“We will end 'too big to fail'", Committee Chairman Chris Dodd said, proposing an independent council of regulators and implementing a resolution system “to safely shut down large failing companies without destabilizing the financial system.”
“We will end “too big to fail”, Committee Chairman Chris Dodd said proposing an independent council of regulators, and implementing a resolution system “to safely shut down large failing companies without destabilizing the financial system.”
“Our proposal will replace the myriad government agencies that failed to rein in risky schemes with a single, accountable federal banking regulator”, Dodd announced.
“Institutions that would undermine the security of our economy will no longer be able to shop for the weakest regulator”, he said. “We will eliminate regulatory gaps that allow risky practices to fly beneath the radar – including over-the-counter derivatives, hedge funds, asset-backed securities, and payday lending.” The plan also calls for increased transparency from credit rating agencies and holding them accountable for the quality of their ratings. Furthermore, shareholders should have a greater say in compensation issues.
The plan creates also an independent Consumer Financial Protection Agency to write and enforce rules on products such as mortgages and credit cards.
The Wall Street Journal reports that the proposal calls for curbs on the Fed's ability to offer emergency loans to individual companies, strips away virtually all of its bank-supervision and consumer-protection powers, and gives the White House and Congress some say in how the Fed's 12 regional banks are governed. Under the proposal, the Fed would focus more narrowly on monetary policy, meaning the setting of interest rates.
In addition to wiping away its regulatory role, the Dodd proposal takes away the Fed's authority to make emergency loans to companies and imposes new disclosure requirements and checks on emergency programs to support certain markets.
The proposal is said to face many hurdles, both because of its differences with the House version and because Republicans have refused to endorse it. Despite the differences, Treasury Secretary Timothy Geithner said the bill brings policy makers "one step closer toward comprehensive financial reform."
The US Financial Services Committee is to come forward with a report on the too-big-to-fail issue later this week.
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