Dodd Offers Financial Reform Bill

In his role as chairman of the Senate Banking Committee, Senator Chris Dodd (D-CT) has spent several months in secret discussions and negotiations to come up with legislation on financial regulatory reform. Earlier today, he let the world in on his plans including the creation of a new super bank regulator, which he has dubbed the Financial Institutions Regulatory Administration [FIRA]. The fight that will follow will make the health care battle look like an ice cream social at a retirement home for Baptist preachers.

Mr. Dodd, who faces a rather challenging re-election bid next year, would have FIRA replace the Office of Thrift Supervision and the Office of the Comptroller of the Currency entirely -- they are destined for abolition. Meanwhile, the Federal Deposit Insurance Corporation and the Federal Reserve would continue on, but they would both lose their bank supervisory roles.

In addition, the bill would create a financial stability agency designed to fend off systemic risks to the financial sector. Senator Dodd is also planning on creating a National Insurance Office, which would not replace state regulators but would be a move in that direction. Also, the bill would create a financial consumer protection agency. This would be funded by fees charged to banks with over $10 billion or more in assets.

Mr. Dodd has been careful to keep the Republican leadership in the loop, particularly Senator Richard Shelby (R-AL), the ranking GOP member of the Senate Banking Committee. This courtesy hasn't resulted in any support from the right side of the aisle. Reporters on the Hill say Mr. Shelby opposes the creation of the new entities, and the consumer protection part really bothers him. In fact, not a single member of the GOP has suggested anything resembling support.

The House and the administration have not gone quite as far with their proposals as Mr. Dodd. That being the case, and bearing in mind the rather frigid response of the Republicans, a much-watered down bill will likely pass. It will provide some extra protections, but it will likely prove inadequate to halt the excess greed of financiers.

However, inadequate regulation alone is not what got the world into the current mess. Under the Bush administration, regulation was deemed optional, and the agencies that were to have clamped down on abuses were staffed by people who didn't believe in regulation. More authority for more agencies may be necessary, but at the same time, it is necessary for the regulators to actually do their jobs. As with many of the Bush bureaucrats, the financial authorities largely slept through their tenures. Mr. Dodd's new laws will only be as useful as the men and women who use them to keep Wall Street in line.

© Copyright 2009 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.

Kensington Review Home