Combining Obama administration and Republican priorities, the leading Senate author of a sweeping rewrite of the nation's financial regulations is looking for consensus with a proposal that neither side of the political spectrum is ready to embrace.
Sen. Christopher Dodd, the chairman of the Senate Banking Committee, plans to unveil a proposal Monday that expands the powers of the Federal Reserve but creates a consumer protection entity with less authority than President Barack Obama once demanded.
His draft legislation aims to avoid a recurrence of the financial crisis that brought Wall Street to the verge of collapse 18 months ago. It would restrict the size and interconnections of large financial institutions once deemed "too big to fail," tame previously unregulated shadow markets with new restrictions and create a dismantling mechanism for failing financial giants without a bail out from taxpayers.
While navigating in the middle of the road, Dodd hasn't won the support of Republicans. And Democrats inside and outside his committee, as well as consumer advocates are eager to change his consumer proposals.
"Members have to make up their minds," Dodd said Sunday in an interview with The Associated Press. "While they may not like everything here, I'm not going to give them much room to say we shouldn't do anything."
In looking for common ground, Dodd significantly shifted from financial regulations he proposed four months ago, when he called for a single powerful regulator to oversee all of the nation's banks and for a stand-alone consumer financial protections agency.
Instead, as preferred by the Obama administration, the Federal Reserve would gain oversight of all financial firms — banks and nonbanks — that are considered the biggest and most interconnected. For the Fed, the price of such power is losing supervision over smaller bank holding companies with less than $50 billion in assets.
Moreover, to the dismay of liberals and consumer advocates, the Fed would also house a consumer protection entity. That agency would be headed by a presidential appointee and would have an independent source of funds not subject to congressional appropriations. But its power to write regulations would be subject to review by a council of regulators that could veto consumer rules by a two-thirds vote.
John Taylor, head of the National Community Reinvestment Coalition, a consumer advocacy group, said Dodd was "capitulating to the industry's interests."
"He's offering a faux consumer protection agency that holds little promise to be effective in the long run," Taylor said.
In a nod to the White House, however, Dodd is expected to propose that states have enhanced ability to enforce consumer rules. State attorneys general and the Obama administration have called for such authority. Financial regulations approved by the House in December gave states more leeway to write and police their own consumer laws.
That consumer provision veered from the agreement Dodd and Republican Sen. Bob Corker had tentatively reached last week before Dodd decided it was time to stop negotiating and write a bill.
Corker, in an interview Sunday, said Dodd's bill would be a vast improvement over what Dodd had first recommended late last year. But Corker said he didn't expect to support it.
"I'm sure he has moved the bill to the left of where we were Thursday in order to ensure that he has all the Democratic members with him," Corker said. Still, Corker said he believed that through amendments in committee, the bill could win bipartisan support.
Corker and his nine Republican colleagues on the Banking Committee urged Dodd on Friday to slow down and not schedule committee action on the bill before the Easter recess, which begins March 27.
Among other likely provisions in Dodd's proposal:
— Institutions that are bank holding companies, such as Goldman Sachs and Morgan Stanley, cannot alter their status to avoid Fed oversight. The measure is being called the "Hotel California provision" because firms can enter Fed supervision but can never leave.
— Unlike the House bill, which imposes new requirements on broker-dealers and investment advisers, Dodd's is expected to adopt a proposal from Sen. Tim Johnson to conduct a study of potential investor protections before writing any regulations.
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