More than a year after Lehman Brothers' collapse set off a financial panic, Senate negotiators appear close to resolving a narrow dispute that was holding up broad legislation to set new rules for Wall Street.
At issue was whether a government consumer watchdog should be free from bank regulators to write rules that govern everything from credit card and overdraft fees to payday loans and mortgages.
After a flurry of offers and counterproposals over the past three days, the Senate Banking Committee was closing in on a deal that would house a government consumer entity inside the Federal Reserve but give it autonomous power to write regulations, three people familiar with the talks told the Associated Press Monday night.
The sources spoke on the condition on anonymity because they were not authorized to discuss the evolving talks publicly.
The idea, proposed by Republican Sen. Bob Corker of Tennessee, could break the logjam that has prevented a bipartisan bill from emerging in the Senate. While the sources said the Banking Committee's chairman, Democrat Christopher Dodd of Connecticut, was seriously entertaining the plan, it was unclear whether the committee's top Republican, Sen. Richard Shelby of Alabama, was receptive to it. Dodd would also need to persuade fellow Democrats to accept the compromise.
"Senator Dodd is keeping members informed on how things are progressing — as he has throughout this process," Dodd spokeswoman Kirstin Brost said. "We do not have an agreement yet. He hopes to have a consensus bill in the coming days."
While the political world has focused on attempts to revive health care legislation, tougher Wall Street regulations could end up being this year's biggest legislative accomplishment. The House passed its version of the bill in December. And President Barack Obama has made new regulations a priority in his response to the recession.
Still, a Fed-housed consumer entity would fall short of Obama's initial demand for a stand-alone Consumer Financial Protection Agency that would replace the consumer oversight now assigned to bank regulators. The House-passed version would create a separate agency.
The White House, eager to give Dodd room to negotiate, had backed off its insistence on a stand-alone agency. On Monday, White House spokesman Robert Gibbs said the agency still would have to have "strong independent authority, an independent head, an independent budget, independent authority to do what it needs to do."
The banking industry has opposed an independent agency, arguing that regulators should retain authority over consumer protections.
If the latest Senate plan were to hold, it would represent a remarkable turnaround for the Fed, which has been criticized for failing to adequately protect consumers as part of its regulation of state-chartered banks and bank holding companies.
Consumer advocates prefer the House-passed financial regulation bill. They criticized a plan that Dodd floated Friday to place the agency inside the Treasury Department because it would give bank regulators the right to appeal consumer regulations. Shelby and Corker also opposed it.
The consumer agency has been the final obstacle in Dodd's effort to get bipartisan support for the bill. The legislation also would create a council of regulators that would determine which financial institutions deserve special supervision because their size and breadth could pose a threat to the economy. The legislation also would provide a mechanism to dismantle large failing institutions, with the cost borne by their banking peers.
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