The Republican Counter-Proposal vs. the Dodd Bill

By
Tuesday, April 27, 2010 at 11:45 pm

Tonight, the Republicans released a counter-proposal to Sen. Chris Dodd’s (D-Conn.) financial regulatory reform package. Here is a comparative analysis of the two proposals.

First, the similarities. There are many. Both bills create systemic regulators to keep watch over risky firms. Both ensure that taxpayers will never be on the hook for Wall Street bailouts again by creating some form of resolution authority – Democrats by taxing banks for a $50 billion liquidation fund, to be used in the event that a systemically important bank needs to be shut down; Republicans by requiring that the Federal Deposit Insurance Co. get back any government money spent in the process of liquidation. Both require hedge funds to answer to a regulator: in the Democrats’ case, the Securities and Exchange Commission; in the Republicans’, a new oversight committee. Both vaguely hold that credit ratings agencies will receive bolstered oversight, but in both cases, the ratings agencies’ fundamental business models do not change. Both provide weak proposals to institute some form of the Volcker Rule, banning proprietary trading at many banking institutions. Both improve Fed oversight, though without a strong requirement for an audit of the Fed’s books. Both create a powerful consumer financial protection agency with rulemaking authority, though only in the Democrats’ version would the CFPA have the ability to oversee firms like payday lenders. Both make derivatives a regulated product, Democrats by requiring that derivatives used by financial firms to speculate go through clearinghouses; Republicans by giving a regulator authority to say if they should. Both make the president of the Federal Reserve Bank of New York a presidential appointee.

The Republican proposal deals with two things that the Democratic proposal does not touch. First, the Republicans take on the government-sponsored entities Fannie Mae and Freddie Mac — bailed out during the collapse of the housing bubble. Democratic staffers say that figuring out how to handle the GSEs and re-regulating the trillion-dollar market in government-backed mortgage finance requires its own bill. They have just started researching what they want to accomplish and how best to achieve it. Republicans, in fewer than 400 words, take the massive market on. They create a special regulator and indicate that no further taxpayer money should be at risk.

Second, the Republicans create new loan-underwriting standards, saying, “Anyone who securitizes a residential mortgage loan that does not meet new statutory minimum underwriting rules promulgated by federal prudential banking regulator will be required to retain at least a 5 percent economic interest in the trust.”

The Dems’ bill more qualitatively gives more oversight to the Fed to make discretionary decisions, such as to require big banks or firms to post more collateral. The Republicans’ bill does not give more oversight to the Fed — which many Republicans believe overstepped significantly in the last crisis, as noted in the proposal — and does not indicate when or whether the government would force banks to keep more cash.

The Republicans’ consumer financial oversights are significantly weaker than the Democrats’. The Republican-suggested Council for Consumer Financial Protection — the analog of the Democrats’ CFPA — includes the head of the Federal Reserve, the comptroller of the currency, the head of the FDIC and three “consumer protection experts.” It does not say how those consumer protection experts will be picked. Nor does the Republican proposal specify how its CFPA would be funded or where it would be housed. (Controversially, Dodd’s bill places it in the Fed.) And the Republicans’ version of the CFPA does not have as broad oversight or as strong and clear a mandate.

Here are side-by-side explanations of the most important provisions in the two bills:

Resolution Authority

Dodd: The bill requires the Treasury Department, FDIC and Federal Reserve to agree to liquidate a firm. Three bankruptcy judges must agree with their decision. The biggest financial firms will fund a $50 billion pool that the government will use in the process of liquidation to ensure taxpayers do not foot the bill. The bill allows the FDIC to borrow from Treasury in the process, but only if it “expects to be repaid from the assets of the company being liquidated.” The assets are sold off at the government’s discretion. Taxpayers get repaid first. The firm’s management is fired and shareholders are wiped out.

Republican: Like in the Democrats’ bill, the Treasury Department, FDIC and Federal Reserve together determine that a firm needs liquidation to start the process. The Treasury secretary consults with the president to ensure that he or she agrees that breaking up and selling off the company will help preserve financial stability. Then, the Treasury secretary petitions the D.C. courts to authorize the FDIC as the company’s receiver before the company is liquidated by the government. The proposal notes: “The FDIC would have to recoup from creditors any amounts that a creditor had received in excess of what it would have received in bankruptcy. This gives the FDIC the flexibility to advance funds to creditors to prevent or mitigate a systemic crisis, but then ensures the FDIC is not bailing out creditors.”

The Federal Reserve

Dodd: The bill allows for the Federal Reserve’s lender-of-last-resort authority and expands Federal Reserve oversight of big banks and other financial firms. It provides for stronger congressional oversight of the Fed itself and makes the president of the Federal Reserve Bank of New York a presidential appointee.

Republican: The bill also makes the president of the Federal Reserve Bank of New York a presidential appointee. It does not expand the institution’s regulatory powers. If anything, it limits them, adding an oversight measure so that the Fed and Treasury determine “where and when emergency actions…constitute credit channeling” so that the Fed cannot pick “winners and losers” in the event of the financial crisis. It is unclear how it limits which banks the Fed supervises.

Consumer Financial Protection Agency

Dodd: The bill creates a Consumer Financial Protection agency paid for by the Fed. It has oversight over banks with assets more than $10 billion, big shadow-banking institutions, any mortgage-related businesses, credit card companies, and payday lenders. It can impose consumer-protection measures.

Republican: The bill creates a Council for Consumer Financial Protection comprising three independent experts, the head of the FDIC, the Comptroller of the currency and the head of the Fed. It has “primary supervision and enforcement authority” over large banks, non-bank mortgage-originators and other entities. Small community banks and thrifts remain overseen by their primary prudential regulators.

Systemic Regulation

Dodd: The bill creates a new Financial Stability Oversight Council to “focus on identifying, monitoring and addressing systemic risks posed by large, complex financial firms as well as products and activities that spread risk across firms. It will make recommendations to regulators for increasingly stringent rules on companies that grow large and complex enough to pose a threat to the financial stability of the United States.” The Fed can force big companies to raise new capital.

Republican: The proposal says the new Council for Consumer Financial Protection will have systemic oversight. It also says that there were “failings of regulation and oversight by the Federal Reserve in the recent crisis” and therefore it creates a director of regulation at the Fed, a presidential appointee. He or she is “required to testify annually and report to Congress and the public concerning Fed supervision and regulation of” big and systemically important financial institutions and risks.

Follow Annie Lowrey on Twitter


Comments

21 Comments

uberVU - social comments
Trackback posted April 28, 2010 @ 12:54 am

Social comments and analytics for this post…

This post was mentioned on Twitter by TWI_news: The Republican Counter-Proposal vs. the Dodd Bill – http://bit.ly/ck90Ad...


The Republican Counter-Proposal vs. the Dodd Bill « The Washington … Federal Me
Pingback posted April 28, 2010 @ 1:43 am

[...] the rest here:  The Republican Counter-Proposal vs. the Dodd Bill « The Washington … By admin | category: federal bank | tags: after-movement, animal, defaulting-the-money, [...]


Don’t Make These Niche Marketing Mistakes | ProfessorCheap.com | eMoney Insights
Pingback posted April 28, 2010 @ 4:47 am

[...] The Republican Counter-Proposal vs. the Dodd Bill « The Washington … [...]


Free Online Dog Illness Generator | Learning About Dog Health Issues
Pingback posted April 28, 2010 @ 5:58 am

[...] The Republican Counter-Proposal vs. the Dodd Bill « The Washington Independent [...]


Tweets that mention The Republican Counter-Proposal vs. the Dodd Bill « The Washington Independent -- Topsy.com
Pingback posted April 28, 2010 @ 7:20 am

[...] This post was mentioned on Twitter by Annie Lowrey, Matthew Reichbach, Naomi, Charles, You Post DC and others. You Post DC said: The Republican Counter-Proposal vs. the Dodd Bill – The Washington Independent — Wed Apr 28 03:45:40 UTC 2010… http://ow.ly/17cmZ8 [...]


REPUBLICAN CONGRESSMAN BIGOT FROM MISSOURI TODD AKIN AND HIS ANTI GAY AGENDA
Pingback posted April 28, 2010 @ 9:44 am

[...] The Republican Counter-Proposal vs. the Dodd Bill « The Washington Independent [...]


REPUBLICAN BIGOTED CONGRESSMEN ERIC CANTOR & MIKE PENCE PLAN TO USE ANTI GAY AGENDA 2 REVIVE THE GOP
Pingback posted April 28, 2010 @ 9:44 am

[...] The Republican Counter-Proposal vs. the Dodd Bill « The Washington Independent [...]


Leah
Comment posted April 28, 2010 @ 2:43 pm

Under Resolution Authority, the article states “Then, the Treasury secretary petitions the D.C. courts to authorize the FDIC as the company’s receiver before the company is liquidated by the government.” I believe you mean that the Treasury Secretary would petition the federal court in DC. The D.C. Courts are the local courts and would not have jurisdiction over the FDIC and liquidation actions.


GOP FinReg in Detail - Scott H. Payne - The Lobbiest - True/Slant
Pingback posted April 28, 2010 @ 6:52 pm

[...] those folks who are hip deep in this stuff, Annie Lowery at the Washington Independent has a far more detailed comparison of the Dodd bill versus the GOP alternative than I have time to muster on my less than part-time [...]


Financial Reform: What’s in it for me? « Paper or Plastic
Pingback posted April 28, 2010 @ 8:21 pm

[...] Summary of major differences between Dems and Republicans (with link to 20 page Republican rebuttal summary) [...]


Suburban Guerrilla » Blog Archive » Charlie Brown, Meet Football
Pingback posted April 28, 2010 @ 9:54 pm

[...] GOP, and can appreciate the ways in which they parted company. (TheWashington Independent’s Annie Lowrey has a great comparative analysis of which you can avail [...]


Peanut Butter – Who Blinked? « BlueRootsRadio (beta)
Pingback posted April 29, 2010 @ 6:52 am

[...] GOP, and can appreciate the ways in which they parted company. (The Washington Independent’s Annie Lowrey has a great comparative analysis of which you can avail yourself.) Significantly, the two proposals aren’t exactly worlds [...]


Three tow truck companies now to serve city | Car insurance and rental car
Pingback posted April 30, 2010 @ 11:24 am

[...] The Republican Counter-Proposal vs. the Dodd Bill « The Washington … [...]


edwardcraig
Comment posted April 30, 2010 @ 12:11 pm

If only the GOP harked back to its past reforming anti-trust roots.


mac
Comment posted April 30, 2010 @ 7:56 pm

What I don't “hear” in the 50 billion $ pool part of the bill is the contrivance whereby the members of the pool are encouraged to keep a wary eye on one another and their 50 billion $ stake. Sort of a “send a rat to catch a rat” trigger; something that would be more effective than any regulator looking over their shoulders.


The Magic Of Making Up Review – Forget About Conventional Methods
Pingback posted April 30, 2010 @ 9:04 pm

[...] The Republican Counter-Proposal vs. the Dodd Bill « The Washington … [...]


Wonkbook: Lobbyists feel FinReg going against them; Americans support racial … – congressional caucus, consumer protections
Pingback posted May 18, 2010 @ 1:01 pm

[...] of what Congress might hope to accomplish. (Republicans should stop complaining about this. Their financial regulatory proposal hardly offered a disquisition on Fannie and Freddie. More like a [...]


Up All Damn Night: Up All Damn Night: Andrew Graham
Pingback posted August 16, 2010 @ 6:22 pm

[...] obstruction in the first place because from the early iterations of the legislation both parties more or less agreed on [...]


Venapro hemorrhoid relief
Comment posted February 26, 2011 @ 8:06 am

Thanks for ones marvelous posting! I quite enjoyed reading it, you might be a great author.I will be sure to bookmark your blog and may come back someday. I want to encourage you continue your great writing, have a nice morning!


1051199
Comment posted September 7, 2011 @ 12:46 pm

1051199 beers on the wall. sck was here


RSS feed for comments on this post.

Sorry, the comment form is closed at this time.