Standards, Regulations & Compliance

Dodd Banking Reform Plan Would Cut OCC, OTS

Draft of Regulatory Reform Bill Calls for 3 New Agencies
Dodd Banking Reform Plan Would Cut OCC, OTS
U.S. Sen. Christopher Dodd, D-Conn. and chair of the Senate Committee on Banking, Housing, and Urban Affairs, on Tuesday released a much-anticipated draft of a regulatory reform bill that would strip the Federal Reserve and other agencies of their power to regulate the banking industry.

The draft bill is Dodd's response to the Obama administration's proposal earlier this summer for regulatory reform. Dodd's bill includes some of the administration's key points, such as the creation of a consumer protection agency.

Yet, in contrast to Obama's plan, Dodd proposes to create three new agencies:

"Agency for Financial Stability" that would oversee systemic risk;
"Financial Institutions Regulatory Administration" that would oversee the financial institutions, bringing together the work that is currently spread across four banking regulators and eliminating two: the OCC and OTS;
"Consumer Financial Protection Agency" that would be charged with protecting borrowers and other bank customers.

The administration's proposal would expand the Fed's duties to include overseeing financial risks to the broader national economy.

Stark differences between proposals may increase the odds against Congress being able to assemble a working version of financial reform before the end of 2009.

Dodd says he plans to begin moving his draft through committee later this month. Rep. Barney Frank, D-Mass. and leader of the House banking committee, has plans to move his version of regulatory reform to a vote before this session ends.

Industry Analysts See Problems With Bill
The chances of Dodd's version of regulatory reform being accepted isn't seen as a likely outcome, according to former FDIC regulator Christie Sciacca. "I think there is a higher likelihood of an oversight panel." He sees the odds of a single "super" agency getting through all of the politics as very low. "I believe that the OTS will be merged into the OCC and the Fed and the FDIC will survive in their current, and perhaps expanded, roles." Sciacca doesn't see the Fed giving up "systemically important" institutions and says "the FDIC has again proven its value."

Sciacca does think that the proposed consumer protection agency will get the green light. "A lot of folks believe that consumers were more the victim than part of the problem, notwithstanding that a lot of folks got greedy with what they thought was the ever increasing wealth being created for them by the run-up in home values," he says. Sciacca is now an executive at consultancy LECG.

The Dodd bill as written will mean there will still be multiple regulatory bodies, observes Walter Moeling, a banking law expert and head of the Financial Institutions practice at international law firm Bryan Cave LLP, New York, NY. As is often the case, he says, the stated objectives of the Senate bill seem to be at odds with the bill's approach. "While the concept of a 'single federal regulator' has appeal, the bill continues both the Federal Deposit Insurance Corporation and the Federal Reserve, and it seems to swap OCC and OTS for a new Consumer Financial Protection Agency and the Agency for Financial Stability. So the industry still ends up with four banking regulators," Moeling says.

Moeling adds that the bill fails to address that a major reason for the existing regulators' inability to head off the present economic situation "resulted from a significant deregulatory environment in which staffing on the supervisory side of each federal regulatory agency was cut by 30 percent to 40 percent, starting in the mid-1990s."

He says a strong argument can and should be made that had the agencies remained fully staffed, the excesses that crept into the banking system could have been recognized - and dealt with - much earlier. "In simple terms, had the on-site regulators been properly staffed and permitted to do their jobs, much of what happened could have been avoided," Moeling says. "Were that the case, there would be no need now for a horribly complex set of new rules and agencies."

About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.

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