Senator Chris Dodd’s Vision of Regulatory Reform

On Nov 10, 2009 Senator Chris Dodd, chairman of the Senate Banking committee released an 1,136 page bill designed to transform the financial regulatory system and address the problems that caused the financial crisis. Since the collapse of financial heavyweights like Lehman Brothers and the massive tax-payer bailouts, the White House, House, and Senate have designed proposals for regulatory reform aimed to prevent another financial disaster. Senator Dodd’s plan includes creating a super bank regulator that would take over the Federal Reserve’s and FDIC’s direct supervisory powers, transferring consumer protection responsibilities to a new regulatory agency, and granting greater authority to the Security and Exchanges Commission.

The aggressive nature of Dodd’s plan has drawn criticism from Republicans, existing regulators, the Fed, and business interests groups. For example, senior Republican senators were noticeably missing for Tuesday’s press conference when Senator Dodd unveiled his vision of regulatory reform. The creation of the Consumer Financial Protection Agency is a source of dissension for many Republicans and threatens bipartisan support for the bill. The Fed, whose regulatory authority would be stripped and duties confined to monetary policy if the bill passed, contends that its current supervisory role produces data necessary to its decisions regarding interest rates.

In comparison to the plans proposed by the House and White House, this Senate bill is more aggressive in consolidating existing regulatory bodies and redefining the roles of long-established financial agencies. These differences as well as opposition from the Fed and Republicans reduce the likelihood that regulatory reform will be completed by the end of the year given that there are less than 20 days left in the legislative session. Passing regulatory reform with the 60-vote requirement in the face of Republican opposition as well as the large differences between the House and Senate proposals, whose design is closer to the current system, will be a challenge to Democrats and advocates of strict financial regulation in the New Year. The nature of this legislation and the Madisonian design of Congress will give incredible power to those moderate Republicans debating whether to extend their support to a bill not praised by their party.