Senator Dodd seeks dramatic restructuring of the federal financial regulatory system

Sen. Chris Dodd (D-Conn.) circulated a 1,100-page bill on Tuesday that aims to dramatically remake the financial regulatory system.

The bill attempts to tackle many of the central questions of the financial crisis. But after months of negotiations and meetings behind closed doors with Sen. Richard Shelby (R-Ala.), the bill represents primarily Dodd's goals.

The draft was highly anticipated on K Street because Dodd's office has managed to avoid nearly all leaks in recent weeks.

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Senate Republicans and some centrist Democrats are likely to have strong objections to the bill.

Dodd, chairman of the Senate Banking Committee, wants to create a new Consumer Financial Protection Agency (CFPA) to regulate products like credit cards and home mortgages. Republicans and the financial industry have been strongly opposed to the CFPA, which is backed by the Obama administration and key House Democrats.

Dodd would also establish an "Agency for Financial Stability" that would identify and address risks to the stability of the financial system. The agency would be led by a presidential-appointed chairman who would be confirmed by the Senate. The agency could establish regulations on capital, leverage and liquidity requirements that could increase on a "graduated basis" for certain bank holding companies.

In a Tuesday press conference, Dodd emphasized that the bill is a discussion draft and that he is open to changes from Democrats and Republicans. Dodd said he had hoped to unveil a bill with Republicans by his side, and will aim to win GOP votes during the markup.

"For decades, Washington has failed to deliver the substantial reform we need. If we fail again this time, our economy will be vulnerable to another crisis," Dodd said.

Treasury Secretary Tim Geithner said Dodd's bill is a step toward comprehensive financial reform. "We look forward to working with the chairman and his committee in the coming weeks on a set of strong reforms to strengthen consumer protection, crack down on excessive risk-taking, and stabilize the financial system while protecting the taxpayer," he said in a statement.

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According to a summary of the legislation from Dodd's office, the bill aims for federal regulators to impose, "increasingly strict standards for companies as they grow larger, more complex, or more interconnected, including heightened capital, leverage, and liquidity requirements, that ensure these companies have greater resources to deal with financial shocks."

The agency would not be able to apply heightened standards to any bank holding company with less than $10 billion in assets.

Dodd also aims to create a Financial Institutions Regulatory Administration. The new office would consolidate the bank supervision responsibility of the four existing regulators: the Federal Reserve, Office of the Comptroller of the Currency, Office of Thrift Supervision and Federal Deposit Insurance Corporation (FDIC). Dodd would leave the insurance fund responsibilities with the FDIC.

The consolidation of the banking regulators will face stiff opposition from small banks and existing regulators. The Obama administration and House Financial Services Committee Chairman Barney Frank (D-Mass.) have publicly supported merging just two of the regulators, the Office of Thrift Supervision and the Office of the Comptroller of the Currency.

The bill would also set up a new system for winding down failing financial institutions and would impose new curbs on the multitrillion-dollar market for financial derivatives.