Dodd Proposes Removing Fed, FDIC Bank Oversight Power

"Nov. 10 (Bloomberg) -- Senator Christopher Dodd proposed creating a single U.S. bank regulator and stripping supervision from the Federal Reserve and Federal Deposit Insurance Corp. in legislation aimed at preventing a repeat of the credit crisis.

Dodd, chairman of the Senate Banking Committee, would eliminate the Office of the Comptroller of the Currency and the Office of Thrift Supervision and fold the Treasury Department units into the Financial Institutions Regulatory Administration, according to draft legislation released today in Washington.

“Our proposal will replace the myriad government agencies that failed to rein in risky schemes with a single, accountable federal banking regulator,” the Connecticut Democrat said at a news conference.

The U.S. bank regulation system may have led to lax oversight by encouraging a “race to the bottom” by agencies to win oversight of banks and thrifts, Dodd has said. His measure goes further than proposals by President Barack Obama and House Financial Services Committee Chairman Barney Frank to merge the OTS and OCC as part of efforts to prevent recurrence of the worst economic crisis since the Great Depression.

“Those institutions that would undermine the security of our economy will no longer be able to shop for the weakest regulator,” Dodd said.

The legislation creates a Consumer Financial Protection Agency, a separate regulator to maintain market stability and a mechanism for the FDIC to unwind failing “systemically significant” financial firms. Costs for unwinding firms would be recouped from firms with more than $10 billion in assets, according to a summary of the draft.

Funding Failures

Dodd’s plan for covering failures is at odds with an approach favored by Frank and FDIC Chairman Sheila Bair, who want to have companies pay into a fund before a collapse occurs.

“This pre-funded approach can assure that taxpayers will not once again be presented the bill for these failures,” Bair said today at a speech at a New York conference. “Building a resolutions fund balance in advance would also help prevent the need for imposing assessments during an economic crisis.”

The new banking regulator would be led by an independent chairman appointed by the president and a board including leaders of the Fed, the FDIC and two other independent members. It would be funded primarily by assessments on the industry. "

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