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Sen. Dodd Unveils Financial Reform Bill

Senate Banking Committee Chairman Christopher Dodd (D-Connecticut) ""introduced legislation"":http://banking.senate.gov/public/_files/FinancialReformSummary231510FINAL.pdf Monday that outlines a revamp of the nation's financial regulatory system and consumer safeguards.


The long-awaited reform bill calls for the creation of a Consumer Financial Protection Bureau â€" a watchdog group that Dodd calls ""new"" and ""independent,"" although it will be housed within and funded by the Federal Reserve. This agency would have the sole responsibility of protecting American consumers from unfair, deceptive, and abusive financial products and practices, including those related to home mortgages.

The bureau will have the authority to examine and enforce regulations for banks and credit unions with assets of over $10 billion; all mortgage-related businesses, including lenders, servicers, and mortgage brokers; and large non-bank financial companies, such as debt collectors and consumer reporting agencies. Banks with assets of $10 billion or less will be examined by the appropriate bank regulator.

Commenting on the Senate bill, Robert Story, Jr., chairman of the ""Mortgage Bankers Association"":http://www.mortgagebankers.org, said, ""[W]e are concerned that this bill could be headed down several of the same wrong paths as the legislation that moved through the House late last year. This bill does not provide uniform national regulation of all mortgage banking firms, and thus further solidifies the patchwork of state and local laws that increase costs for borrowers and lenders alike.""

Dodd's bill also institutes a new Financial Stability Oversight Council to identify and address systemic risks posed by large, complex financial institutions. The nine-member council would be chaired by the Treasury secretary and made up of other regulators including the Federal Reserve Board, the Securities and Exchange Commission (SEC), the U.S. Commodity Futures Trading


Commission (CFTC), Office of the Comptroller of the Currency (OCC), FDIC, Federal Housing Finance Agency (FHFA), and the new Consumer Financial Protection Bureau.

In an interconnected global economy, Dodd says it's easy for some firms' problems to become everybody's problems. The failures that brought down giant financial institutions last year, such as Bear Stearns and Lehman Brothers, also devastated the economic security of millions of Americans. It will be the job of this council to prevent such widespread risks in the future.

The Financial Stability Oversight Council will be responsible for ensuring no institution becomes ""too big to fail,"" and will have the authority to force large, complex companies to divest some of their holdings if it is determined they could pose a threat to the overall financial stability of the United States.

The measure also requires large firms to regularly submit ""funeral plans"" â€" a roadmap for regulators to ensure a rapid and orderly shutdown should the company go under. Companies will be hit with higher capital requirements and restrictions on growth and activity, as well as divestment, if they fail to submit acceptable plans. It also requires the largest financial firms to make monetary contributions to a $50 billion fund that would be used to pay for future financial collapses, in an attempt to eliminate the on-the-fly bailouts that characterized the current financial crisis.

Dodd's bill would also implement the much talked about Volcker Rule, championed by former Fed Chairman Paul Volcker. Under this rule, banks, their affiliates, and bank holding companies are prohibited from proprietary trading, as well as investment in and sponsorship of hedge funds and private equity funds.

In a statement issued early last week, Dodd said ""It has always been my goal to produce a consensus package….I have been fortunate to have a strong partner in Senator Corker, and my new proposal will reflect his input and the good work done by many of our colleagues as well.""

Sen. Bob Corker (R-Tennessee), a member of the Financial Services Committee, has taken the lead in negotiations with Dodd to try and ensure the reform package incorporated bipartisan ideas. But in a statement issued Monday, Corker said, ""The bill he [Dodd] has introduced has a number of policies I cannot support.""

Corker's words signal a tough road ahead for Dodd to win enough votes for passage, and likely a lengthy debate period before a compromise can be reached. Dodd said he plans to hold a full committee markup of the bill next week.