By Alison Vekshin March 14 (Bloomberg) — Senate Banking Committee Chairman Christopher Dodd will unveil financial-regulation legislation that may create a consumer division at the Federal Reserve with power to write rules that could be overturned by a systemic-risk council, according to a Senate aide with knowledge of the plan. Dodd, a Connecticut Democrat, said last week he will release his bill tomorrow after ending compromise talks with Republicans. The consumer unit, which would have its own budget and a director appointed by the president, could have its rules rejected by a two-thirds vote of the proposed risk council, said the aide, who declined to be identified because the talks are private and the details could change. Banking Committee Republicans are likely to oppose Dodd’s plan after months of talks with Senators Richard Shelby of Alabama and Bob Corker of Tennessee failed to yield agreement. On March 12, Shelby and the panel’s other nine Republicans sent Dodd a letter seeking more time to study his proposal, saying a “markup scheduled in haste would certainly prevent” lawmakers from reaching bipartisan agreement, according to the letter obtained from a Senate aide. Dodd said last week he would hold a meeting to consider amendments to his plan the week of March 22. “What is proposed is a faux consumer protection agency,” John Taylor , president of the National Community Reinvestment Coalition, said in an interview today. The consumer division “can make decisions, but not really, since the bank regulatory agencies can approve or disapprove what they decide.” Credit Crisis Lawmakers are drafting measures to enact President Barack Obama ’s plan to strengthen Wall Street oversight after a credit crisis stemming from the collapse of the U.S. subprime mortgage market led to the failures of Lehman Brothers Holdings Inc. and Bear Stearns Cos. and $182.3 billion in bailouts for American International Group Inc. The House of Representatives passed its version of the bill in December. Details of Dodd’s plan, which also gives the Fed new power to oversee the largest non-bank financial firms, were reported yesterday by the Wall Street Journal. Placing new consumer authority with the Fed would be a reversal for Dodd, who previously faulted the central bank for not using powers it already had to rein in lending practices that contributed to a surge in mortgage defaults. Dodd said in November that he wanted to curb the central bank’s powers, leaving it to focus on monetary policy. Federal Reserve spokesman David Skidmore declined to comment. Obama proposed creating a stand-alone agency, which the House included in its measure. Dodd backed away from the separate agency amid objections from Republicans and bankers including JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon . $10 Billion in Assets Dodd’s proposal would give the consumer unit power to crack down on banks with more than $10 billion in assets, the aide said. The proposal would empower the Federal Deposit Insurance Corp. to oversee state-chartered banks with less than $50 billion in assets, shifting the authority away from the Fed. The FDIC now has power to regulate state-chartered banks not overseen by the Fed. National banks with less than $50 billion in assets would be overseen by a new national bank regulator, the aide said. The Fed would supervise bank holding companies with more than $50 billion in assets. That would shrink Fed oversight to about 35 of the largest U.S. banks, including Bank of America Corp., Citigroup Inc., JPMorgan, Goldman Sachs Group Inc. and Morgan Stanley. The legislation would also call for creating a systemic- risk council to monitor firms for activity that could endanger the financial system. The Treasury secretary would be charged with leading the council, the aide said. The measure would set up a $50 billion fund to cover the cost of winding down failing firms whose collapse could shake the economy. To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net .
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Dodd’s Financial Overhaul Plan Said to Call for Consumer Division at Fed
