By Bill Swindell
January 5, 2010
As Senate Banking Committee Chairman Christopher Dodd, D-Conn., tries to cobble together consensus to revamp the nation's financial regulatory system, he faces significant industry opposition over his proposal to consolidate the duties of four agencies into one national banking regulator, making it likely his idea will be scaled down when it comes to the Senate floor.
Dodd has ramped up talks with Banking Committee ranking member Richard Shelby, R-Ala., in a bid to craft a bill that could survive a cloture vote. The two issued a joint statement Dec. 23 that they will work to resolve differences before the chamber reconvenes.
Dodd has proposed creation of a Financial Institutions Regulatory Administration, which would result from a merger of the Office of the Comptroller of the Currency and the Office of Thrift Supervision.
Dodd goes further than a companion House bill or the Obama administration by stripping bank supervision duties from the Federal Reserve, which has jurisdiction over large bank holding companies and state-chartered banks, as well as those of the FDIC, which has oversight over most state-chartered banks. His measure would place those responsibilities with FIRA.
The Independent Community Bankers of America is launching an effort to retain FDIC oversight, arguing that the agency has been a good advocate for small banks at the federal level, especially under FDIC Chairwoman Sheila Bair, and that FIRA would be attuned more to big banks.
"The FDIC's authority is terrifically important to community banks, no question about that. We are adamantly opposed to a single regulator concept," said Steve Verdier, ICBA director of congressional relations.
The ICBA opposition is significant because no financial group fared better in the House bill than the community banks, mainly because lawmakers do not blame Main Street banks for causing the housing meltdown and credit crisis. ICBA also played a significant role in killing a Senate bill that would allow bankruptcy judges to write down the principal of a home mortgage to current value.
House Financial Services Committee Chairman Barney Frank, D-Mass., noted in a CNBC interview Tuesday that he did not think the FDIC language could survive, noting that it causes a lot of "consternation, unhappiness with state bank regulators."
Neil Milner, president of the Conference of State Bank Supervisors, has said the Dodd language would have "a disastrous impact upon our nation's banking industry and economy as a whole."
Speculation along K Street is that Dodd will have to drop the provision, given that his bill has other contentious items, such as creation of a Consumer Financial Protection Agency and language giving regulators the power to wind down a failed firm, that are more important to the Obama administration.
The Dodd-Shelby statement said the two agreed that "our regulatory structure needs to be modernized and streamlined while preserving the dual-banking system."
Dodd also faces concern over the Federal Reserve language. The Financial Services Forum, which supports regulator consolidation, argues the central bank should retain its supervisory role but relinquish its examination powers.
The forum, which represents the CEOs of the largest 18 financial firms, contends the Fed is the "financial fire department" that is tasked with looking at a wider breadth of the economy and that its unique powers as a central bank and a lender of last resort provide it with a necessary role to have oversight over financial holding companies.
"Supervisory powers are critical to the Fed's other important duties. For example, if the Fed is to responsibly lend from the discount window, it needs to know and understand those borrowing institutions," said John Dearie, the forum's executive vice president. "Merely having access to examination reports is not enough. Supervisory authority is essential."
But that quest faces an uphill battle. Dodd has called the Fed an "abysmal failure" in its supervisory role, and Shelby noted "all roads lead to the Federal Reserve" for regulatory shortcomings. The forum is trying to argue that the worst failures -- such as Bear Stearns, Lehman Brothers, Countrywide Home Loans and American International Group -- were not supervised by the Fed at either the supervisory or holding company level.
"We understand the Fed is unpopular and that some in Congress are looking for ways to pare back its powers," Dearie said. "But stripping the Fed of supervisory authority would be a mistake. A better alternative is to require the Fed to rely on the functional regulators for on-site examinations, as is currently the practice in supervising financial holding companies and their subsidiaries."
By Bill Swindell
January 5, 2010