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Dodd's Bill Has Teeth; Will Congress Bite?

Now that Chris Dodd has mustered up a financial regulatory reform bill that has some teeth, the question is: Will his Congressional colleagues be able to pass anything that bites?



) -- Now that Chris Dodd has mustered up a financial regulatory reform bill that appears to have some teeth, the question is: Will his Congressional colleagues be able to pass anything that bites?

Dodd, a Democrat from Connecticut who heads the Senate Banking Committee, spent months wrangling with Republican counterparts over an assortment of issues and proposals. To put it simply, Republicans and financial lobbyists wanted to water down the bill. While Democrats were willing to make some compromises, they weren't willing to scrap the Obama administration's initial concept entirely.

The two sides stood at loggerheads for several weeks. Eventually, Dodd went rogue and came up with his own legislation -- an unusual step, and one that reflects the partisanship that has taken over the halls of Congress.

Details that have emerged from the bill, which is set to be announced on Monday, paint a surprising picture: Tough rules for consumer protection and sensible delegation of regulatory powers. The Federal Reserve will stay true to its mandate to oversee the financial system broadly, while checks and balances will exist among other regulators as well.

The Fed will house a consumer protection agency -- something consumer advocates didn't support -- but the agency will have more power and autonomy than initially suggested, according to widespread reports. The Fed will also get the power to dismantle large financial institutions and monitor systemic risk. Republicans have assailed the central bank for having failed to monitor risk within its existing powers to begin with. The Fed has become a political lightning rod as a result, with Republicans wanting to limit its power, and Dodd's proposal is sure to stoke those flames.

The only apparent part of the proposal that is geared toward Republicans' preference is to form a council of regulators headed by the Treasury Department which could overturn consumer-protection rules by a two-thirds vote. Still, the consumer agency would be able to regulate all sorts of products, from mortgages to credit cards and other types of loans and products. It would have the power to reprimand financial firms with at least $10 billion in assets. The Federal Deposit Insurance Corp. and another regulator would be responsible for overseeing banks with less than $50 billion in assets as well.

Additionally, the bill will ensure that regulators have the authority to limit banks' risk-taking activities, although it won't include the Obama administration's proposed "Volcker rule." That proposal -- which didn't have widespread support in either party -- would force large banks to halt capital markets activities entirely. The bill will also reportedly allow regulators to oversee the activity of any firms that can sway the market, whether bank, insurer, hedge fund or otherwise.

But once Dodd's proposal is officially released on Monday, it's sure to get immediate pushback -- not just from Republicans, but the banks it seeks to rein in. That's especially true for large firms like

Bank of America

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Wells Fargo

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JPMorgan Chase

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Goldman Sachs

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Morgan Stanley

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, which are likely to face the highest costs and biggest changes under the proposal.

A preliminary indication of opposition could be seen on Friday, when the Banking Committee's 10 Republicans sent a letter to Dodd complaining about the timing of his bill, and suggesting it was put together too hastily. The banking industry's feeling toward reform might best be summed up in a comment from Edward Yingling, who heads the American Bankers Association. When asked how he felt about housing the consumer protection agency within the Fed, Yingling told the

New York Times

last week: "We don't care where you put it...We're totally against it."

It's been over a year since the Obama administration first unveiled its proposal for financial regulatory reform. It's been nearly as long since Congress first took up the issue, and a few months since the House passed its own version. It's been several weeks of heated debate and tension, with compromise after compromise yielding no results.

Democrats' morale has been depleted for some time, and with good reason: The health-care debacle; a stunning defeat in Massachusetts by Republican underdog Scott Brown; the Paterson and Massa scandals; and the dramatic departures of legislators who say they are tired of partisan bickering. But now that Dodd has flaunted an independent streak to put a comprehensive bill on the table, it's time for the rest of Congress to show whether they've got the mettle to pass meaningful reform.

If legislators are unable to do so, it will be seen as another black eye for Democrats. But it will also stymie progress for both parties and add to voters' disillusionment come mid-term elections in the fall.


Written by Lauren Tara LaCapra in New York