By MICHAEL R. CRITTENDEN and JESSICA HOLZER
WASHINGTON -- Sen. Chris Dodd introduced a wide-ranging financial-regulatory-overhaul measure Tuesday, seeking more ambitious changes in some areas than the regime envisioned by the White House or his counterparts in the House of Representatives.
The Connecticut Democrat's discussion draft, running more than 1,100 pages, would create an Agency for Financial Stability that would be tasked with identifying and removing systemic risks to the economy. It also would consolidate bank supervision into a single regulator--the Financial Ins utions Regulatory Administration--and create a new Consumer Financial Protection Agency to oversee the products made available to consumers.
The bill also would take away the Federal Reserve's emergency-lending powers to prop up individual banks, which the central bank used during the financial crisis to save several big firms from collapse.
The wide-ranging measure would effectively leave the Fed responsible just for monetary policy, stripping almost all of its bank-oversight and consumer-protection powers.
The banking industry took aim Tuesday at Mr. Dodd's proposals. The measure "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," American Bankers Association President Edward Yingling said in a news release.
Meanwhile, the Securities Industry and Financial Markets Association issued a statement expressing support for broad tenets of the Dodd plan -- such as creating a systemic risk regulator -- but was silent on the bill's details. Kenneth E. Bentsen Jr., executive vice president for public policy, said the group looked forward to working with Mr. Dodd on the overhaul.
The systemic-risk agency would have wide authority to collect and use information to mitigate potential risks to the economy. It could require both domestic and foreign-owned financial firms that are deemed systemic risks to face enhanced supervision and standards that would be "increasing in stringency with the size and complexity of the specified financial company."
The agency, which would be headed by a White House appointee approved by the Senate, would also be tasked with writing new risk-based capital standards, leverage and concentration limits, and a requirement that systemically risky firms hold contingent capital on their books. Officials would be required to ensure that identified financial firms are "well capitalized and well managed" and would be able to require the creation of a risk committee at publicly traded firms.
In addition, the Treasury could decide to wind down a systemically risky firm that begins to falter. The Federal Deposit Insurance Corp., which would act as receiver, would have the power to assess the financial industry to cover the cost of the resolution after the fact.
Other provisions in the legislation effectively would consolidate regulation of all banks at the national level, though the new Financial Ins ution Regulatory Administration would include a state-bank advisory board and a division of community-bank supervision. The measure also includes provisions expanding proxy access for shareholders and would put key payment and clearing operations under the authority of the Fed.
The Consumer Financial Protection Agency, a centerpiece of the White House's regulatory-overhaul agenda, would have power to write and enforce rules governing all financial products and services. The agency could exempt ins utions or a class of ins utions from its rules on the basis of size, the extent of involvement in financial activities or other factors.
The legislation would allow states to go beyond the agency's rules and pass tougher consumer protections--something the banking industry claims would create an unworkable patchwork of regulations.
The agency would be overseen by a five-member board made up of the Financial Ins ution Regulatory Administration as well as four White House appointees who would need to be confirmed by the Senate.
The structure differs markedly from legislation being ushered through the House. That bill would give the agency's director far more power to act unilaterally. The Dodd version is "a major positive for financial firms," Jaret Seiberg of Washington Research Group wrote in a note to clients.
The new agency would be funded through a transfer of monies from the Federal Reserve as well as assessments on the ins utions it oversees. It would have to adhere to some limits on what it charges federally chartered banks and credit unions with less than $10 billion in assets. State-chartered banks under that asset threshold would escape assessment altogether.
Under the Dodd proposal, the agency would be required to build a civil-penalty fund to be used to provide relief to victims of abuses by financial firms. The fund would be sustained with civil penalties won by the agency through the courts or administrative actions.
—Luca Di Leo contributed to this article.
Write to Michael R. Crittenden at [email protected] and Jessica Holzer at [email protected]
http://online.wsj.com/article/SB125786789140341325.html
As always, the devil is in the details, but I think there are some pretty good ideas in here. I am a little concerned as to how big a bureaucracy this will create, but the Fed does need to be stripped of some of it's powers. The consumer protection agency should prove to be a good thing. I do wish there would be a more aggressive stance in preventing TBTF's, even at the expense of breaking them up.
As you said, there seem to be a couple of good ideas in there. The regulatory structure does need an overhaul, but I agree -- steps should be taken to keep firms from getting TBTF in the first place.
more lobbyist opportunities?
Letting FDIC, FED, SEC continue to enforce regulations would be a joke, since they have all failed to do so.
This the strongest it will be. It will be watered down and shot full of huge loopholes as to be meaningless, and the Repugs will oppose it anyway.
Re-instate Glass-Steagall is my starting point.
Make derivatives illegal.
Increase the capital reserve to 10%.
All mortgages are serviced by the lender until maturity.
more government is always the answer! yay!
The TBTF's just gave us an epochal kick in the nuts. Who's big enough and bad enough to kick theirs, or at least, to keep them from repeating the experiment?
It is tempting to wish both would lose, but we know that is fantasy, because in the end, as always, We The People pick up the L.
Not always. But sometimes. And IMO this particular scenario qualifies.
It at least appears that some in Washington are listening and taking heed to the growing concerns of the public. At least it's a start but can't help how imdemnified this may be since it's basically going to be one agency looking over another:
...would create an Agency for Financial Stability that would be tasked with identifying and removing systemic risks to the economy. It also would consolidate bank supervision into a single regulator--the Financial Ins utions Regulatory Administration--and create a new Consumer Financial Protection Agency to oversee the products made available to consumers.
Or just let them fail. We survived PanAM going under.
No comparison.
I don't think we can get away from the FDIC,FED,and SEC in the short run, although you are right that they, particularly the FED failed dramatically and, I believe, predictably. Having said that, however, I actually agree with all of your suggestions. I don't know if they are legal or not, but I wish that they were...most specifically the suggestion to make derivatives illegal. I couldn't agree more, but I expect that will be one of the first things to be gutted.
Also, I don't see how republicans, if they really mean what they say about being fiscally conservative, can argue with much of this. I mean, I know that they will have to give lip service to the 'let the markets be free' crap, but I believe that a vote against financial reform measures would ensure someone's election loss next year before lots of other votes would. I mean, can you imagine the campaign ads that will be run against anyone (in either party) who has to support 'voting AGAINST protecting the little investor from the financial giants who ruined us all?' Man, I wouldn't want to have to defend that vote in any congressional district outside of Westchester County.
Either get rid of the Fed or take it back to where the Fed was a last resort loan for banks to get money from. But last resort. A third option is to do what M. Friedman suggested-increasing the quan y of money at a steady rate.
What is the Federal Reserve System?
The Federal Reserve System, often referred to as the Federal Reserve or simply "the Fed," is the central bank of the United States. It was created by Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role has evolved and expanded.
When was the Federal Reserve created?
The Federal Reserve was created on December 23, 1913, with the signing of the Federal Reserve Act by President Woodrow Wilson. The act had been drafted as House Resolution 7837 by Representative Carter Glass (D-VA), incoming chairman of the House Banking and Currency Committee.
What are the Federal Reserve's responsibilities?
Today, the Federal Reserve's responsibilities fall into four general areas:
- conducting the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices
- supervising and regulating banking ins utions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers
- maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
- providing certain financial services to the U.S. government, to the public, to financial ins utions, and to foreign official ins utions, including playing a major role in operating the nation's payments systems
For an overview of the Federal Reserve and its responsibilities, see The Federal Reserve System: Purposes and Functions.
Since the Federal Reserve has considerable discretion in carrying out its responsibilities, to whom is it accountable?
The Federal Reserve's ultimate accountability is to Congress, which at any time can amend the Federal Reserve Act. Legislation requires that the Fed report annually on its activities to the Speaker of the House of Representatives, and twice annually on its plans for monetary policy to the banking committees of Congress. Fed officials also testify before Congress when requested.
To ensure financial accountability, the financial statements of the Federal Reserve Banks and the Board of Governors are audited annually by an independent outside auditor. In addition, the Government Accountability Office, as well as the Board's Office of Inspector General, can audit Federal Reserve activities.
Banks shouldn't be allowed to make a lot of money.
there, I said it. We'd all be a lot better off with a lot less huge market distortions.
Dodd should be serving 25 to life for what he let happen to the economy. I would throw Bush and Barney Frank in there too with him.
I don't have a problem with banks making a lot of money. I have a problem when damn near all the money being made is being made by a small number of mega-banks and the taxpayers get held hostage by them.
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