The Federal Reserve would gain new powers over non-bank financial firms and keep much of its authority over banks under a new bill to be unveiled today by the US Senate's architect of financial reform.
Senate banking committee chairman Christopher Dodd was poised to release a bill that leans heavily on the Fed to fix the US financial system, sources said yesterday.
Not only would a new government watchdog for financial consumers be housed within the Fed, it would also retain much of its present authority over large bank holding companies and gain new authority over selected non-bank financial firms.
Sources said the Fed would also continue supervising smaller, state-chartered banks now in the Fed system - a change from an earlier proposal that would have transferred those banks to Federal Deposit Insurance Corp supervision.
The plans could yet change, sources said, with weeks to go before Congress completes its long debate on regulatory reform after the worst US financial crisis in generations tipped the economy into recession and shook markets worldwide.
With Republicans and bank lobbyists working to weaken and block new rules, the push for reform could fail in the Senate. But the release today of Mr Dodd's bill will move the Senate closer to a decisive vote.
In an interview, Mr Dodd, a Democrat, said he would present his bill at a news conference scheduled for 6pm and he threw down a challenge to Republican committee colleagues who wrote him a letter on Friday seeking more time to study the issue.
He called their demands "terribly naive." After months of debate, Mr Dodd told Reuters, the road to financial reform is still difficult, but navigable.
"If you want to work with me ... we can do it. If you don't, you can walk away or delay or say we shouldn't be meeting. But if you're interested in getting a bill, the door's open," he said.
The new bill will call for "orderly liquidation" of large financial firms that get into trouble and pose a risk to economic stability, he said. The goal is to avoid on-the-fly bailouts like the ones the Bush administration undertook in 2008 for AIG and Citigroup.
Mr Dodd said his bill would set up a council of regulators "that has power, authority and responsibility to look over the landscape, both at home and abroad, for emerging problems that could pose a systemic risk to our financial system".
He said the bill will contain the same proposals he made in November for policing the $450-trillion over-the-counter derivatives market, partly through more trading on exchanges. But he said he was open to ideas being discussed by committee members Democrat Jack Reed and Republican Judd Gregg.
He also said the bill will have provisions offering investors greater power in corporate governance.
On bank supervision, sources who asked not to be named said the Dodd bill would give the Fed authority to supervise bank holding companies with more than $50 billion in assets, lower than an earlier proposed threshold of $100 billion.
The bill will also preserve the Fed's power over state-chartered banks with less than $50 billion in assets that are already in the Federal Reserve system, sources said.
Reuters