Chris Dodd Proposes 'super-regulating' Banks

http://www.nytimes.com/2009/09/20/business/economy/20regulate.html?_r=1

Leading Senator Pushes New Plan to Oversee Banks

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By STEPHEN LABATON
Published: September 19, 2009

WASHINGTON — The senior Senate Democrat shepherding legislation to
overhaul the nation's financial system is planning to propose the
merger of four bank agencies into one super-regulator, an idea that is
significantly different from what President Obama envisions.
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Senator Christopher Dodd, chairman of the Senate Banking Committee,
wants changes in President Obama's financial plan.

The legislation being prepared by Senator Christopher J. Dodd of
Connecticut, who heads the Senate Banking Committee, would also differ
from the Obama plan by diminishing the role of the Federal Reserve as
a systemwide overseer.

Mr. Dodd's plan is intended to be the starting point for the Senate as
it redraws the financial landscape in response to the market crisis.

For consumers, banks and the markets, Mr. Dodd's bill is expected to
take on the same central role in the debate as Senator Max Baucus's
recent bill is to remaking the health care system.

"We clearly need to put in place an architecture that restores
confidence and makes people feel that when they engage in financial
activities, from making a bank deposit to buying insurance or
investing in stock, that they can have confidence in the system," Mr.
Dodd said in an interview on Friday. "On the other side of this, I
don't want to strangle business."

In his weekly radio and Internet address on Saturday, Mr. Obama again
urged Congress to move swiftly to adopt legislation. He also accused
lobbyists for the banks of being "hard at work trying to stop the
reforms that would hold them accountable."

Lawmakers and aides say the bill Mr. Dodd is preparing to make public
in the coming weeks would be more ambitious and politically risky than
the plan offered by the White House, which considered but then decided
against combining the four banking agencies — the Federal Reserve, the
Office of Thrift Supervision, the Federal Deposit Insurance
Corporation and the Comptroller of the Currency — into one
superagency.

The White House backed away from that plan to avoid a phalanx of
industry opposition that might slow Congress.

In the House, Representative Barney Frank of Massachusetts, a Democrat
and the chairman of the Financial Services Committee, has been working
on legislation that is closer to the Obama plan on consolidation of
the agencies.

Mr. Dodd and others say that the market crisis last year was caused in
part by banks that were able to choose which agency would regulate
them, and by bank agencies that reduced regulations to encourage more
banks to choose them.

That problem would be eliminated if there were only one bank agency.

The Dodd plan is certain to run into sharp resistance from banking
industry lobbyists, who have already been urging lawmakers to defeat
it even before it is formally introduced.

It is also likely to face stiff opposition from bank regulators, who
are protective of their turf and have already raised objections about
the more modest Obama plan.

Mr. Dodd, who faces a difficult re-election campaign in Connecticut
partly because of the perception that he is cozy with the banking
industry, decided two weeks ago to remain chairman of the banking
committee rather than succeed his close friend, the late Senator
Edward M. Kennedy, as head of the health committee.

Senior Democrats in Congress say Mr. Dodd may have to thread a needle
as he publicly takes on the financial services industry — whose
members have a heavy presence in Connecticut and are some of his
biggest campaign contributors — while trying to project an image of
independence from it to get re-elected. But as chairman, he may also
have to make compromises with industry lobbyists to move the
legislation through a chamber in which bankers hold political sway.

Mr. Dodd said he decided to remain chairman after conversations with
the senior committee Republican, Senator Richard Shelby of Alabama. He
said Mr. Shelby persuaded him that it would be possible to get
bipartisan support for stronger financial regulation despite major
disagreements between even the two senators.

The industry has important allies among Democrats and Republicans on
the banking committee.

Industry lobbyists and colleagues said, for instance, that several
Democrats were likely to oppose the Dodd plan to have one banking
agency, a change that has been advocated by Senator Charles E.
Schumer, Democrat of New York, and Senator Mark Warner, Democrat of
Virginia.

Mr. Dodd and Mr. Shelby agree generally on some issues — including
their skepticism of a more powerful Federal Reserve, reflecting a view
shared widely among lawmakers. But among their disagreements are
whether to have a new consumer financial protection agency that would
regulate credit cards, mortgages and other loans.

The Dodd plan would reduce the stature of the Federal Reserve in several ways.

The central bank, which has evolved since its creation nearly a
century ago into a powerful banking regulator and has gained even
greater power over the last year, would lose authority over banks, as
well as its ability to regulate mortgages and credit cards.

Mr. Dodd has also rejected the administration's proposal to have the
Fed play the leading role as a so-called "systemic risk" regulator
that examines the connections between regulated and unregulated
companies for trouble spots that could disrupt the markets. That role
would instead be filled by a council of regulators.

(Bowing to political skepticism about the Fed's performance before the
crisis began, the administration's plan also would create a council,
but it would put the Fed in the decisive role.)

The Federal Reserve chairman, Ben S. Bernanke, leading an agency
threatened by the overhaul, has sought to push back by asserting the
agency's authority over subprime lending and executive pay in recent
days.

In other important respects, the Dodd plan would be similar to the
administration's.

Like the president, Mr. Dodd supports the creation of a new consumer
financial protection agency to both write and enforce new rules
protecting households from credit cards and mortgages with abusive or
deceptive terms.

The legislation would also make it easier for the government to seize
large troubled companies, as it did in the case of the American
International Group. It would give shareholders the right to have
nonbinding votes on the pay of senior executives. And it would impose
tighter oversight of the derivatives market, though how vigorously is
still not clear.

But the biggest difference is over bank consolidation. The issue is an
incendiary one for the politically influential community banks, whose
members are in every congressional district and whose top executives
are often local power brokers.

Edward L. Yingling, president of the American Bankers Association,
said the consolidation "hasn't worked in other countries that have
tried it and it faces plenty of opposition in Congress. It could be
that this is just an opening position for further negotiations."

The Treasury secretary, Timothy F. Geithner, has proposed merging two
of the four bank regulatory agencies — the Office of Thrift
Supervision, which oversees savings associations, and the Comptroller
of the Currency, which supervises nationally chartered banks — into
one agency, but he would leave the others untouched.