Dodd expected to offer more modest financial reform legislation

Legislation to be unveiled Monday by Senate Banking Committee Chairman Christopher J. Dodd to overhaul the financial regulatory system is likely to be more modest than either the Obama administration’s proposal last summer or a plan Dodd pushed last fall.

Dodd, a Connecticut Democrat, was set to release detailed legislation for the most sweeping overhaul of financial regulations since the Great Depression, which Democrats want to pass before the fall elections. Tightening federal oversight of the financial system is designed to prevent a repeat of the banking-system meltdown in 2008 and is a priority of President Obama.

Dodd’s proposal, which was still being drafted Sunday, is expected to abandon the stand-alone Consumer Financial Protection Agency that was proposed by Obama and was included in Dodd’s original plan as well as overhaul legislation passed by the House in December.

Instead, Dodd is likely to propose a new consumer agency, with a director appointed by the president and confirmed by the Senate, that would be part of the Federal Reserve, according to an industry official closely following the issue who spoke on condition of anonymity because the plans were not final. The agency would be an independent entity in the central bank, not reporting to the Fed board, but the agency’s decision could be vetoed by a new council of financial regulators.

The Fed, which has authority to write consumer protection rules for the financial industry, has been sharply criticized for not doing more to stop subprime mortgages before they triggered the collapse of the housing market.

Republicans strongly oppose a stand-alone consumer agency, as does the financial industry and the U.S. Chamber of Commerce.

Dodd also is likely to back away from his controversial idea to create a single federal banking regulatory agency to replace the four main agencies that oversee the industry now.

That plan, which went beyond the Obama administration’s proposal for a more modest consolidation and was strongly opposed by current banking regulators, failed to gain traction in the Senate.

Dodd now is expected to propose that the Office of the Comptroller of the Currency and the Office of Thrift Supervision be merged into a new Financial Institutions Regulatory Administration, with the Fed and the Federal Deposit Insurance Corp. retaining some bank supervisory duties. That would be similar to the House-passed legislation.

Still, Dodd was set to propose a major overhaul of regulations that would expand the role of the Fed in overseeing the nation’s economy, including new powers over large financial firms that are not banks.

The Fed, however, would still lose some of its banking oversight under Dodd’s proposal. The Fed would oversee only bank holding companies with assets of more than $50 billion, the industry official said. The Fed currently oversees all bank holding companies, as well as state-chartered banks and thrifts.

Dodd also was preparing to recommend a new eight-member Systemic Risk Council to oversee the financial system as a whole for signs of major problems before they trigger a crisis. The council would have a chairman appointed by the president and would also include the Treasury secretary, Fed chairman, the heads of the FDIC, the Securities and Exchange Commission, the Commodity Futures Trading Commission and the two proposed financial agencies -- the Consumer Financial Protection Agency and the Financial Institutions Regulatory Administration.

After months of negotiations with Republicans to gain the bipartisan support needed to push legislation through the Senate, Dodd last week announced he could wait no longer. He said he would introduce his second draft of the legislation Monday in hopes of getting it through his committee before Congress leaves for a two-week spring recess.

Republicans on the committee said they were disappointed that Dodd decided to move forward on his own. On Friday, all 10 members of the committee wrote to Dodd urging him to slow down.

“Given the sheer magnitude and complexity of the financial reform package you intend to introduce, this legislation will inevitably have a substantial impact on our financial system and overall economy,” the Republican senators wrote. “Accordingly, we urge you to allow for sufficient time to review the language.”