd's legislation also further complicates White House efforts to pass an overhaul by the end of the year because it differs significantly from legislation moving through the House.

The senator stressed that his bill is just a draft but said he wanted to propose something bold rather than start the legislative process by compromising.

"The financial crisis exposed a financial regulatory structure that was the product of historic accidents, one after another, over the past 80 years, created piece by piece over decades, with little thought given to how it functioned as a whole, and unable to prevent threats to our economic security," Dodd said. "For decades, Washington has failed to deliver ... substantial reform we need. If we fail again at this hour, our economy will be vulnerable to yet another crisis."

Eight Democratic colleagues flanked Dodd as he unveiled the legislation. But the absence of any Republicans was significant as Dodd has worked for months to try to draw up a bill with bipartisan support.

With Republican opposition looming, parts of Dodd's plan also face strong opposition from the banking industry. Edward Yingling, president of the American Bankers Association, slammed Dodd's plan for a single banking regulator, saying it "would tear apart the existing regulatory structure" and copy a model that failed in Great Britain during the financial crisis.

Dodd's plan also probably will face criticism from the existing banking regulatory agencies — the Fed, Federal Deposit Insurance Corp., Office of Thrift Supervision and Office of the Comptroller of the Currency, which share oversight of the banking system. They already are fighting back against the Obama administration's plan to strip them of their consumer-protection responsibilities by creating a Consumer Financial Protection Agency.

Dodd's plan also creates such an agency, which would write federal rules on credit cards, mortgages and other types of loans, as well as monitor companies for compliance. But Dodd proposes to have the agency run by an appointed five-member board. The administration and House versions would have a single director.

The only regulatory entity that would disappear under the Obama administration proposal, and legislation moving through the House, is the Office of Thrift Supervision, whose oversight of savings and loans, such as the failed IndyMac Bank, has been severely criticized. Under those plans, the agency would be merged with the Office of the Comptroller of the Currency.

But Dodd said that merger would not do enough to eliminate an arcane and convoluted system of bank regulators that leads to gaps in oversight and allows institutions to shop around for the lightest regulation.

The rest of Dodd's legislation is similar to the Obama administration proposal and the legislation heading for a vote by the full House early next month. Dodd would give the government the power to seize and dismantle large financial companies that pose a risk to the economy, create a new Agency for Financial Stability to monitor the system for major risks, and impose new regulatory requirements on derivatives and hedge funds.

But Dodd is tougher on the Fed. Obama has proposed giving the Fed the job of regulating large financial companies whose failure could shake the economy. Dodd would give that power to the new banking agency, which would also take away the Fed's existing oversight of bank holding companies. Combined with the loss of the authority to write consumer-protection rules to the new consumer agency, the Fed essentially would be left with only its monetary policy role.

Dodd said the Fed has been "an abysmal failure" at consumer-protection and bank regulation, but stressed that his proposals were not designed to punish the central bank. His plan would strengthen the Fed's independence in exercising monetary policy, Dodd said.

"You start loading up the Fed with additional responsibilities, and that independence can be threatened, in my view. And I think that would be a mistake," he said.

A spokesman for the Fed declined to comment.