Dodd Plan: Consumer Agency to Have New Oversight Bosses

Federal ReserveSenate Banking Committee Chairman Christopher Dodd will propose a consumer financial protection agency within the Federal Reserve with some rule-making authority over credit cards, mortgages and other financial products essential in the lives of Americans, according to various reports.
But the plan – part of a strategy to win GOP support – has already met with opposition from consumer advocates, economists and many Democrats who have been pushing for an independent agency with more direct authority over lending products.
Still unclear is how much authority a new agency will retain within the Fed, which already oversees consumer protections such as credit card issuer regulations. The likely plan is to have a new systemic-risk oversight council approve a new consumer agency’s proposed regulations.
Dodd’s bill reportedly will also retain much of the Central Bank’s authority over the largest bank holding companies. The Fed’s controversial and historical role over financial institutions had been significantly reduced in previous oversight reform proposals.
After weeks of negotiating without broad consensus with Republicans on the Senate Banking Committee, Dodd, D-Connecticut, is expected today to unveil a final proposal to overhaul oversight of major banks and the financial system.
In addition to consumer protection, the intent of the reform is to prevent the kind of reckless capital markets trading that gave way to the worst economic crisis since the Depression.
Much like a partisan bill approved by the House in December, Dodd’s financial reform proposal will include a plan to create a special council of regulators to monitor systemic risk to the economy. The oversight body will likely have the power to initiate an orderly liquation of a financial institution deemed to pose a threat to economic stability.
The New York Times reports that Dodd’s proposal also contains regulations that will give shareholders of public companies advisory votes on executive pay and the ability to have a say in the nomination of a company’s board of directors.
Republicans on the committee have not come forward to support any aspect of Dodd’s proposal thus far, but have said they are open to reaching a deal. However, on Friday a suggestion by Republicans to re-draw reform blueprints was nixed by Dodd.
The issue of autonomy for a consumer financial protection agency, or CFPA, has drawn the most debate in and out of the Capitol. Consumer advocates argue that the Fed failed to restrain the activities of banks and Wall Street firms, especially the trading of subprime-backed mortgage securities and complex derivatives that, in effect, served as unregulated insurance policies.
President Obama and the House bill called for the consumer agency to be independent with direct rule-making authority over many financial products. But business groups and bank lobbyists have vigorously opposed any consumer agency proposal because they claim its power would be excessive and contradict existing regulatory structure.
Dodd’s bill would also create new regulation for over-the-counter derivatives, forcing the trading of credit market swaps onto exchanges or clearinghouses.

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