But the most controversial element of Dodd's proposal does not deal with "too big to fail" or a systemic risk council or derivatives trading -- it deals with how best to protect consumers from the perils of Wall Street. Financial products, such as subprime mortgages and credit card abuses helped ignite the 2008 meltdown.
Last summer, President Obama proposed a stand-alone consumer financial protection agency. When the House of Representatives, led by Financial Services Committee boss Barney Frank, D-Mass., passed its Wall Street reform measure late last year, their bill followed the president's lead and created an independent watchdog.
But the financial industry has fought vigorously against a stand-alone agency. Republicans, too, have opposed the idea. Today, Dodd relented in the push to form a stand-alone watchdog. Instead, his proposal placed the agency within the Federal Reserve.
The consumer watchdog would have an independent head appointed by the president and confirmed by the Senate, an independent budget, independent rule-writing, and enforcement authority. The watchdog would be charged with overseeing banks with assets over $10 billion, all mortgage-related businesses and large nonbank financial firms, including large payday lenders.
The subprime mortgage crisis played a part in fueling the recent financial crisis, and Dodd said Washington let it happen.
"If there was a watchdog on duty, it didn't bark," he said today. "We need to strengthen not only its bark, but also its bite."
The decision to place the watchdog within the Fed not only signaled an about-face from Dodd on the idea of a standalone agency but also on the notion that the central bank's powers should be reduced, not increased.
Dodd has strongly criticized the Fed's role in the buildup to the financial crisis -- at a hearing last July he said that the Fed's record was "deeply troubling" -- and his original reform proposal released last November slashed the central bank's powers.
Now the Fed will house the consumer watchdog and keep its oversight powers for banks with over $50 billion in assets. Payday lenders -- which provide short-term loans to help people make it to their next paycheck -- would also be subjected to new rules written by the Fed under Dodd's plan.
Also included in Dodd's proposal was the so-called "Volcker Rule," Obama's plan -- championed by economic adviser Paul Volcker -- to curtail risky activities by the country's biggest commercial banks. The plan would ban big commercial banks -- whose deposits are insured by the FDIC -- from engaging in so-called "proprietary trading."
At a hearing before the banking panel last month, Volcker warned, "If banking institutions are protected by the taxpayer and they are free to speculate, I may not live long enough to see the crisis, but my soul is going to come back to haunt you."
But not included in Dodd's plan was Obama's proposal to impose a fee on about 50 of the country's biggest banks with assets of $50 billion or more in an effort to recoup around $90 billion in expected taxpayer losses from the Wall Street bailout.
Dodd today said the tax "will be considered, but not in this legislation."