Chistopher Dodd, Key Senator, Unveils Regulatory Reform Plan

Nov. 10, 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 -- and today a key lawmaker unveiled a new plan to overhaul Washington's oversight of Wall Street.

At a news conference on Capitol Hill this afternoon Senate Banking Committee Chairman Chris Dodd, D-Conn., released draft legislation that would break in a number of ways from a proposal put forth by 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. In their place, a single bank regulator would be charged with monitoring all banks and bank holding companies, while a new consumer financial protection agency would be created to look out for consumer's rights.

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

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 openly criticized the Fed's performance in the run-up to the current crisis, bluntly telling Fed chief Ben Bernanke, at a July 22 hearing, "There is a history at the Fed that is deeply troubling to me."

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

The Connecticut lawmaker's 1,100-page draft proposal breaks from Frank's measure in a number of ways, primarily by opting for one single bank regulator and by reducing the Fed's power, rather than giving the central bank new responsibilities over the country's biggest financial firms as Frank has proposed.

Even though Frank's plan is more similar to the Obama administration's initial proposal than is Dodd's, the administration has voiced openness to both plans. As an administration official told ABC News last week, "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. 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."

The administration has repeatedly emphasized the need to move quickly with reform measures before the effects of the current crisis can fade, but it will be some time before lawmakers settle on a final bill. While Frank's panel has already passed various reform measures, including one that would create the consumer protection agency and another that would regulate financial derivatives, Dodd's plan has yet to come to a markup. Nevertheless, last week the administration official said confidently, "We look forward to getting a bill passed and signed by the end of the year."

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.