Senator Chris Dodd (D-CT), chairman of the Senate Committee on Banking, Housing and Urban Affairs, recently released his version of a sweeping new financial regulatory bill that takes aim at the root causes of the only now-ending financial crisis.
"This legislation has three main goals," said Dodd. "First, we must plug the gaps and eliminate the inefficiencies that allowed this last crisis to happen-and still exist today. Second, in addition to looking in the rear view mirror, we must look through the windshield. There will be shocks to our system in the future - and we need an early warning system so that, next time, our system is prepared to deal with them. Third, we must protect American consumers and honest businesses, so that we can: restore optimism in our economy and confidence in our institutions, renew the flow of credit and capital, reestablish America as the world leader in financial services and rebuild a strong foundation to create jobs and prosperity for American families."
In its current state, the bill consists largely of democrat-endorsed initiatives peppered with a series of hat-tips to republican ideas.
Specifically, the bill's four major reforms would:
-End "too big to fail" bailouts, via new capital requirements and other supervisory protections, and require even large, and create a process for the U.S. Treasury, the Federal Deposit Insurance Corporation (FDIC) and the Fed to wind down complex companies that fail;
-Create an independent consumer protection watchdog with an independent budget and director, appointed by the President and confirmed by the Senate, that possesses the autonomy to craft and enforce its own rules;
-Create a systemic risk council, charged with scanning the economy for unsafe products or practices that could threaten the nation's economic stability at large, that serves as an early warning system for future crises; and
-Regulate "exotic" financial instruments such as hedge funds and derivatives in order to make the trading of these items more transparent and accountable.
According to Dodd, the fourth section of the bill is still being modified to build consensus between Senators Judd Gregg (R-NH) and Jack Reed (D-RI).
Other portions of the bill would regulate credit rating agencies by making them liable for errors and placing their business squarely within the jurisdiction of the Securities and Exchange Commission (SEC) by creating an Office of Credit Rating Agencies at the Commission.
The current bill is likely to undergo revisions before voting begins.
To read Dodd's full statement, click here.
Jacob Barron, NACM staff writer