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 Sen. Christopher Dodd, D-Conn., thinks the Federal Reserve should get out of the business of banking regulation. Dodd began circulating copies of a bill Tuesday that would strip the Fed and other federal agencies of their powers to regulate the banking industry and instead create a new agency to do that job. Critics of the Fed say it was too cozy with the banks, failed to police the mortgage market for years and didn't see the financial crisis coming in time to stop it. "We must restore responsibility and accountability in our financial system to give Americans confidence that there is a system in place that works for and protects them," Dodd said during a press conference to introduce the 1,100-plus page bill. "We must create a sound foundation to grow the economy and create jobs." Dodd added that his tome, "Restoring American Financial Stability Act of 2009," was a "discussion draft" and he "invites" comments on his proposals. The four existing bank regulatory agencies -- the Federal Reserve, Federal Deposit Insurance Corp., Office of Thrift Supervision and Office of the Comptroller of the Currency -- are sure to strongly oppose losing their power. The only regulatory entity that would be eliminated under the Obama administration proposal, and legislation moving through the House, is the OTS, whose oversight of savings and loans has been severely criticized. However, Dodd's bill does adopt some of the administration's key proposals, including the creation of an agency devoted to protecting consumers of financial products. But it breaks with the White House and with the House of Representatives on other key points. In particular, where the administration proposed expanding the Fed's duties to include a new job policing financial risks to the broader economy, Dodd's bill would strip the Fed of all responsibilities except for setting monetary policy. In place of the Fed, the bill proposes the creation of three new bureaucracies. An "Agency for Financial Stability" would police systemic risks and be chaired by a White House appointee who is subject to Senate confirmation; a "Financial Institutions Regulatory Administration" would oversee the banking industry; and a "Consumer Financial Protection Agency" would safeguard borrowers and other bank customers Dodd said he's not punishing the Fed but enhancing its independence. "There's nothing punitive in this bill. The Fed has to get back to monetary policy," he said. Dodd added that having a new agency will end "charter shopping," in which banks look around for the regulator that will "go easiest" on them. The bill could stymie White House efforts to pass an overhaul by the end of the year and is likely to face stiff opposition in the Senate. So far, no Republicans on the committee have signed on, and bankers, it turns out, will be busy lobbying against the bill. (Apparently, the bankers like having the Fed as their regulator.) Others say the bill has a populist tone and is a move to rev up Dodd's re-election campaign. - Donna Block
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