Alert January 05, 2010

Senators Dodd and Shelby Release Statement Agreeing on Certain Regulatory Reform Goals

Senate Banking Chairman Chris Dodd and ranking Republican Richard Shelby have released a joint statement signaling agreement on several goals for financial regulatory reform and voicing hopes for more progress by the time the Senate reconvenes on January 19, 2010.  In December 2009, the House of Representatives passed its version of comprehensive financial regulatory reform legislation, the Wall Street Reform and Consumer Protection Act of 2009.  For more on the House legislation, please see the

December 15, 2009 Alert and the December 8, 2009 Alert.  The statement by Senators Dodd and Shelby outlined several goals that the Senators indicated have bipartisan support:

  • Achieving an end to “too big to fail;”
  • Enhancing the resolution regime for financial institutions to prevent future costs to taxpayers;
  • Strengthening consumer protection;
  • Modernizing and streamlining the regulatory structure while preserving the dual banking system;
  • Agreeing that the FRB should be more focused on its core responsibility of conducting monetary policy; and
  • Modernizing the regulation and oversight of the derivatives market.

On November 10, 2009, Senator Dodd released a draft financial regulatory reform bill (the “Dodd Bill”) which was heavily criticized by Senators from both parties and the financial services industry.  For more on the Dodd Bill, please see the November 17, 2009 Alert.  Following the introduction of the Dodd Bill, the Senate Banking Committee broke into bipartisan pairs in order to work out agreements on particular reform issues, such as the role of the FRB, new legal authority to wind down large, systemically important financial companies, and other matters.  Senators Dodd and Shelby stated that “these talks have been extremely productive, with members providing great insight and demonstrating a desire to get this done and get this done right.”  They further stated that “we have made meaningful progress and we hope to resolve the remaining issues before we reconvene in January.”

The Senators’ statement that “too big to fail” should be ended may signal agreement on language in the Dodd Bill that would allow regulators to break up large financial companies.  One issue that may prove to be contentious is the creation of a Consumer Financial Protection Agency (the “CFPA”), which would write, examine and enforce rules related to consumer financial products such as mortgages and credit cards.  Senator Shelby has remained strongly opposed to the creation of the CFPA, though Senator Dodd has said it is key to any new regulatory overhaul.  One compromise under consideration would give the CFPA the power to write rules but would leave enforcement and examination to the federal financial regulatory agencies.  A final decision on this issue has not been made.

The two Senators have also split on how to regulate banks.  The Dodd Bill proposed creating a single bank regulator to replace the OCC, FDIC, OTS and bank regulatory functions of the FRB. Senator Shelby has stated that it makes more sense for the FDIC to retain oversight of state-chartered banks.  A compromise under consideration would allow the FDIC to supervise state-chartered banks and create a new agency to regulate all federally-chartered institutions.  No final decision has been reached on that issue either.  Any agreement reached between Senators Dodd and Shelby also would have to be agreeable to a majority of the members of the Senate Banking Committee and the Senate as a whole.  Other Senate committees also may exercise jurisdiction over portions of the legislation and any legislation passed by those committees would have to be reconciled with the Senate Banking Committee’s legislation.  If the Senate does pass financial reform legislation, Senate and House leaders would have to negotiate to reconcile the legislation passed by each chamber, which may differ significantly.