WASHINGTON — Senate Democrats on Tuesday proposed stripping the Federal Reserve of its supervisory powers and creating instead three new federal agencies to police banks, protect consumers and dismantle failing institutions.
The 1,136-page bill, released by Senate Banking Committee chairman Chris Dodd, would represent a significant shift in power in federal oversight of the U.S. market. The Fed has been a dominant figure in managing the economy, although many lawmakers blame the central bank for not doing enough to prevent last year’s crisis.
“We saw over the last number of years when (the Fed) took on consumer-protection responsibilities and the regulation of bank-holding companies, it was an abysmal failure,” said Dodd, a Connecticut Democrat.
Dodd’s proposal prompted cheers from consumer advocates and other Democrats, including Sen. Mark Warner, a Virginia Democrat and influential moderate who said swift action was necessary to prevent future government bailouts of big banks.
“Never again should the American taxpayers have to hear about ‘too big to fail,’ where the American taxpayer has to pick up the slack,” Warner said.
But the financial industry quickly pushed back.
The bill “would produce conflicts among regulators, undermine the state-chartered banking system and impose extensive new regulatory burdens on those banks that had nothing to do with creating the financial crisis,” said Edward Yingling, president of the American Bankers Association.
While Republicans were expected to oppose much of the bill, Sen. Bob Corker, a Tennessee Republican on Dodd’s committee, issued a statement setting an optimistic tone.
“I’m more hopeful than I was a few weeks ago that we will be able to come up with a bipartisan bill,” said Corker, who has worked closely with Warner on banking issues.
Among the top points of contention is Dodd’s desire to create a Consumer Financial Protection Agency to protect consumers taking out home loans or using credit cards against predatory lending and surprise interest-rate hikes.
Republicans and industry officials say that creating another bureaucracy would make it harder for banks to do business and would limit the availability of credit.
The Senate Banking Committee was expected to take up the legislation next week and vote by early December.
Money matters
Key provisions in U.S. Sen. Christopher Dodd’s financial- system reform bill:
• Creates a Consumer Financial Protection Agency to oversee home loans and credit cards.
• Consolidates federal supervision of banks under a Financial Institutions Regulatory Administration.
• Abolishes the Office of the Comptroller of the Currency and the Office of Thrift Supervision, and strips the Federal Deposit Insurance Corp. and Federal Reserve of bank-supervision duties.
• Creates an Agency for Financial Stability to enforce new rules and dismantle complex financial firms if they threaten the broader economy.
• Regulates privately traded derivatives, hedge funds and other private capital pools.
• Imposes new rules on investment-rating agencies.
• Limits the Fed’s ability to provide emergency loans to mostly healthy institutions, instead of failing firms.
The Associated Press
Proposed agencies
New arms of government in Sen. Christopher Dodd’s bill:
Consumer Financial Protection Agency: Would oversee home loans and credit cards
Financial Institutions Regulatory Administration: Would consolidate supervision of banks
Agency for Financial Stability: Would enforce regulations and dismantle financial firms if they threaten the broader economy
