Senator Chris Dodd, Chairman of the Senate Finance Committee, yesterday released a draft of the much- anticipated financial industry reform bill. Covering everything from the role of the Fed to executive compensation and hedge fund regulation, it is an attempt at making wholesale changes at a time when a beaten down and finance-sceptical public has lost faith in the banking system.
Much like healthcare, and despite current turmoil, any legislation to reform the financial industry faces an uphill battle, and it is likely that even sensible changes will be challenged by the industry itself. And, much like healthcare, pushback is expected from the opposition party. It is also unlikely that the Fed will take drastic cuts to its authority lightly, or that today's multiple regulators, such as the FDIC, will acquiesce to losing their individual powers to a single regulator without a fight. However, if the recent integration of several entities into Homeland Security is any indication, sometimes consolidated oversight can have positive results. Additionally, there are some interesting ideas both here and in the in-progress House bill regarding how to avoid bank collapses in the future that at least merit discussion. These include insurance funds, hybrid bonds and liquidity lending provisions.
As with healthcare, the picture will not become clearer until both houses release bills and go through the obligatory process of negotiation and consolidation that produces a final version. Most likely, this process will stretch into the new year. However, there do seem to be some novel ideas among the noise, and for the sake of the American banking industry, it will be critical for all parties to work together on this now inevitable legislation borne out of the inadequacies of a failed system.
See the bill here.