Financial Reform Building Momentum

Senator Chris Dodd, chairman of the Senate Banking Committee, took a step forward when he unveiled his plan for financial reform legislation on Monday. The legislation introduced is a package comprised of concessions from both sides of the aisle. A number of representatives are not satisfied with the language in the bill.

A key component in the bill would call for a 9 member council created to direct the Federal Reserve to supervise the nations largest financial institutions, not just banks, which are now more interconnected than ever before. This council will be Chaired by the Treasury Secretary, currently Timothy Geithner, who served as the ninth president and chief executive officer of the Federal Reserve Bank of New York during the biggest financial collapse since the great depression. Joining the Treasury Secretary will be eight federal financial regulators from the Federal Reserve Board, SEC, CFTC, OCC, FDIC and FHFA. This council will be the new Consumer Financial Protection Bureau.

The current draft of this bill is not the same sweeping legislation that Senator Dodd introduced in Nov. 2009. The November draft contained regulations that would restrict banks from engaging in certain forms of speculative trading. That language is missing and some Democrats are wondering why. In an interview with Rachel Maddow, Timothy Giethner expressed his own ‘mild’ frustration with the language of the bill and assured the audience that the current bill will experience changes along the way.

Those changes will come from both republicans and democrats. Republicans have expressed some of their opinions about the bill. Republican senator Richard Shelby of Alabama, while speaking at an American Bankers Association conference in Washington, said, “Safety and soundness trumps everything, it trumps the consumer finance… whatever”. This statement was to re-assert his belief that the banking sector’s profitability is more important than consumer protection.

They have said they will introduce amendments to bolster their case against issues they have with specific areas of the bill once the bill hits the senate floor. One of those areas rest on the issue of the 9 member Consumer Financial Protection Bureau. The current bill has the bureau set up inside the Fed, most believe this would be a conflict of interest, others are asking for it to be dismantled completely. The financial overhaul proposed by Senator Dodd in Nov. 2009 included consolidating bank regulators, creating a consumer financial protection agency and imposing new restraints on exotic financial instruments and credit rating agencies, this language remains but in a much less restrictive way.

President Obama spoke about the bill saying, “This proposal provides a strong foundation to build a safer financial system, adding, As the bill moves forward, I will take every opportunity to work with Chairman Dodd and his colleagues to strengthen the bill, and will fight against efforts to weaken it”.

After watching the debate over health-care reform, I am sure we will see every argument played out in the media. This will reveal some of the motivations from both sides, but just like health-care, I believe those motivations are more monetary minded than civic minded.