Today at 2 p.m. Sen. Chris Dodd will reveal his financial reform bill, and TAPPED will be there. In the run-up, there have been a bunch of preview stories, with The Wall Street Journal's version offering the best coverage. I'd definitely recommend these interviews with Dodd and with his chief Republican interlocutor, Sen. Bob Corker.Corker complains about haste -- a joke, as these issues have been well aired. In particular, he blames the Treasury Department for pushing Dodd to move his bill "to the left," which speaks to the underappreciated efforts of the administration to keep Dodd on track. But the bill Dodd will drop today doesn't reflect the ideological concerns of the left; it really is a technocratic piece of legislation that still reflects Corker's influence. The consumer protection regulator, for instance, will apparently still be housed in the Fed and subject to a veto from other regulators. Without seeing more details about the preservation of the agency's independence and jurisdiction -- one promising report is that state attorneys general will be able to enforce federal consumer regulations -- this doesn't sound like the kind of structures that would protect consumers very well at all.
The Fed itself will be both weakened and empowered. Consumer protection will apparently be autonomous (but why, then, is it "housed" in the Fed?); regulatory authority for small banks will be moved out of the Fed. The Fed will also have tighter rules about limiting the influence of private banks over the Federal Reserve's regional branches. For instance, the president will appoint the head of the New York Fed, but banks will still have too much say. It will also see new checks on its power to rescue firms and make overarching regulatory decisions. On the other hand, the institution will have increased power over large financial institutions of all kinds, including non-bank firms (this is a good idea -- no more unsupervised AIGs).
Issues of derivatives are still outstanding. The bill will apparently match Dodd's November version on the issue, but Dodd says he will change it to reflect potential agreements being worked out between Sens. Jack Reed and Judd Gregg. Expect Sen. Maria Cantwell to get involved in that scrap as the bill moves toward the floor. Mechanisms behind systemic risk regulation and the dissolution authorities designed to prevent the "too big to fail" problem are still hazy. And the Volcker rule will apparently be implemented through a two-step process involving a study, which seems like a hedge.
So is this good for reformers? Sort of. It's a good sign that the bill is moving forward, as is Dodd's willingness to forsake Republican support to get some momentum. But the substance still isn't quite what will be required to revamp the financial system. It will be easier to improve the bill as it makes it way out of committee and onto the floor; outside reform groups and the Obama administration have mainly been biding their time for Dodd to start marking up a bill, as has House Financial Services Committee Chair Barney Frank. Their actions in the next week -- particularly Frank's -- will give us a better idea of what lies ahead.
-- Tim Fernholz
