Bill to Toughen Stance Against Banks

ByStander

WASHINGTON -- Senate Banking Committee Chairman Christopher Dodd (D., Conn.) is finalizing a bill to rework financial market rules that is expected to be tougher against banks than previously expected, people familiar with the matter said.

Though details of the bill could still change before it is introduced Monday, some details emerged Saturday as aides and White House officials conferred.

The biggest winner in the bill appears to be the Federal Reserve, which would see its powers expand considerably. Large financial companies, particularly big banks, could emerge as the biggest losers. They would face much higher scrutiny from bank supervisors and potentially face sanctions for violating consumer protection rules by an autonomous new division within the Fed.

Big banks could also be forced to comply with certain state consumer protection rules, a move that would be considered a huge win for consumer advocates and a blow to a financial industry that had lobbied against such a move.

The bill's ultimate prospects are still cloudy. No Republicans are expected to initially support it, though Democrats hope they can eventually win support.

Mr. Dodd has spent months negotiating the bill with multiple Republicans, first Sen. Richard Shelby of Alabama and later Sen. Bob Corker of Tennessee. Mr. Dodd eventually broke off negotiations with both lawmakers in succession, and announced Thursday he would forge ahead without Republican backing.

A central plank in the bill would give the government the power to seize and dismantle a large, failing financial company. This provision is intended to prevent the government from having to launch another ad hoc taxpayer-funded bailout, like the one that bailed out American International Group Inc. in late 2008. To pay for this power, the government is expected to require the largest financial companies to pay a combined $50 billion into a fund that one day could be used to arrest a failing company.

A key change in Mr. Dodd's bill from just a few days ago is a provision giving the Federal Reserve, which appeared to be on political life support just a few months ago, the power to supervise any bank or financial company with more than $50 billion in assets. Treasury Department officials lobbied aggressively for this change. Treasury Secretary Timothy Geithner and Fed Chairman Ben Bernanke have argued the Fed should play a central role in bank supervision.

Even though this would appear to shrink the Fed's authority from where it is today—the central banks examines more than 5,000 bank-holding companies of all sizes—the provision would still allow the Fed to have a primary presence in most of the U.S.'s largest financial institutions.

Senate negotiators had initially pushed to give the Fed no role in bank supervision, and only a week ago they had thought the Fed would only be able to examine roughly two dozen banks, those that held more than $100 billion in assets.

By lowering the threshold to $50 billion, the Fed would have primary oversight of close to 40 U.S. banks. It is also likely they might be able to oversee large, complex insurance companies or other financial firms as part of the new arrangement.

The bill would also create a systemic risk council, with an independent chairman and several other federal regulators who would be charged with monitoring emerging risks to the economy. This council would have two significant powers. First, it would be able to force a financial company that isn't a bank, such as an insurance firm or a giant hedge fund, to be overseen by the Fed.

It could also vote to strongly pressure another federal regulator to adopt certain regulatory practices, such as tougher regulations against exotic financial products.

A centerpiece of the bill would place a new consumer protection division within the Fed, with a director appointed by the president. The agency would have broad rule writing power to create policies governing all financial companies, not just banks. It would take a two-thirds vote of a new systemic-risk council to overturn any policy, according to people briefed on the plan.

This division, which Mr. Dodd has referred to as a "watchdog," would have more power than many in the banking industry expected just a few days ago. It would be able to issue sanctions against any bank with more than $10 billion of assets. It would also be able to punish certain nonbank lenders, though it would likely be up to regulators to determine which industries would be subject to such enforcement.

The Fed would also have new powers to police the U.S.'s payment and settlement system to ensure that money is flowing between banks in a safe and sound way.

Another key provision would prevent large bank holding companies, such as Morgan Stanley and Goldman Sachs Group Inc., from shedding their charter to elude the Fed's scrutiny. The bill is expected to include this provision to prevent banks from trying to game the regulatory architecture.

State-chartered banks with less than $50 billion in assets would likely be overseen by the Federal Deposit Insurance Corp. National banks with less than $50 billion in assets would be overseen by a national bank regulator.

The bill would address what kinds of risks large banks can take. The White House proposed a new policy, dubbed the "Volcker Rule" after former Fed Chairman Paul Volcker, which would prohibit banks from simultaneously owning subsidiaries with insured deposits and subsidiaries that make risky trades with the bank's own capital.

Mr. Dodd's bill isn't expected to include such strict language, but he is expected to give regulators more power to order banks to cease certain activities if it threatened the company's solvency or could lead to broader problems in the economy.

Mr. Dodd is hoping lawmakers on his panel will submit amendments later in the week so he can begin holding votes on the bill starting the week of March 22. If the bill passes, then it would advance to another series of amendments and votes on the Senate floor.

On Friday, the 10 Republicans on the panel urged Mr. Dodd not to force a quick vote because of its expected complexity. Mr. Dodd has said he has held dozens of hearings on these issues and given lawmakers months to weigh in.

The bill differs in several areas from a bill that passed the House of Representatives in December, and those differences would have to be reconciled before any package could be brought to the White House for enactment.

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WASHINGTON -- Senate Banking Committee Chairman Christopher Dodd (D., Conn.) is finalizing a bill to ...
ByStander 发表于 2010-3-14 15:50