WASHINGTON --- A new Democratic Senate bill to tame the financial markets would give the government powers to break up firms that threaten the economy, force the industry to pay for its failures and create a consumer watchdog within the Federal Reserve.
Legislation unveiled Monday by Senate Banking Committee Chairman Chris Dodd falls shy of the ambitious restructuring of federal financial regulations envisioned by President Obama or contained in legislation already passed in the House. But the bill, which includes provisions negotiated with Republicans, would still be the biggest overhaul of regulations since the New Deal.
In announcing his bill at a news conference, Dodd stood alone, a sign of the difficult task ahead of him in forging a bill that can pass the Senate. None of the 10 Republicans on his committee endorsed his plan. Several Democrats have voiced dismay at Dodd's decision to reject a plan for a freestanding consumer agency, an Obama regulatory centerpiece.
The bill also does not fully embrace Obama's most recent demand to reduce the size of the largest financial institutions and to ban commercial banks from conducting risky trades on their own accounts.
Obama called Dodd's bill "a strong foundation," but signaled it fell short of his requirements.
The bill envisions a leaner Federal Reserve that would gain new powers to regulate the size and the activities of the nation's largest financial firms. The Fed's independent consumer bureau would write regulations governing all lending transactions. Bank regulators could appeal those regulations if they believe they would affect the health of the banking system.
The American Bankers' Association panned Dodd's measure.
"We oppose this bill because it will subject traditional banks, which did not cause this crisis, to heavy new regulation, while non-banks will have even further competitive advantage," President and CEO Edward Yingling said.
- A nine-member Financial Stability Oversight Council, led by the treasury secretary and including the Federal Reserve chairman and heads of regulatory agencies, would monitor the financial markets to watch for potential threats to the financial system.
- The Fed would gain oversight over the largest, most interconnected financial firms, even nonbanks. With approval of two-thirds of the oversight council, the Fed could force large interconnected firms to break up if they pose a "grave threat" to financial stability.
- The Fed would lose day-to-day supervision of smaller bank holding companies -- those with assets of $50 billion or less.
- A mechanism would be created to shut down large failing firms, with shareholders and unsecured creditors bearing the losses. Management also would be removed. The costs of such a shutdown would be covered by a $50 billion fund financed by the largest financial firms.
- A consumer protection division within the Federal Reserve would be formed to write regulations on lending, consolidating powers now exercised by bank regulators. The oversight council could veto those regulations.
- The bill would regulate derivatives, the complicated financial instruments blamed for accelerating the Wall Street crisis. Talks continue on what exceptions to include for corporations that use derivatives as a hedge against price fluctuations.
- Shareholders would get the right to cast nonbinding votes on executive pay packages.
- The head of the Federal Reserve Bank of New York would be appointed by the president and confirmed by the Senate for a five-year term.
-- Associated Press
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