|Sen. Christopher Dodd (D., Conn.)|
NEW YORK ( TheStreet) -- Calling the current regulatory system "hopeless," Senator Christopher Dodd Monday unveiled his own blueprint for reforming the financial industry, including the establishment of an independent consumer protection agency and empowering the government to force companies to divest some holdings under certain conditions.
The Democrat from Connecticut appeared on CNBC to publicly announce the details of his proposal, the text of which is available here. The major planks of the ambitious plan include creating a "safe way" to wind down large financial companies if they fail and making the financial industry provide its own capital injections. A provision that seems to echo the Volcker rule put forth by President Obama is for the independent board of regulators to be empowered to require companies whose size is deemed to threaten the economy's stability to divest some of their holdings, although proprietary trading isn't referenced specifically. "As long as giant firms (and their creditors) believe the government will prop them up if they get into trouble, they only have incentive to get larger and take bigger risks, believing they will reap any rewards and leave tax payers to foot the bill if things go wrong," the proposal draft says in the section discussing measures designed to end the concept of "Too Big to Fail." One of the requirements proposed by Dodd is for large, financial companies to have periodically submit what he refers to as "funeral" plans providing for "their rapid and orderly shutdown should the company go under." The single bank regulator would be called the Financial Institutions Regulatory Administration, and it would be headed by an independent chairman appointed by the President and confirmed by the Senate. The Consumer Financial Protection Agency would be led by a five-member board with an independent director, and the chairman of the Financial Institutions Regulatory Administration would have a seat on the board. Other details of the proposal are requiring hedge funds with assets of more than $100 million to register with the Securities and Exchange Commission and creating an Office of National Insurance within the Treasury Department to monitor the insurance industry. Credit ratings agencies would also be subject to increased oversight, and be regulated by an Office of Credit Ratings that would be part of the SEC.
Dodd also proposes to make financial companies more accountable by requiring they have some "skin in the game" with regard to securitization, saying a company have to hang onto at least 10% of the credit risk of any asset-backed securities it packages up and sells. "Companies that sell products like mortgage-backed securities are required to retain a portion of the risk to ensure they won't sell garbage to investors, because they have to keep some of it for themselves," the proposal reads. Dodd currently serves as chairman of the Senate Banking Committee, and he announced in January that would not seek re-election this coming November. The big banks were mostly down late in Monday's session with Bank of America ( BAC) off less than 1%; Citigroup ( C), pulling back pulling back a nickel to $3.92; Goldman Sachs ( GS), down 1.5%; JPMorgan Chase ( JPM), losing 0.8%; Morgan Stanley ( MS), falling 1.3%; and Wells Fargo ( WFC), sliding 2 cents to $29.60. The American Bankers Association issued a statement on Dodd's proposal, saying it sees a "number of areas that need to be changed," and expressing frustration that bi-partisan efforts to pass regulatory reform seem to have hit a snag. "We oppose this bill because it will subject traditional banks, which did not cause this crisis, to heavy new regulation, while non-banks will have even further competitive advantage," said Edward Yingling, the ABA's president and CEO. "The future of traditional banks will be unnecessarily put at risk and their ability to provide the credit our economy needs will be undermined." -- Written by Michael Baron in New York.