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Dodd submits 1,136-page financial reform

Dodd unveils regulatory restructuring proposal

Senate Banking Committee Chairman Christopher Dodd (D-Conn.) Tuesday unveiled a sweeping 1,136-page draft regulatory restructuring bill that in some ways is even more problematic than either the Obama administration's original proposal or legislation pending in the House, including a redefinition of the FDIC's Deposit Insurance Fund assessment base to bank assets minus tier one capital, a controversial funding formula which unintentionally would benefit a majority of the nation's top banks at the considerable expense of a handful of systemically important institutions and nearly a hundred other smaller regional and community banks according to an OBA analysis. 

Key provisions in the Dodd proposal include:

CFPA: The draft creates an independent Consumer Financial Protection Agency, very similar to the administration's proposal, where consumer protection responsibilities currently handled by the bank and credit union regulators and the Federal Trade Commission would be consolidated. The commission would be governed by a five-member board with an independent director.

The CFPA would have broad rule-writing, supervision and enforcement authority over banks and non-bank financial service providers. The draft does not contain the $10 billion bank carve-out from examination and enforcement. States would be allowed to pass tougher consumer protections that apply to all lenders, thus eliminating federal preemption.

The agency would focus resources on companies posing the biggest risk to consumers, which the Dodd draft identifies as mortgage bankers, brokers, financial companies and the largest institutions.

Single Regulator: The draft creates a single federal prudential regulator – the Financial Institutions Regulatory Administration (FIRA) – that combines the functions of the Office of the Comptroller of the Currency and the Office of Thrift Supervision, as well as the state bank supervisory functions of the FDIC and Federal Reserve, and the bank holding company supervision authority of the Federal Reserve.

The FIRA board would be headed by an independent chairman appointed by the president and would include the chairs of the FDIC and Federal Reserve. It would be funded primarily by assessments on the industry. It also would include a separate division to regulate community banks.

Too Big To Fail/Systemic Risk: The draft would impose new standards on companies as they grow larger and more complex, including more stringent capital, leverage and liquidity requirements. Large, complex companies would be required to submit credible “funeral plans” for their rapid and orderly shutdown should they fail.

FDIC would act as receiver to unwind failing institutions where the failure would cause systemic risk. Costs of such a resolution would be charged after the fact to financial firms with assets of more than $10 billion.

The bill also would create an Agency for Financial Stability, headed by an independent chairman and including federal financial regulators, that would write rules governing companies that pose systemic risk. Regulators would have the authority to break up large, complex financial companies. 

Thrift Charter: Following the administration proposal, the Dodd draft would eliminate the separate federal thrift charter.

Other provisions in the draft would address executive compensation, including clawback provisions, and the regulation of derivatives, hedge funds, municipal securities and credit rating agencies. The draft would also broaden the base for FDIC insurance assessments to be assets minus tangible equity.

A securitization provision also would require companies that sell mortgage-backed securities or similar products to retain at least 10 percent of the credit risk. Dodd, whose draft was crafted without Republican input, said he hopes to bring it up for committee consideration after Thanksgiving. The lack of GOP support will likely slow its progress, however. The Senate Banking Committee's top Republican, Sen. Richard Shelby (R-Ala.), has said GOP committee members will oppose any bill containing the CFPA.

The Senate proposal hits the scene as the House Financial Services Committee continues to work on a systemic resolution bill – the last of several major reform bills to be considered by the panel. The panel is expected to conclude its work in the next two weeks, and a legislative package combining all the reform bills could be on the House floor in early December.

For more information, at the ABA Website you can:  Read a committee summary of the proposalRead the draft billRead ABA's statement on the proposal. 

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