Dodd sets up new scrutiny over Wall St.

Sen. Chris Dodd (D-Conn.) on Monday unveiled wide-ranging financial legislation in his latest move to complete an overhaul in 2010.

“We will have financial reform adopted this year,” Dodd vowed in a press conference unveiling the 1,300-page bill. While he was optimistic he could win over Republicans, Dodd allowed that the healthcare debate and Democrats’ use of special budget rules could poison the potential for compromise.

“There’s always that possibility,” Dodd said.

The Senate Banking Committee is set for a markup during the week of March 22, and Senate Democrats are aiming to pass the financial bill before the Memorial Day break.

The chairman of the Banking panel faces a difficult road ahead, without any Republican support and an army of interest groups bearing down on restrictions against big banks and other financial companies.

“Forcing the Banking Committee to vote on this proposal in a single week is unrealistic and undercuts the potential for bipartisan agreement,” said Sen. Richard Shelby (Ala.), the senior Republican on Dodd’s committee. “Strong reform should not fear scrutiny.”

The short legislative calendar, a midterm election season in which Republicans stand to make significant gains and a political atmosphere dominated by the divisive healthcare debate further complicate Dodd’s task.

 Other Republicans repeated their call for more time to consider the financial legislation.

Sen. Judd Gregg (R-N.H.) said he hoped Democrats would not impose a “hyperpartisan process of false deadlines,” while Sen. Bob Corker (R-Tenn.), who spent weeks negotiating with Dodd, said there were parts of the bill he could not support and would look to alter with amendments.

Dodd responded by stating that many provisions in his bill grew out of bipartisan discussions.

Financial lobbyists at the Financial Services Roundtable, National Association of Federal Credit Unions (NAFCU), Credit Union National Association, Consumer Bankers Association and elsewhere were already massing their arguments against the bill.

The American Bankers Association (ABA), which is holding a conference this week with 900 bankers in Washington, quickly swung back against the Dodd bill.

 “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,” said Ed Yingling, ABA’s president.

 President Barack Obama praised the legislation and vowed to fight lobbying efforts to weaken the bill and a new consumer protection office at the Federal Reserve.

 “I will not accept attempts to undermine the independence of the consumer protection agency, or to exclude from its purview banks, credit card companies or non-bank firms such as debt collectors, credit bureaus, payday lenders or auto dealers,” Obama said.

The bill replaces a proposal originally backed by the Obama administration for a standalone Consumer Financial Protection Agency (CFPA) with a consumer office at the Federal Reserve. The proposal was backed by Corker during private negotiations, but the scope of its enforcement powers are greater in Dodd’s bill than previously envisioned.

 The office would have broad discretion to write rules on the financial industry as well as to enforce those rules for banks and non-banks with at least $10 billion in assets. Credit union groups are pushing an amendment to lift that threshold to $50 billion. The rules could be overridden by a two-thirds vote of a new council to oversee risks to the financial system.

 While consumer advocates and liberal Democrats have criticized the move to locate the office at the central bank, they were more muted in their concerns on Monday.

Ed Mierzwinski, of the U.S. Public Interest Research Group, praised Dodd for creating a consumer bureau that is housed at the Fed, but with a “firewall” against potential efforts to weaken it.

“It appears not to be under the Federal Reserve,” Mierzwinski said.

 The legislation gives power to the Federal Reserve to oversee bank holding companies with at least $50 billion in assets, while also creating a system aimed at preventing future taxpayer-funded bailouts of the financial industry.

The legislation contemplates a high bar for government regulators to put a failing firm through a resolution process, and also sets up a $50 billion industry-supported fund for wind-downs that would be run by the Federal Deposit Insurance Corporation (FDIC).

Dodd also included a tougher version of a restriction on proprietary trading than was discussed a few weeks ago. Dodd would require federal regulators to devise a way to prohibit proprietary trading at banks.

The provision follows the “Volcker rule,” outlined earlier this year by Paul Volcker, an administration adviser and former Federal Reserve chairman.

The bill would also clamp down on the multitrillion-dollar market for financial derivatives that many argue exacerbated the financial crisis in 2008.

 Sens. Jack Reed (D-R.I.) and Gregg have been negotiating the details of the derivatives legislation, and Dodd said he hoped it would soon become part of the broader overhaul measure.

 A Reed spokesman said the goal was to complete the derivatives legislation this week.

Five keys to Dodd financial overhaul
 
Consumer Protection:
Creates a consumer protection office at the Federal Reserve that would have broad rule-writing and enforcement powers over banks and non-banks with at least $10 billion in assets. Rules could be overridden by a two-thirds vote of a council set up to oversee risks to the financial system.
 
Federal Reserve supervision:
The Fed would supervise firms with at least $50 billion in assets. Monetary policy functions would not face a new government audit. The president would be in charge of appointing the head of the New York Fed, rather than the bank’s directors, six of whom are elected now by big private banks.
 
Ending ‘too big to fail’
Dodd would set a high bar for the government and Federal Deposit Insurance Corporation (FDIC) to act to wind down a failing financial firm. The bill would create a $50 billion industry-supported fund that could be tapped by the FDIC to wind down a company.
 
Volcker Rule
The measure requires regulators to devise a prohibition on proprietary trading at banks. The proposal was originally outlined by Paul Volcker, the former Fed chairman and adviser to President Barack Obama.
 
Corporate governance
The legislation gives shareholders a “say on pay” and a right to a non-binding vote on executive pay. The Securities and Exchange Commission (SEC) would have power to give shareholders “proxy access” to nominate directors.