Draft Financial Regulation Reform Package Unveiled

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter, Nov. 10, 2009.

Senate Banking, Housing and Urban Affairs Committee chairman Chris Dodd, D-Conn., unveiled a seven-point discussion draft of financial regulation reform legislation that includes the creation of a single, accountable federal banking regulator, an independent consumer financial protection agency, an independent council of regulators to identify risk and an end to the notion that institutions are too-big-to-fail.

Speaking on Capitol Hill, Dodd said the proposal will create a new architecture to make institutions more transparent, responsible and accountable. “For decades Washington has failed to deliver the substantial reform we need. If we fail again at this hour our economy will be vulnerable to yet another crisis,” Dodd warned.

Other elements of the discussion draft include the elimination of regulatory gaps that allow risky practices to go undetected, as well as increased transparency from credit rating agencies and accountability for the quality of their ratings. The proposal would also require companies that sell financial products to have "skin in the game," while also giving shareholders a greater say in how companies are run.

Dodd stressed that the creation of a single banking regulator will preserve the dual banking system by creating a separate division for community banks that do not pose the same risks as large banks. Such a system will create clarity and consistency, he argued, and will end the practice of "charter shopping" in which banks look for the most lenient regulator.

Meanwhile, Dodd noted that the proposal was not designed to be punitive toward the Federal Reserve. “I really want the Federal Reserve to get back to its core enterprises,” Dodd said, adding that when the Fed took on consumer protection responsibilities and regulation of bank holding companies “it was an abysmal failure.” The draft legislation, Dodd said, would in fact boost the Fed’s independence. “You start loading up the Fed with additional responsibilities and that independence can be threatened,” he said.

In terms of bipartisan support for the proposal, Dodd said he was “confident and optimistic” that a consensus bill could be created, stressing that he is eager to have Republican input and participation in the process.

The American Bankers Association issued a statement saying it opposes the creation of a single prudential bank regulator, an idea which “failed miserably” in the U.K. The Dodd proposal 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,” the group said.

Product Spotlight

Bankruptcy Law Guide    New bankruptcy legislative requirements and changing economic conditions have drastically increased the amount of information required to handle this costly and uncertain area of law. The Bankruptcy Law Reporter provides all the most up-to-date information necessary to navigate the maze of bankruptcy law. Whether it's simply ensuring your company is on solid legal and financial ground, settling court disputes or protecting your own personal interests in a corporate or personal case, the answers are all here.   More Info...

Bank Digest Bank Digest tracks the latest banking activity, regulatory changes and trends in federal banking policy. Each day, Bank Digest provides both a concise abstract and the full text of that day's releases from the federal agencies that impact the banking industry. Bank Digest also provides additional detail of significant events in weekly and monthly features.   More Info...

Consumer Credit Guide In the past, many states have attempted to cure problems and abuses that have appeared on a "one-at-a-time" basis, resulting in a multiplicity of consumer credit laws. In addition, the federal government has injected standards into broad areas of consumer credit previously regulated only by the states. The CCH Consumer Credit Guide publishes the information that you need to succeed in the complex area of state and federal consumer credit laws and regulations.   More Info...

Financial Privacy Law Guide This product provides comprehensive coverage of federal and state laws, regulations, interpretations and decisions. The Guide covers data security, insurance and health information privacy, fair credit reporting, bank secrecy, identity theft, the Gramm-Leach-Bliley Act, the E-Sign Act, the Electronic Fund Transfer Act, the Freedom of Information Act, the Right to Financial Privacy Act and international privacy. More Info...

State Banking Law Reporter Expedite your research with the CCH© State Banking Law Reporter. Now there's a single source for state banking law, giving banking professionals and legal counsel ready access to the information you need. State Banking Law Reporter combines the full text of state laws and regulations with authoritative explanations and consistent, topical organization.   More Info...