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"This is not a time for timidity," Senate Banking Committee Chairman Chris Dodd (D-Conn.) said Tuesday as he unveiled what he called a "sweeping, bold, comprehensive, long overdue" restructuring of the financial regulatory regime - one that, unlike competing proposals, limits rather than expands the powers of the Federal Reserve.
Specifically, Dodd's bill takes away the Fed's regulatory power in some key areas. "I really want the Federal Reserve to get back to its core enterprises," Dodd said. "We saw over the last number of years when they took on consumer protection responsibilities and the regulation of bank holding companies, it was an abysmal failure. So the idea that we're going to go back and expand those roles and functions at the expense of the vitality of the core functions that they're designed to perform is going in the wrong way."
The bill would also end the practice of allowing banks to select the directors of the regional Federal Reserve banks. That was a last-minute addition that came after the committee's top Republican, Sen. Richard Shelby of Alabama, told HuffPost he wanted to end the conflict of interest.
Dodd's bill is comprehensive, coming in at over 1,000 pages and tackling topics from derivatives reform to consumer financial protection.
Dodd said the bill would create a Consumer Financial Protection Agency to regulate such things as credit cards and home mortgages. Banks that are "too big to fail" would, as a final resort, be required to reduce their size and consequently the risk they pose to the financial structure if regulators demanded it. A single banking regulator would be created from the patchwork system that currently allows banks to shop for the fattest and laziest cop.
The bill would create a single bank regulator, responsible for all of the nation's 8,200 banks. The plan takes bank supervision away from the Federal Reserve, Federal Deposit Insurance Corporation and the 50 state banking supervisors, and combines the Office of the Comptroller of the Currency (which regulates national banks like Citibank and Bank of America) and Office of Thrift Supervision (which regulated failed lenders Washington Mutual and IndyMac) to create this new agency. Thrifts -- banks that concentrate their lending in home mortgages -- would be eliminated, and forced to become banks. This is something Dodd has been talking about for some time, and it's different than the proposals put forward by Rep. Barney Frank's House Financial Services Committee and the White House.
The bill also creates a national insurance regulator -- something that's always been the province of the 50 states.
Nearly all derivatives would be traded over an exchange with no exemptions for major end users. It expands regulation of payday lenders, hedge funds and dealers in asset-backed securities.
Ratings agencies would be required to increase transparency and be held accountable for blowing calls.
Dealers of mortgage-backed securities would be required to keep some "skin in the game" - in other words, they'd have to retain some ownership of a product they sell, in order to remove the incentive for them to unload garbage on unsuspecting investors.
Finally, the bill gives shareholders greater say over the operation of a financial institution as well as the compensation of its executives.
"If we don't' reform the system, sure as shooting, another crisis will happen, and happen soon," said Sen. Chuck Schumer (D-N.Y.), who joined Dodd at a press conference.
Schumer emphasized that the bill would allow the Securities and Exchange Commission to keep the fees it collects so that it isn't chronically under-funded.
Sen. Jeff Merkley (D-Oregon) described the current situation as unsustainable and responsible for last year's crisis. "Every single element of this system fell short," he said.
Dodd said that despite removing a fair amount of regulatory authority from the Federal Reserve, the bill shouldn't be seen as a criticism of Chairman Ben Bernanke himself. "This is not about ego," he said. "It's about putting together an architecture that works."
Dodd's bill protects the independence of financial accounting standards, which HuffPost first reported was under threat on the House side.
Dodd would leave the accounting standards board under SEC, where it currently resides.
Dodd was asked what the differences between his bill and House Financial Services Committee Chairman Barney Frank's are. "Small question you have for me," he said, laughing. "What's similar is we're heading in the right direction with bold changes." He identified two key differences in the way that Frank's bill empowers the Federal Reserve to manage system risk, which his doesn't. And he said, he doesn't have carve-out exemptions for certain users of derivatives.
Other than Shelby's one contribution, there's not much GOP reflected in the bill - indicating, Dodd said, that the bill is a strong one.
"I could have crafted something that was a bipartisan compromise, but that would have been a huge mistake," he said.
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