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November 12, 2009 - In an expected move, Sen. Chris Dodd (D-Conn.), Chairman of the Senate Banking Committee, has released a comprehensive regulatory reform discussion draft including many of the aspects considered recently by the House Financial Services Committee.
The 1,000-plus page bill addresses systemic risk, consumer protection, "too big to fail," derivatives, consolidated bank regulation, executive compensation, hedge funds and insurance, among other items.
In a November 10 press conference, Dodd remarked: "The financial crisis exposed a financial regulatory structure that was the product of historic accident, created piece by piece over decades with little thought given to how it would function as a whole, and unable to prevent threats to our economic security."
NASCUS is currently reviewing the discussion draft to understand its impact on state regulators and state-chartered credit unions. The discussion draft includes a proposal for a Consumer Financial Protection Agency (CFPA); a measure to create a CFPA recently passed in the House Financial Services Committee. The House version and Dodd's discussion draft both preserve the state's ability to pass tougher consumer protection laws and require consultation with state regulators.
Dodd's discussion draft would transfer all consumer protection functions of the National Credit Union Administration (NCUA) to the new CFPA. It would also be able to assess fees on credit unions over $10 billion in assets.
The discussion draft would consolidate the functions of the four federal regulators that oversee banks into a new Financial Institutions Regulatory Administration. It would consolidate the functions of the Office of the Comptroller of the Currency and the Office of Thrift Supervision, the state bank supervisory functions of the Federal Deposit Insurance Corporation and the Federal Reserve, and the bank holding company supervision authority from the Federal Reserve. The proposal would preserve the dual banking system and establish a separate community bank division. NCUA would remain an independent agency under Dodd’s proposal.
Regarding systemic risk, Dodd proposes an Agency for Financial Stability, an independent agency that would respond to emerging risks throughout the system by writing strict rules for capital, leverage, liquidity and risk management for companies that are identified as imposing significant risk on the financial system. The House Financial Services Committee is also addressing a discussion draft on systemic risk that suggests a Council of existing federal regulators should be tasked with mitigating systemic risk. Both House and Senate discussion drafts would require the wind down of firms without exposure to taxpayers.
NASCUS will provide additional updates on this discussion draft on its website. To review a summary of the discussion draft, follow this link.
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