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Dodd: Banking Reforms Would Rein In Financial Risk

March 15, 2010 at 12:00 AM EDT
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Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, has unveiled a plan to regulate banks and large firms and limit the amount of risk they can assume after the financial crisis. In a newsmaker interview, Judy Woodruff talks to Dodd about his sweeping plans for reform and why he says he's standing alone.

JUDY WOODRUFF: Now: financial reform on Capitol Hill.

The House already passed its version of a bill. Tonight, the chair of the Senate Banking Committee makes his case.

More than 18 months after the financial crisis and after lengthy negotiation, Connecticut Senator Chris Dodd unveiled a new financial reform bill that he said would protect the economy from excessive risk. The legislation would give the Federal Reserve Bank the power to regulate the biggest players in the financial system, place a new consumer protection agency in the Fed, and end government bailouts for firms considered too big to fail.

SEN. CHRISTOPHER DODD, D-Conn.: Never again should the American taxpayer be asked to write a check because of an implicit guarantee that the federal government will bail out a company when it collapses — would threaten the stability of the economy as a whole.

JUDY WOODRUFF: Dodd’s bill would have the Fed oversee any firm, not just banks, with more than $50 billion in assets. But the Fed would lose its power to regulate any firm with lower levels of assets.

States would still be allowed to write their own consumer protection rules. And the Treasury Department would oversee a council of regulators to monitor financial threats to the economy. The new consumer protection agency would have a head appointed by the president, whom initially wanted the agency to be completely independent.

Now many consumer critics are concerned that it would be housed underneath the Fed.

JOHN TAYLOR, president and CEO, National Community Reinvestment Coalition: I’m extremely disappointed in Senator Dodd. And I — and it pains me to say that.

JUDY WOODRUFF: John Taylor is the president and CEO of the National Community Reinvestment Coalition.

JOHN TAYLOR: It’s tough to legislate against ever having a crisis again, but it’s tougher if you don’t have a consumer protection agency that really has the enforcement authority and wherewithal and staffing and capabilities to make sure that these kinds of, you know, predatory, usurious, unsavory kind of lending practices don’t ever — don’t ever happen again on the wide-scale level that they did. You need to have that — that agency.

JUDY WOODRUFF: Dodd had hoped to win bipartisan support. But neither party seems ready yet to fully embrace it.

Senator Bob Corker, the one Republican who had been negotiating with Dodd recently, said last week he was disappointed. He contended that Dodd was trying to quickly pass a bill through committee before attention in the Senate returns to health care reform.

SEN. BOB CORKER, R-Tenn.: I know this for a fact. The elephant in the room is reconciliation, and — and trying to get a bill out of committee prior to that time. And — and I — look, the fact of the matter is, I think he is a victim, he is a victim of health care policy.

JUDY WOODRUFF: President Obama issued a statement today, saying the bill provided a strong foundation for financial reform. But he also indicated that his administration would work to toughen a final bill.

And for more on this, we talk to the senator who oversaw drafting of the bill, Banking Committee Chairman Chris Dodd.

Senator, thank you for being with us.


JUDY WOODRUFF: How confident are you that, if this is enacted, it would prevent another collapse like what we had?

SEN. CHRISTOPHER DODD: Well, fairly confident.

There’s no — we’ll have other economic crises, Judy, in our country. Anyone who suggests that we’re going to write legislation to stop that from ever happening — the difference is, in this bill, we’re creating the tools that will limit a crisis having the kind of impact this crisis has had, the worst crisis since the Great Depression, 8.5 million jobs lost, seven million homes in foreclosure.

Trillions of dollars of wealth have been lost. Retirement accounts have been exhausted, way beyond, obviously, what — what should have happened, had the regulators been doing their job, and had institutions that did not have regulation, had regulation.

So, this bill does a tremendous amount. It’s the most comprehensive reform since the 1930s of the financial reform system. And we believe it will do the job it’s designed to do. And that is give the tools to see to it we don’t have the kind of magnitude of problem that’s been created by this crisis.

JUDY WOODRUFF: Well, you have got critics coming at you from both the left and the right.

SEN. CHRISTOPHER DODD: Which is good news, Judy. That’s good news for me.

JUDY WOODRUFF: But a lot of focus on this consumer protection agency.


JUDY WOODRUFF: We just heard John Taylor with this consumer reinvestment group saying, essentially, it’s too weak. It’s not stand-alone, which is something you wanted initially. He’s saying it’s under the Fed, the Federal Reserve, where he says there are extensive conflicts of interests, and which will prevent that agency from doing the job it needs to do.

SEN. CHRISTOPHER DODD: Well, let me urge John to read the bill. It sounds like he’s reading press releases, not the bill.

I said there were four principles that I wanted as a part of a consumer protection agency bureau division. One is that the head of it be appointed by the president, confirmed by the United States Senate, that, two, it would have an independent source of funding, which is the most maybe significant piece here, having the resources to do the job, third, that it would have the rule-making — or, fourthly, the rule-making — independent rule-making authority, and the authority to do the examinations and a part of the whole effort to enforce those regulations.

This bill does exactly that. There were not the votes for an independent agency. But this agency housed at the Federal Reserve is all it is. It’s housed there. The Federal Reserve has no authority over this. The provisions of the bill couldn’t be clearer on the subject matter.

So, those who are arguing that, somehow, it’s under the thumb of the Federal Reserve just haven’t read the proposed legislation. I would urge them to do so before suggesting, somehow, it’s otherwise.

JUDY WOODRUFF: But why house it at the Fed?


JUDY WOODRUFF: I mean, after all, this is the agency the critics say didn’t stop the financial collapse from happening.

SEN. CHRISTOPHER DODD: Well, I was one of those critics. But, in the last couple of years, they have done a better job — but, again, missing the point. It’s being housed there. Why there?

Because, if it’s not going to be freestanding — the votes don’t exist for that — which of the prudential regulators do you locate it? At the OCC ? Consumer groups don’t like that at all. The FDIC? There was some support for that idea. I thought the Fed made good sense. It was proposed by Senator Corker and others.

And, frankly, one of the reasons why it’s important is because this agency will be funded out of Fed funds, reserves, not that the Fed has any control over those funds. If I went and asked for assessments on financial institutions or depended on an appropriation to fund the agency, we have seen what other administrations and Congresses can do in starving things like the Federal Trade Commission and others.

And, so, I felt this probably is the best choice of the choices available to me. And, again, we will go through a debate and discussion about this. But I think it makes better sense there than the other alternatives, other than freestanding, for which there didn’t seem to be the support.

JUDY WOODRUFF: And, just quickly, you also give the Fed say-so over institutions with over — the biggest institutions, those with over, what, $50 billion in assets?

SEN. CHRISTOPHER DODD: Mm-hmm. Mm-hmm. And there are about — about maybe 60, 70, 80, 90 of those institutions in the country.

We also have limitations on the auditing functions of the Fed. We insist that the vice chairman of the Fed be exclusively responsible for supervisory function and report to the Congress with frequency on those issues.

And the argument being, when you are not going to have a single prudential regulator, which is what I advocated earlier — but, again, the states and others didn’t — they wanted to maintain the dual banking system — began to break down the idea of a single regulator.

So, the idea was to create clarity and accountability, which is what we have done with this bill. So, the Fed has jurisdictions over non-banks with assets over $50 billion. National banks will be controlled by the OCC, state banks by the FDIC, and holding companies of less than $50 billion would also be under their jurisdiction.

In the past, Judy, you had overlapping jurisdictions, creating a lot of — a lack of clarity, a lack of accountability, people pointing the finger at different regulatory bodies as to whom was responsible for not doing their job.

JUDY WOODRUFF: Let me — I just…


JUDY WOODRUFF: Well, you have referred several times in this interview to what you had to do or what you couldn’t get support for.


JUDY WOODRUFF: So, a lot of decision-making here driven by politics?

SEN. CHRISTOPHER DODD: Well, it’s true. I’m not a — I don’t write the bill myself. I have got 22 other members of the Banking Committee. And members have done a great job.

We spent thousands of hours. It was two years ago today, Judy, that Bear Stearns was collapsing. Six months later to the day, on September 15, Lehman Brothers went into bankruptcy. We can’t wait much longer. We have got to put a bill together.

We spent a lot of time discussing these issues. But I can’t write a bill on my own. I need to have support. And, obviously, when you do that, you need to listen to other ideas, many of which have great merit. So, many of my colleagues, Democrats and Republicans, have contributed significantly to this.

JUDY WOODRUFF: But, at this point, you don’t have anybody else standing with you on this.

SEN. CHRISTOPHER DODD: Well, I made the choice to stand alone today, and doing so. But I have had great statements all day today made by members of the committee.

You heard Dick Shelby earlier this morning say that he thinks there’s about 85 percent or 90 percent agreement on the bill that I have proposed. My Democratic colleagues have issued very strong statements in support of it. The White House has. Barney Frank has. Nancy Pelosi has.

I wouldn’t — I wouldn’t judge this by the fact I stood alone. This wasn’t a bill I drafted on my own. I have worked very closely with my colleagues in doing this.

JUDY WOODRUFF: You — what do you say to Senator Corker’s charge, though, that this is all driven by health care? He basically said you’re a victim of the process and timing of health care.

SEN. CHRISTOPHER DODD: Well, I appreciate that.

And Bob Corker has been a good partner in all of this. In fact, the whole — all of the sections — there are 11 titles to this bill. And I would say, on nine of them, there was either a total agreement or substantial agreement.

And the one where there’s almost total agreement is on the systemic risk council, as well as on too big to fail. And Bob Corker and Mark Warner did a tremendous job in crafting over many, many weeks the proposals included in those two sections, as has Judd Gregg, and Jack Reed, Chuck Schumer, other members of the committee.

So, Bob Corker talking reconciliation, clearly, that’s an issue that could create a toxic environment here in the Congress. We know that. But we need to get our job done. We have got maybe 60 legislative days left, Judy, up here before the adjournment comes for the elections.

So, we no longer can wait. And, frankly, the American people deserve an answer. Jobs have been lost. Homes, retirements have been lost. The economic carnage is significant. And we need to step up and do the job.

JUDY WOODRUFF: Senator Chris Dodd, who predicted today that this bill will pass this year — Senator, thank you very much.


JUDY WOODRUFF: And a footnote: Later this week, we will get the views of a Republican critic of the bill.