Dodd's plan faces stiff resistance
Key Republican members of the Senate Banking committee rejected its chairman's proposal to place a consumer protection agency within the Treasury Department, sources familiar with the situation said yesterday.
In an attempt to garner Republican support, Senate banking chairman Christopher Dodd proposed making a consumer financial protection agency (CFPA) a division of Treasury instead of an independent agency.
But the panel's top Republican, Richard Shelby, and fellow Republican Bob Corker have rejected Dodd's proposal as a non-starter, the sources said. Their rejection is a setback for Dodd, who is trying to craft a bipartisan bill to reform financial regulation.
The consumer watchdog idea remained a major stumbling block impeding bipartisan Senate agreement on financial regulation reform, a top domestic policy priority for Obama. Dodd circulated a proposal on Friday to make the CFPA a division of the Treasury Department, instead of an independent agency, which the president recommended in mid-2009 and which the US House of Representatives has endorsed.
But many Democrats also held out for an independent agency, while Republicans and bank lobbyists want to kill the CFPA altogether, leaving Dodd's compromise in between with little support, said lobbyists and aides close to the talks.
"We do not believe Senate Republicans will accept this language," said Jaret Seiberg, financial services policy analyst at investment advisory firm Concept Capital.
"In our view, this language will change considerably before the bill advances to the floor of the Senate," he said.
The slog through the Senate suggested to some that new legislation to be unveiled by Dodd next week may be narrower in scope than Obama's initial proposals of nine months ago, and a sweeping bill passed by the House in December.
"They're going to push real hard to get something out next week," said Brian Gardner, policy analyst at investment firm Keefe Bruyette and Woods. "There's a chance that it could be a little bit smaller" than the House bill and Obama's proposals.
Provisions that could fall out of the package may include over-the-counter derivatives regulation, as well as proposals to give shareholders more say in electing corporate directors and determining corporate executive pay, Gardner said.
One of Dodd's boldest proposals from a November draft bill – to consolidate the patchwork US banking supervision system into one agency – was unlikely to make it into the committee's final bill, a source familiar with negotiations told Reuters.
The effort in the Senate also looked likely to produce a bill that will face challenges on the Senate floor, both from Democrats on the left who will see it as too weak, and Republicans on the right who will say it goes too far.
Senator Byron Dorgan, a senior Democrat, told Reuters in an interview on Friday the bill Dodd is likely to bring out of the banking committee is "going to be watered down".
If the bill fails, for instance, to do enough to end the notion that some financial firms are "too big to fail", Dorgan said: "We're going to have to have amendments on the floor and I'm going to be involved in that."
It has been nearly a year and a half since a severe financial crisis tipped the US economy into its worst recession in decades, and financial regulation has changed little, despite a worldwide effort to crack down on banks and capital markets.
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