Senator Christopher Dodd (D-CT), chairman of the Senate Banking Committee, introduced revised legislation to regulate the nation’s financial system. The plan would create a nine-member council, led by the Treasury secretary, to be on the alert for systemic risks, and direct the Federal Reserve to oversee the nation’s largest and most interconnected financial institutions.
The bill, which would be the most comprehensive change in financial rules since the Depression, would preserve much of the existing regulatory system, which has been criticized as being too disjointed. Additionally, it would rely on a new mechanism for seizing and liquidating large financial companies on the verge of failure. This would reduce, but not eliminate, the possibility of future bailouts.
The legislation incorporates a version of the Volcker Rule, a proposal from former Federal Reserve Chairman Paul Volcker that would make certain that legislators ban banks from investing in or owning hedge and private-equity funds. Republicans and Wall Street strongly object to that idea. Dodd’s legislation takes a fairly tough line with financial firms in general. The proposed consumer protection agency would be given the authority to write and enforce rules for banks with more than $10 billion in assets. The oversight also would apply to mortgage companies, credit card issues and other lenders – a move that Republicans oppose.
“Our regulatory structure, constructed in a piecemeal fashion over many decades, remains hopelessly inadequate,” Dodd, who is retiring from the Senate at the end of this term, said. “There hasn’t been financial reform on the scale that I’m proposing this afternoon since the 1930s…. It is certainly time to act.”