Senator Dodd to Unveil a Broad Financial Overhaul Bill:

Dodd to Unveil a Broad Financial Overhaul Bill:

The most sweeping overhaul of financial regulations since the Depression.

By Sewell Chan
March 14, 2010

WASHINGTON — The chairman of the Senate Banking Committee will unveil on Monday a proposal to revamp the nation’s financial regulations that would empower shareholders to have advisory votes on executive pay and to nominate directors for the boards of public companies through company proxy ballots, several people briefed on the draft legislation said Saturday night.

The shareholder provisions, which have been vigorously opposed by many corporations and by Republicans, will be part of a bill that would amount to the most sweeping overhaul of financial regulations since the Depression. But with no Republican support yet for the proposal, Democratic lawmakers and the White House have been gearing up for a potentially bitter partisan fight.

The impending proposal by the chairman, Christopher J. Dodd of Connecticut, hews in many ways to a proposal advanced last summer by the White House, the people briefed on the legislation said.

Mr. Dodd said Thursday that Democrats would proceed on their own after months of stop-and-start negotiations with Republicans over a bipartisan compromise yielded little progress.

As Senate aides worked through the weekend on drafting the legislation, key elements became clear, according to the people briefed on the negotiations, who spoke on the condition of anonymity because the situation was still fluid.

The bill would create a consumer financial protection agency under the umbrella of the Federal Reserve, but with a director appointed by the president and the ability to write rules governing mortgages, credit cards, payday loans and a wide range of other financial products.

It would have some ability, within certain parameters, to ensure that the rules are followed; how the rules would be enforced has been a major source of partisan division. As in a House version of regulatory overhaul adopted in December, the bill would, in some circumstances, restrict states from writing their own, stronger consumer protection rules.

The Federal Reserve would see its bank supervision powers significantly diminished. It would continue to oversee bank holding companies with $50 billion or more in assets, and would be entrusted to regulate systemically important nonbank financial institutions. Mr. Dodd had considered setting the threshold at $100 billion, which would have been even worse for the Fed.

Smaller bank holding companies, if they have a federal charter, would be overseen by a new regulator formed out of the Office of the Comptroller of the Currency, which already oversees national banks. The Federal Deposit Insurance Corporation, which already oversees state-chartered banks that are not members of the Fed system, would gain oversight over those that are.

The bill would also create a council to detect systemic risks to the financial system, and trigger, if necessary, a process to seize and dismantle a large financial firm on the verge of failure, so as to limit the possibility of a broader meltdown and the need for a government bailout.

The risk council would be headed by the treasury secretary and including representatives of the Fed, the new consumer agency, the F.D.I.C., the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Housing Finance Agency — along with an official appointed to monitor the insurance industry, which is largely regulated by the states.

The bill would also impose, for the first time, comprehensive regulation of the sprawling market in over-the-counter derivatives. Standardized swaps and derivatives would have to be traded on exchanges or clearinghouses.

But companies that do not primarily deal in derivatives and are not major participants in the swaps market — that is, companies that use derivatives to hedge commercial risk — would be exempt from the new requirements. The size and extent of that exemption has been a key focus of behind-the-scenes negotiations over the past several months.

Several people briefed on the negotiations over the weekend said it appeared that Mr. Dodd was focused on advancing a proposal that could advance through the Banking Committee with united support among its Democratic members.

He appeared to be taking steps to satisfy concerns by several Democrats on the committee, including Jack Reed of Rhode Island, who has advocated for an autonomous consumer agency, and Charles E. Schumer of New York Democrat, who has advocated for shareholder rights.

Mr. Dodd hopes to have a committee vote on the bill before Congress recesses on March 26. There are 13 Democrats and 10 Republicans on the committee, and the Republicans have urged Mr. Dodd not to move ahead on Monday but instead to continue further talks.

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