George S. May Business Blog

Sen. Dodd Ponders Next Move for Financial Regulation Bill

Chris Dodd is no stranger to controversy in these final months of his political as a senator. After Dodd all but abandoned a re-election bid due to dismal chances of winning, it was thought that his political clout was also relegated to the same level of effectiveness.

But senator Dodd has at least been legislatively active in these waning days of his term, as evidenced by his most recent effort to pass meaningful reform through the financial sector. But Dodd may soon remember why he decided to leave his job in the first place if his plans are continually met with the stiff resistance he has thus far met.

Senator Dodd’s plans involved creating a stand-alone agency whose sole responsibility would be to protect consumers against corporate entities. Well, this was part of his plan, until he received not a lick of support from the GOP, and so like the democrats have been forced to do time and time again in recent years, Dodd was forced to listen to GOP and opinions and try to meaningfully incorporate those ideals into pending legislation.

And yet still no GOP senator backed Dodd, and after four months of trying to start a second agency to oversee banks and protect consumers, he’s gone to the idea of a single, all encompassing regulatory agency.

This agency will likely be charged with duties to both protect consumers and oversee banks, which must have sounded like too easy of jobs to senators for them to each have their own branch of government.

Dodd is currently the chairman of the Senate Banking, Housing and Urban Affairs Committee, and none of that cuts any ice with Republicans who doubt government’s ability to regulate banks any better than they are currently managed.

Sen. Christopher Dodd’s new regulatory scheme, expected to be released Monday, follows months of bipartisan negotiations that abruptly ended last week when he said it was time for his committee to consider a bill.

The legislation was one of several dozen top priorities for President Barack Obama and his ever-impressive multitasking skills. The basis of this bill aims to stop a repeat of the financial crisis that caused the Wall Street meltdown 18 months ago.

Those familiar with the plan described it on condition of anonymity because they were not authorized to speak publicly. The details, they said, remained in flux. And politicians are not one to promise things they can’t deliver (excluding anything said on a campaign, which apparently gives them a free pass).

Dodd, who’s not running for re-election this fall, is planting himself squarely between a united bloc of Republicans on his committee and Democrats who have insisted on a strong, autonomous consumer agency. For those looking for a similar legal precedent, I suggest the gripping case of Rock V. Hard place.

Dodd also faces Democratic pressure from outside his committee to take stronger measures to cut down the size of banks and to limit their activities. Some people were somewhat distressed to find out that a half dozen corporations can push the global economy to the brink of ruin, but many senators don’t see that a reason to try and pass a bill that isn’t everyone’s idea of perfect.

In a signal that Republicans were not yet prepared to support Dodd’s efforts, the committee’s 10 Republicans urged Dodd in a letter Friday not to push the bill through before the Easter recess, which begins March 27.

Dodd wants to create a special council that would watch over the financial markets, looking for trouble spots that could threaten the economy. The council would have an independent chairman appointed by the president. Members would include the treasury secretary, the chairman of the Federal Reserve, and the heads of several regulatory agencies.

The Fed would have lost nearly all of its newfound regulatory powers under Dodd’s initial plan, but retained the power to oversee some of the largest non-bank financial institutions.

The central bank, which was faulted for not seeing the recent crisis, would oversee all bank holding companies with assets of more than $50 billion — about 50 institutions in all. That’s more than Dodd had considered as early as last week. Currently, the Fed supervises all bank holding companies.

The Fed would still supervise state-charted banks and the U.S. branches of foreign banks, but that doesn’t seem to suffice for their CEO, er, appointed leader Ben Bernacke.

But the Fed would oversee non-banks that the council determines are so large and interconnected that their failure would threaten the financial system.

The details are yet to be discussed, but perhaps it’s time they got down to it before an unregulated market has a chance to finish the carnage it began.

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