Chistopher Dodd, Key Senator, to Unveil Regulatory Reform Plan

Nov. 6, 2009 -- In the wake of the worst financial crisis in generations, the battle over how to reform the system to prevent future meltdowns has fueled numerous proposals. Now, a key Senate lawmaker is set to unveil a plan that would represent a dramatic makeover of Washington's oversight structure.

Next week Senate Banking Committee chairman Chris Dodd, D-Conn., is due to unveil draft legislation that would break from other prior proposals put forth by the Obama administration and House Financial Services Committee chief Barney Frank, D-Mass.

Under Dodd's bill, the Federal Reserve and the Federal Deposit Insurance Corporation would lose many of their bank supervisory powers, a source in the financial industry told ABC News. In their place, a single bank regulator would be charged with monitoring all banks and bank holding companies, closing loopholes that allowed banks to shop around for their preferred regulator.

While the FDIC would continue to insure bank deposits and handle bank failures, the Fed would come out looking like a much different agency, without many of its bank supervisory powers and the power to make and enforce consumer protection rules, the source said.

In recent months Dodd has been openly critical of the central bank's performance in the run-up to the current crisis.

At a July 22 hearing, Dodd bluntly told Fed chief Ben Bernanke, "There is a history at the Fed that is deeply troubling to me."

The Connecticut lawmaker's upcoming proposal would differ from Frank's measure in a number of ways. There are four agencies that regulate banks, and while Dodd would them all into one, Frank would only get rid of the Office of Thrift Supervision. Dodd also wants to strip the Federal Reserve of some of its powers, but Frank wants to increase the Fed's bank regulatory work and give it new responsibilities over the country's biggest financial firms.

Even though Dodd's proposal will not be as close to the administration's proposal as Frank's plan was, the Obama administration appears comfortable with both of the Dodd and Frank plans. An administration official told ABC News that they are open to Dodd's plan, including the consolidated regulation, and remain optimistic about the contents of the ultimate bill.

"We have always said we are open to new ideas and encouraged by the progress in the House and Senate on financial reform under the leadership of Chairman Dodd and Chairman Frank," the official said. "We have no plans to wade into the day-to-day updates from Capitol Hill, but are confident that the final bill will protect investors and consumers, close loopholes that let Wall Street off the hook, and ending the perception of 'too big to fail.'"

Not only does the Obama administration know that they and the Democratic lawmakers all want to achieve the same objectives with their financial regulatory reform push, but they also know that they face common opponents. The quest for financial regulatory reform has been met with opposition from Republicans and the financial industry, with the proposed consumer financial protection agency receiving the most criticism.

Republican congressman Jeb Hensarling of Texas last month warned that the agency "will strip consumers and small businesses of their freedom of choice and restrict their credit opportunities in the midst of a financial recession."

But both Dodd and Frank are on board with the measure, with Frank recently suggesting that Congressional Oversight Panel chief Elizabeth Warren should run the agency.

The administration has repeatedly emphasized the need to move fast with financial regulatory reforms, before people's memories of last year's near-collapse of the financial system have faded. While Dodd will unveil his discussion draft legislation next week, Frank's panel has already passed various pieces of reform legislation, including one that would create the controversial consumer protection agency and another that would regulate financial derivatives.

Whatever happens with the dueling proposals, it will be some time before lawmakers settle on any final measure, since both chambers must pass their own bills and then reconcile their differences.

However, the administration remains confident that a bill will be passed before year's end.

"We look forward to getting a bill passed and signed by the end of the year," said the administration official.