WASHINGTON — With Congress set to return to work on Monday, Senate Banking Committee Chairman Chris Dodd is pushing an ambitious agenda in an attempt to build momentum behind a regulatory reform bill.
The Connecticut Democrat is hoping to introduce a revised bill next week, and hold a panel vote during the first week in March.
Yet the fate and makeup of a revised reform bill is unclear. With that in mind, we offer the following frequently asked questions.
Is anything actually settled yet?
So far the most set part of the legislation appears to be language to strengthen the government's resolution powers over institutions whose failure would pose a risk to the economy. Sen. Bob Corker, the only Republican still willing to negotiate with Dodd on reform at the moment, has been hammering out resolution authority with Sen. Mark Warner.
Essentially, the two want to ensure that a systemically important firm must first exhaust bankruptcy proceedings if it appears ready to fail, but allow the government some leeway to seize and dismantle a firm if it must do so to protect the economy. The bill is likely to make it extremely difficult — if not outright impossible — for the government to keep any failing firm afloat, including not allowing it to place a systemic company into conservatorship.
Are there any issues with that?
Getting into bankruptcy rules gets tricky, because that is the purview of the Senate Judiciary Committee, not the banking panel. There's also a question of how the government would pay to resolve a failing big firm. The House reform bill would create an industry fund ahead of time, while the Senate bill is unlikely to follow suit.
What about the systemic-risk council?
The New York Times caused a few waves when it reported that Dodd is leaning toward letting the Treasury Department oversee a council designed to oversee systemically important firms. The Connecticut Democrat told the paper that the Treasury secretary could serve as chairman of the council, while the chairman of the Federal Reserve Board would serve as vice chairman.
What's that really mean?
Not much. Dodd has long made it clear that he favors a systemic-risk council over giving greater authority to a regulator like the Fed. Most observers presumed the Treasury would be the logical choice to lead it. The more important question is who enforces what the council recommends. The most likely candidate is whatever primary regulator already oversees the firm.
What about the Fed?
There are a lot of moving pieces here and one big mystery is how far the Senate will go toward stripping the central bank of its power. Dodd's original bill called for eliminating the Fed's supervisory authority and leaving it focused solely on monetary policy — a position the Fed and the Obama administration adamantly oppose.
One potential compromise is to let the Fed have an active role in regulating just the most significant systemically important firms, instead of all bank holding companies and state-chartered member banks. This would greatly reduce the number of companies the Fed oversees, yet still let the central bank have some direct window into the largest firms. It is unclear if anyone — the administration, the Fed or the Banking Committee — likes this idea, however.
Who would regulate the rest of the bank holding companies?
The betting right now would suggest that the Federal Deposit Insurance Corp. would regulate all state-chartered banks and their holding companies, while an empowered Office of the Comptroller of the Currency would oversee all federally chartered banks and their holding companies. The Fed would either be left with just the systemically significant firms, or potentially lose any role in supervision.
What about strengthening consumer powers?
For right now, that issue is tabled. Corker, in agreeing to work with Dodd, said the other issues should be worked out first, which is still happening. How much progress the two will make before next week is anyone's guess, but they are both traveling together on a trip to Central America as part of their work on the Senate Foreign Relations Committee. In theory, they could work a lot out over a plate of pupusas.
Sen. Richard Shelby, the panel's lead Republican, however, is working on his own substitute legislation. How either bill will resolve the issue is unclear.
Dodd is likely to propose an independent division within a bank regulator but Republicans are concerned over how much power it should have.