News & Analysis

Senator Dodd outlined his proposal for financial regulation reform on Monday

Senator Dodd outlined his proposal for financial regulation reform on Monday. Dodd's bill would create an independent consumer agency within the Federal Reserve, require hedge funds with over $100M in assets to register with the Fed and force trading in certain derivative onto public exchanges. In an attempt to end the "too big to fail" problem, the bill would restrain the Fed's ability to bail out failing firms and require approval of three bankruptcy judges within 24 hours to liquidate a large firm. The Volcker Rule, restricting proprietary trading by banks, is part of the package. Republican members of the Senate Banking Committee have been surprisingly receptive to the measures after condemning Dodd just last week for unveiling the bill before it was totally complete. The major sticking point is apparently over regulating certain derivative contracts, which were at the heart of the financial crisis. Fed Chairman Bernanke told Congress that he is concerned about provisions that would limit the size of the banks regulated by the Fed, saying the Fed should have oversight over smaller banks. Former Fed Chairman Greenspan commented that increasing capital requirements for banks would be more effective than the new financial reform legislation. Dodd's committee will begin markup of the bill starting next Monday.