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Competing Senate, House Financial Reform Bills Differ Over Fed’s Role

Dodd’s bill would strip the Federal Reserve of proposed authority to supervise and restructure the nation’s biggest banks and financial firms.

Instead, the bill would consolidate authority in a single national bank regulator. Gone would be most bank regulatory power held by the Fed and the Federal Deposit Insurance Corporation. The Office of the Comptroller of the Currency and the Office of Thrift Supervision, two regulatory units of the Treasury, would be eliminated altogether.

“This is not a time for timidity in this area. This is a time for some sweeping and bold changes,” Dodd said Tuesday at a news conference. “It’s been a long time coming.”

In draft legislation unveiled last month, Rep. Barney Frank, head of the House Financial Services Committee, proposed that the Fed take a lead role in overseeing large firms and, if necessary, intervene in those whose failures pose a risk to the economy. Dodd’s bill would remove that clout.

“It’s not designed to basically punish the Federal Reserve at all,” Dodd said. “But rather to enhance their role and their independence. You start loading up the Fed with additional responsibilities and that independence could be threatened.”

Frank’s legislation would also impose fees on financial firms that would be pooled to cover any bailout costs incurred by the government. The Dodd bill adopts a similar “systemic resolution fund” arrangement, and gives the FDIC authority to wind down troubled financial firms.

Both bills support the creation of a Consumer Financial Protection Agency, which would regulate consumer products such as credit cards and home mortgages, though details differ on the composition of the agency’s board.

Both bills also support the creation a new regulatory oversight council, comprised of existing regulatory agencies, to monitor and create rules for large firms with more than $10 billion in assets. Dodd has proposed that the oversight council be headed by a presidential appointee who is subject to confirmation in the Senate. Frank and the administration have proposed that the Treasury secretary chair the council.

Running more than 1,100 pages, Dodd’s bill also includes a “say-on-pay” clause, similar to the House bill, which would require all public firms to offer shareholders a nonbinding vote on executive pay packages.

Dodd’s bill would also alter the funding of the Securities and Exchange Commission in order to give it a “self-funding” structure and ideally more resources to detect fraud, such as the Bernard Madoff Ponzi scheme. Currently, a portion of the fees paid by companies to register with the SEC are given to the Treasury. Under the Dodd proposal, all of the fees would be dedicated to the SEC’s budget.

Dodd may face strong opposition from Senate Republicans after failing to reach a compromise with Sen. Richard Shelby, R-Ala., the banking committee’s top Republican, before unveiling his proposals. Shelby reportedly opposes the creation of a standalone Consumer Financial Protection Agency.

Dodd also faces opposition from the financial services industry. In a statement Tuesday, the American Banking Association voiced its resistance, saying the Dodd bill “would tear apart the existing regulatory structure only to create a new one that would produce conflicts among regulators, undermine the state-chartered banking system, and impose extensive new regulatory burdens on those banks that had nothing to do with creating the financial crisis.”

Chris Dodd Sen. Christopher Dodd (D-CT) Barney FrankRep. Barney Frank (D-MA)
Bank Oversight New, single bank regulator Multiple agencies, including Fed and FDIC, supervise banks
Fed Power to determine monetary policy Power to determine monetary policy; Authority to oversee and restructure large financial firms; Increased authority to police systemic risk to the economy
Consumers Creation of a Consumer Financial Protection Agency Creation of a Consumer Financial Protection Agency
Bailouts “Systemic resolution fund” created with payments from large firms to cover costs of bailouts “Systemic resolution fund” created with payments from large firms to cover costs of bailouts
Systemic Risk Oversight council chaired by presidential appointee subject to Senate confirmation; Identifies and removes systemic risks to economy Oversight council chaired by Treasury Secretary; Identifies systemic risks to economy