Dodd Introduces Sweeping Financial Reform Bill

Senate Banking Committee Chairman Chris Dodd introduced a sweeping financial reform bill Monday. In response to the country's current financial situation the bill works to increase the government's control over the financial industry. Dodd is proposing to create a panel headed by the Treasury Department to specifically oversee the country's biggest financial firms and ensure consumer protections. Sen. Dodd, (D-Conn) was negotiating the bill with Republican lawmakers up until late last week when negotiations broke down. Afraid the bill wouldn't be passed this year if he delayed any further, Dodd decided to push ahead without Republican agreement.

After seeing Americans struggle with mortgages and credit cards with abusive terms and hidden fees, Dodd wants to put protections in place for consumers. Dodd's bill creates a stand-alone Consumer Financial Protection Agency (CFPA), giving them the authority to ensure consumers have clear, accurate and complete information when shopping for financial products. The agency would ensure consumer protection from deceptive practices by those companies. The bill would also create additional regulatory offices specifically to oversee insurance and credit ratings agencies.

Dodd blames failures on Wall Street for sending the country into its recent recession, so his bill intends to give the Federal Reserve Bank much broader authority over large financial firms on the verge of failing. By creating a Financial Stability Oversight Council, Dodd envisions the ability to approve the dismantling and liquidation of large finance or insurance firms that threaten the nation's financial security. He sees this as an alternative to the "too big to fail" bailout plans initiated during the financial crisis. The council would be paneled by nine expert members, including regulators from Federal Reserve Board, SEC, FDIC, and the proposed CFPA, among others.

Dodd believes that by creating this council and giving them proper authority, large financial firms would have more incentive to take smaller risks. These firms and their creditors would be more likely to control their growth if they no longer believed the government and taxpayers would bail them out if they fail. According to the bill, "common sense safeguards will protect taxpayers against the need for future bailouts and buffer the financial system from excessive risk-taking."

The 1,300-page bill also proposes to put the Federal Reserve Bank in charge of overseeing any financial firm with assets of more than $50 billion, while the FDIC would regulate banks and holding companies with assets below $50 billion. This would put many more banks under the purview of the Fed than originally anticipated. According to the Wall Street Journal, up until last week negotiators had thought, "...the Fed would only be able to examine roughly two dozen banks, those that held more than $100 billion in assets." This new assertion would give the Fed much wider berth for regulation.

Dodd's bill aims to rearrange the leadership of the Federal Reserve Bank system on both national and regional levels. He proposes that the president of the New York Fed would need to be appointed by the president, confirmed by the Senate and serve a five-year term. Additionally, previous officers, directors or employees of financial firms that fall under supervision of the Fed would be prevented from serving on the boards of regional Federal Reserve banks.

The American Bankers' Association (ABA) has already spoken out against this section of the bill. ABA President and CEO Edward Yingling said, "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."

The bill also proposes to strengthen shareholder rights by giving shareholders of publicly held financial firms a vote on executive compensation packages. Though the vote is nonbinding, it would let shareholders voice their opinions on the salaries of corporate administrators. Dodd sees this as a way to curtail the Wall Street system of bonuses that reward short term profits, rather than long term financial health. The bill would also require, "that public companies set policies to take back executive compensation if it was based on inaccurate financial statements that don't comply with accounting standards."

The Associated Press reports this has already prompted backlash from Wall Street, claiming an intrusion into corporate governance.

The biggest problem with getting this bill to pass will be Republican opposition. Dodd introduced a draft of his bill last November, but after heavy outcry from Republicans, went to the negotiating table with Sen. Richard Shelby (R-AL) and Sen. Bob Corker (R-TN). Last week Dodd concluded the process was taking too long, hindering the possibility of getting the bill passed in a timely manner. Republicans say the newest version is a "huge improvement," but it's not garnering votes from the GOP. Shelby said via Twitter that "Republicans and Democrats agree on 85 to 90 percent on the details of reform" and that Dodd's bill is a "far better product" than the previous draft. However, the GOP still plans to offer no support in terms of votes because they are at odds with key points of the bill. "To pass a bill off the floor," Shelby says, "he has to have a lot of Republican help, not one or two, but a critical mass. We can't rush this bill through."

Dodd insists through Twitter that his legislation contains bipartisan ideas and says, "Every day we delay is a day when we are unprepared. We will pass this legislation this year."

The bill is drawing attention from consumer watch groups. Advocates have been pushing for an independent protection agency and Elizabeth Warren, the lead advocate for an independent agency, endorsed Dodd's proposal in a statement. "Despite the banks' ferocious lobbying for business as usual, Chairman Dodd took an important step today by advancing new laws to prevent the next crisis," she said. "We're now heading toward a series of votes in which the choice will be clear: families or banks."

Other consumer groups think the bill imposes too little regulation. According to USA Today, "It's a far distance from what we had hoped for," said John Taylor, president of the National Community Reinvestment Coalition.

Initially it's difficult to tell if this plan will be effective. The bill aims to substantially clean up the financial industry, and all parties agree consumer protections are necessary to ensure consumers don't find themselves in the same financial crisis being experienced across the country today. True "truth in lending" is necessary, along with safe and effective financial investments, to keep our financial system afloat and Dodd's bill is attempting to make certain of just that.

Many consumers are already concerned about too much regulation in our government and may view this as just the creation of more authoritative bodies unable to do perform their functions properly. The good news is that Dodd's bill is very specific in its direction about which governing bodies will be responsible for what areas of the financial industry, reducing the confusion of who is in charge of keeping an eye on the large corporations that put us in the situation we're in.

Dodd has a rough road ahead of him to convince Republicans to vote for the bill, since they are viewing it as rushed and less than bi-partisan after leaving the negotiating tables last week. Dodd will need to win over Republican votes to get the required 60 votes needed to break a filibuster and guarantee passage through the Senate.

Sources:
Chris Dodd, Financial Reform Legislation Bill, Business Insider
Damian Paletta, Dodd Bill to Toughen Stance Against Banks, Wall Street Journal
American Bankers Association, ABA Reacts to Senator Dodd's Financial Regulatory Reform Proposal, ABA
Jim Kuhnenn, Dodd Unveils Sweeping Financial Regulation Plan, Yahoo News/AP
Chris Dodd/Richard Shelby, Financial Services Forum, Twitter
David Corn, Warren Tepidly Backs Dodd, Mother Jones
Paul Wiseman, Dodd's Second Shot at Financial Reform Still Leaves Loopholes, USA Today