On March 15, Senator Chris Dodd introduced a bill to regulate big banks. It sets up a Consumer Financial Protection Agency to be under the Federal Reserve. It gives regulators the authority to split up large banks, so none of them become "too big to fail."
It eliminates loopholes for hedge funds, derivatives and mortgage brokers. It also suggests an independent agency that has the authority to review systematic risks that would affect the entire financial industry. Finally, it seeks to reduce executive pay by allowing shareholders a non-binding vote.
No one likes it. The banks are afraid it is too restrictive at a time when they need freedom to pull out of the recession. Others argue that the bill really does nothing. That's because it puts the powers under the Federal Reserve, which seems to be on the side of the banks.
It does, however, create a council of regulators led by the Treasury to respond to risks in the financial system. The Council can also require the Fed to regulate non-bank financial firms if needed. Only commercial banks are regulated by the Fed now.
The bill also gives the SEC authority to regulate over- the-counter derivatives and requires hedge funds to register with as investment advisers, providing information about their trades so risk will be transparent.
These are all measures that are needed to fix what broke the economy. So, maybe this bill is perfect. If no one likes it - some because it does too much, others because it does too little - then perhaps its exactly the right size.
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