Reaction to Dodd Financial Reform Bill Depends on Perspective

Remember the tale of sixrnblind men who were asked to describe an elephant so each grabbed hold of a piecernof the beast.  The man who took hold ofrnthe tail described the elephant as a rope, the one who touched the leg said itrnwas a pillar, and the one who felt the trunk said the elephant must look like arnsnake.

Pretty much the same thingrnhappened when Senator Christopher Dodd released his proposed bill to RestorernAmerican Financial Stability. While some of the people who might be expected tornreact such as The U.S. Chamber of Commerce and the New York Stock Exchange havernthus far been silent, a lot of individuals and groups have grabbed the piece ofrnit that they care about and are either praising the bill – or bashing the hellrnout of it.

WashingtonrnPost columnist Steven Pearlsteinrnin an interview on MSNBC yesterday called the bill “one of the silliestrncompromises I've seen in Washington in a long time.”  He said that the bill's requirement that thernFederal Reserve regulate the largest banks and only the largest banks hangs arnsign over those bank's doors saying “too big to fail.”  He also faulted the number of loopholesrnexempting various types of derivatives from the law's requirements.

ThernMortgage Bankers Association focused on the bill's efforts to modernize thernregulatory structure for mortgage banking firms.  In a press release that almost beat Dodd'srnbill into the hands of the press, Robert E. Story, Jr. CMB, Chairman of thernassociation said that MBA was “concerned that this bill could be headedrndown several of the same wrong paths as the legislation that moved through thernHouse late last year.”  He said thatrnthe bill “does not provide uniform national regulation of all mortgagernbanking firms, and thus further solidifies the patchwork of state and localrnlaws that increase costs for borrowers and lenders alike.”

He applaudedrnthe bill for moving away from the “one size fits all” approach tornrisk retention” by recognizing that some underwriting requirements, loanrntypes, and business models are inherently low risk but said that the billrnshould provide explicit exemptions for qualified loans that exhibit certain lowrnrisk characteristics from bill's provision that the underwriter retain arnportion of those loans on its books in a risk sharing arrangement.  He singled out, in particular, commercial realrnestate loans and residential loans meeting conventional underwritingrnguidelines.

The American BankersrnAssociation (ABA) said it opposes the new bill as it now stands and “isrnsuggesting a number of areas thatrnneed to be changed:  including thernapproach to consumer protection, which continues to separate prudential andrnconsumer regulation; the elimination of the thrift charter; the elimination ofrnthe Federal Reserve's authority over state member banks; issues within thernresolution mechanism; the weakening of federal preemption; and the failure tornaddress accounting issues in any fashion.

“We oppose this bill because it will subject traditional banks, which didrnnot cause this crisis, to heavy new regulation, while non-banks will have evenrnfurther competitive advantage,” said Edward L. Yingling, ABA's president andrnchief executive officer.  “The future ofrntraditional banks will be unnecessarily put at risk and their ability tornprovide the credit our economy needs will be undermined.  Progress hasrnbeen made, there is still an opportunity to achieve regulatory reform, and ABArnwill support the continuing efforts of Chairman Dodd and the rest of the SenaternBanking Committee to reach agreement on a workable bill.”

ThernCouncil of Institutional Investors, a nonprofitrnassociation of public, union and corporate pension funds, applauded the bill'srnefforts to “address the serious failures by corporate boards thatrncontribute to the financial crisis.

The Council said, it was pleased atrnthe corporate governance provisions requiring directors of public companies tornbe elected by a majority vote of shareholders and reaffirms the Security andrnExchange Commission's (SEC) authority to issue “proxy access” rulesrnthat would make it easier for investors to nominate board candidates.

 ThernCouncil also expressed satisfaction with provisions to strengthen thernregulation of credit rating agencies, trading in over-the-counter derivatives,rnand improve the resources and independence of the SEC.

Republicans immediately criticizedrnthe process leading to creation of the bill. Senator Dodd had been working as arncommittee of two with Bob Corker, (R-TN), a member of the Senate BankingrnCommittee to craft the bill, but recently had gone off on his own to finish thernprocess.  The Wall Street Journal quoted Corker as saying that, while he wasrndisappointed that bipartisan efforts had reached an impasse he would continuernwork toward a bipartisan bill.  He said,rnhowever, that he would not support any bill that included an independent,rnstandalone Consumer Financial Protection Agency.

Sen.rnDavid Vitter (R., La.), another member of the committee said, “I think Dodd's been pulledrnback by the White House and pushed to take a pure partisan bill.”  He also called the Consumer FinancialrnProtection agency “a complete nonstarter,” one that no Republicans onrnthe committee would support.

Harvard Law professor ElizabethrnWarren, chairperson of the Congressional Oversight Panel that oversees thernTroubled Asset Relief Program (TARP) has become the public face of advocacy forrnconsumer financial protection.  She expressedrnsupport for the bill and criticized the banking communities' “ferociousrnlobbying for business as usual.” rnShe said that Senator Dodd had taken a important step by advancing newrnlaws to prevent the next banking crises and that the upcoming series of votesrnwill make the choice clear, “families or banks.”

Treasury Secretary Timothy Geithner said in a press release, “This is arnstrong bill. We hope the Committee and the Senate will move forward quickly tornpass comprehensive reform. We need a strong, independent consumer financialrnprotection agency that is accountable for setting and enforcing clear rulesrnacross the financial marketplace.   And we need strong authority tornlimit risk-taking and protect the taxpayer.  Enacting reform will helprnreduce uncertainty about the rules of the road going forward.  Passingrnstrong reforms here at home will also give us the ability to put in place arnlevel playing field internationally, with high standards.  As thernPresident said, as the bill moves forward, we will take every opportunity tornwork with Chairman Dodd and his colleagues to strengthen the bill and willrnfight against efforts to weaken it.”

So a Wiseman said to all ofrnthe blind men, their hands still all over the elephant, “All of you arernright. The reason every one of you is telling it differently is because eachrnone of you touched the different part of the elephant.”

Or maybe this is arndifferent tale – one that ends with the moral “it all depends on whose oxrnis gored.”

HERE is a recap of the bill

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