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Sen. Dodd On Financial Regulation Bill

ROBERT SIEGEL, host:

Senator Dodd joins us from Capitol Hill. Welcome to the program once again.

Senator CHRISTOPHER DODD (Democrat, Connecticut): Thank you, Robert.

SIEGEL: First, your bill creates a nine-member financial stability oversight council chaired by the Treasury secretary...

Sen. DODD: Mm-hmm.

SIEGEL: ...and representing several regulatory bodies...

Sen. DODD: Right.

SIEGEL: ...to monitor systemic risk. The people who held those positions, nearly all of which exist now in the recent past, either didn't see the risk Wall Street was running or they didn't do anything about it. Why would they become more vigilant on this council?

Sen. DODD: Well, because we're demanding greater accountability from all of them. We're giving clearer lines of authority than was the case, to add too much overlapping authority, had various regulators that were in charge of the same institutions in some cases, so the lack of clarity, the lack of authority, the lack of clearly defined functions. For instance, the vice chairman of the Fed now is specifically designated as the person in charge to report on the supervisory functions over the 50 largest bank holding companies. That didn't exist before, statutorily.

So we're demanding a lot more than has been the case presently and we believe we have greater accountability, greater transparency, greater, clearer lines of authority that we can get better responses.

SIEGEL: But if we were to look ahead a few years, after, say, the memory of the past couple of years has faded a bit, and if the mood in Washington where give, you know - take a light hand with regulation and trust in Wall Street, couldn't the same bodies make the same kinds of mistakes that the regulators made in recent years?

Sen. DODD: Well, yeah, listen. Ultimately, Robert, you're right. I suppose in the end it always depends upon the quality of individuals and the determination by Congress and others to demand the kind of accountability. And I'm not predicting that we're going to avoid forever in the future any kind of financial crisis.

The question is are we putting in place the tools that will minimize when that crisis occurs so it doesn't create the kind of economic carnage that we've seen over the last several years. And we believe this kind of a council in place -there's experience there, they have good staffs in these places, but they need, obviously, to be beefed up and do a better job than has been the case.

SIEGEL: Now, another big provision, President Obama asked for an independent consumer financial protection agency...

Sen. DODD: Mm-hmm.

SIEGEL: ...and he said today that he'll oppose any efforts to undermine its independence. Isn't it compromised from the outset if it's placed inside the Federal Reserve where consumer protection has been a stated part of the mission, but a part of the mission that's been largely neglected all these years?

Sen. DODD: Well, Robert, I laid out four principles some months ago that I thought were critical for a successful consumer protection agency, bureau division. The principles were the following: one is that the head of it would be presidentially appointed, confirmed by the United States Senate, that's one. Number two, that there would be an independent source of funding for the agency. Thirdly, that there be rule-writing authority autonomously, and that they'd have the power forth to examine and to enforce. The bill does all four things.

SIEGEL: So are you saying that you sort of split the difference on an agency that both is at the Fed and isn't part of the Fed?

Sen. DODD: It's not - it's housed there. And the alternative was independence, complete independence, which I had advocated early on. There are not the votes for that. The question is then where do you house it that will give it that independence. All they're doing here is being housed at the Federal Reserve. They have no control over the budget, no control over the rulemaking, no authority over any aspect to that whatsoever.

What they do bring is the independent budget authority in a sense because the agency will be funded out of Fed resources, not which the Fed controls. I don't have an assessment provision in this bill nor do we rely upon appropriated funds.

SIEGEL: Now, here's something else from the talking points under the talking point regulation of non-bank financial companies.

Sen. DODD: Mm-hmm.

SIEGEL: It says with this provision, the next AIG would be regulated by the Federal Reserve.

Now, let me - let's try to run the movie backwards here. A few years ago, when AIG was selling credit default swaps that allowed banks to increase their leverage and enormously increase their risks, if this had been in effect, could the Federal Reserve have told AIG stop selling those credit default swaps? You can't do it.

Sen. DODD: Absolutely. That's the point here. We want to make sure that these entities out there that are not go under the radar screen. That was where a large part of the problems occurred.

We watched a over-the-counter derivatives market go from around $91 billion in 1998 to almost $600 billion 10 years later. This bill of ours requires transparency, accountability, clearing houses, even mandating exchanges over these products. So we believe we're going to do a lot better job than certainly was the case, and that, frankly, an AIG, as it unfolded through its financial products division, could not occur under the construct of our bill.

SIEGEL: I want to ask you a political question.

Sen. DODD: Mm-hmm.

SIEGEL: You sounded a lot like President Obama talking about health care by acknowledging Republican ideas that are reflected in this plan, although you can't really acknowledge Republicans who support the plan. You're - the ranking minority member on your committee, Senator Shelby of Alabama, says to get this passed, you'll need more than one or two Republicans, you'll need critical mass. Is there any way that you can get, say, 10 Republican senators behind this bill?

Sen. DODD: Well, it will largely depend whether there's a willingness to get there. Robert, you and I have watched the...

SIEGEL: Well, what have you detected in the way of willingness to get there?

Sen. DODD: Well, I think it can. I mean, Richard Shelby said this morning in an interview that he thought this bill reflected about 80, I think he said like 85 or 90 percent agreement. That's Senator Shelby's comments. I think he may be a little optimistic in that number, but nonetheless, I think he's right.

There are 11 titles to this bill. In virtually nine of them, there either is agreement already or substantial agreement in major parts. In two of the titles there is some agreement, but we need more work to be done. So I think we're well on the road to achieving that, and my hope is, of course, we can.

SIEGEL: And given all that you've experienced, do you think it is still possible that you could bring along a significant number, even if a minority, a significant number of Republican senators?

Sen. DODD: I hope so. That's my hope, Robert.

SIEGEL: Well, Senator Dodd, thanks a lot for talking with us.

Sen. DODD: You bet, thank you.

SIEGEL: That's Senator Christopher Dodd, chairman of the Senate Banking Committee, who unveiled his plan today for rewriting the nation's financial regulations. Transcript provided by NPR, Copyright NPR.

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