Consumer protection, financial stability at core of sweeping Dodd bill
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Sen. Chris Dodd Tuesday introduced a wide-ranging financial-regulatory-overhaul measure, seeking more ambitious changes in some areas than envisioned by the White House or proposed by the House of Representatives.
Dodd’s discussion draft, running more than 1,100 pages, proposes financial reform legislation that would fundamentally change the country’s financial landscape and create a unified super-regulator to oversee all the banks in the country, according to reports.
It is the most sweeping proposal to date to address last year’s financial crisis.
A significant component of the bill — The Consumer Financial Protection Agency, a centerpiece of the White House’s regulatory-overhaul agenda — would have power to write and enforce rules governing all financial products and services. The agency could exempt institutions or a class of institutions from its rules on the basis of size, the extent of involvement in financial activities or other factors.
Though the Senate bills structure differs markedly from that being ushered through the House, its definition of "credit" remains the same as that of the original House version. The House bill passed out of the Financial Services Committee late last month. The amended bill has not yet been released publically.
The legislation would allow states to go beyond the agency’s rules and pass tougher consumer protections–something the banking industry claims would create an unworkable patchwork of regulations.
The agency would be overseen by a five-member board made up of the Financial Institution Regulatory Administration as well as four White House appointees who would need to be confirmed by the Senate.
The bill would also create an Agency for Financial Stability that would be tasked with identifying and removing systemic risks to the economy. It also would consolidate bank supervision into a single regulator–the Financial Institutions Regulatory Administration–and create a new Consumer Financial Protection Agency to oversee the products made available to consumers.
The systemic-risk agency would have wide authority to collect and use information to mitigate potential risks to the economy. It could require both domestic and foreign-owned financial firms that are deemed systemic risks to face enhanced supervision and standards that would be "increasing in stringency with the size and complexity of the specified financial company."
Other provisions in the legislation effectively would consolidate regulation of all banks at the national level, though the new Financial Institution Regulatory Administration which would include a state-bank advisory board and a division of community-bank supervision. The measure also includes provisions expanding proxy access for shareholders and would put key payment and clearing operations under the authority of the Federal Reserve.
In summary, Dodd’s bill proposes:
- Consumer Financial Protection Agency: Creates an independent watchdog to ensure American consumers get the clear, accurate information they need to shop for mortgages, credit cards, and other financial products, while prohibiting hidden fees, abusive terms and deceptive practices. It would be led by a five-member board with an independent director. The watchdog would have rule-making, supervisory and enforcement powers and allow states to pass tougher consumer protection laws — a victory for consumer advocates but something that’s sure to draw fire from the industry.
- Create a single federal bank regulator, called the “financial institutions regulatory administration.” It would totally absorb all two existing regulators — the Comptroller of the Currency and the Office of Thrift Supervision — while taking over the state-bank supervisory powers of the FDIC and the Fed as well as the Fed’s oversight of bank holding companies like Goldman Sachs.
- Try to end the idea of “too big to fail” companies: Prevents excessively large or complex financial companies from bringing down the economy by imposing increasingly harsh standards the bigger and more complex they get, including stricter capital, leverage and liquidity requirements.
- Require firms to write their own “funeral plans” and submit them to regulators periodically in the case that they have to be wound down.
- Empower the FDIC to unwind the future AIGs of the world, but not to provide open-ended bailouts. Costs for winding down would be paid by competitor firms with assets of more than $10 billion — a similar approach to the House bill.
- Limit the Federal Reserve’s emergency lending powers that were used to bail out AIG and Bear Stearns.
The new agency would be funded through a transfer of monies from the Federal Reserve as well as assessments on the institutions it oversees. It would have to adhere to some limits on what it charges federally chartered banks and credit unions with less than $10 billion in assets. State-chartered banks under that asset threshold would escape assessment altogether.
Under the Dodd proposal, the agency would be required to build a civil-penalty fund to be used to provide relief to victims of abuses by financial firms. The fund would be sustained with civil penalties won by the agency through the courts or administrative actions.