Dodd Unveils Financial-Overhaul Measure
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 Institutions Regulatory Administration–and create a new Consumer Financial Protection Agency to oversee the products made available to consumers.
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 Institution 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 Federal Reserve.
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 institutions or a class of institutions 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 Institution 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 institutions 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.
Write to Michael R. Crittenden at michael.crittenden@dowjones.com and Jessica Holzer at jessica.holzer@dowjones.com