Senators propose massive banking overhaul

By Bob Keefe

The Atlanta Journal-Constitution

WASHINGTON -- Saying weak and outdated regulations were largely to blame for the financial industry meltdown, a group of Democratic U.S. senators on Tuesday released a draft of sweeping legislation that would dramatically change how American banks are regulated.

The proposal led by Senate banking committee chairman Chris Dodd of Connecticut is more far-reaching than separate bank overhaul proposals from the U.S. House and the Obama administration.

It would create a single federal bank regulator, although it would not end the dual-charter system that allows for state-chartered, state-regulated banks. A separate consumer watchdog agency would be created to monitor banks and prohibit hidden fees for mortgages, credit cards and other products. It also would eliminate so-called "too-big-to-fail" practices that resulted in the government bailouts of some of the nation's largest banks and would give shareholders more say about bank executives' pay.

"The financial crisis exposed a … regulatory structure that was the product of historic accident, created piece by piece over decades," Dodd said. "This proposal will create a new architecture to make our financial institutions more transparent, more responsible and more accountable."

Like the Senate proposal, the banking overhaul legislation from the U.S. House and the Obama administration also aims to reduce risk in the industry and better insulate the overall economy from bank failures. Those proposals would create an interagency Financial Services Oversight Council to regulate banks, but would not eliminate the Federal Reserve's and the Federal Deposit Insurance Corp.'s regulatory roles, as the Senate proposal would do.

In Georgia, which leads the nation in bank failures, industry representatives say they're vehemently opposed to the Senate proposal. They say it would have done nothing to prevent the record 26 bank failures in the state since 2008.

Steve Bridges, an executive director at the Community Bankers Association of Georgia, said the Senate proposal would essentially create a "dictatorship" over his industry.

"Enforce the regulations you have, don't just pass new regulations," added Dan Blanton, CEO of Georgia Bank & Trust in Augusta. Blanton also is a member of the FDIC's community banking advisory board.

Joe Brannen, CEO of the Georgia Bankers Association, called the Dodd legislation misdirected.

"Rather than simply going after the unregulated bad actors that created the Wall Street meltdown, this proposal would impose extensive new regulatory burdens on those Main Street banks that had nothing to do with creating the financial crisis," he said.

Brannen and others said the proposed regulations would have done little to stem the bank failures in Georgia, which they blame on the real estate meltdown, not a lack of regulations.

But Danny Orrock, deputy director of the consumer watchdog group Georgia Watch, said the Dodd legislation contains provisions that would reduce some of the real estate lending practices that helped cause so many bank failures in Georgia.

"I think lawmakers in Washington and Georgia are beginning to recognize a big problem with the mortgage market," Orrock said.

In Washington, Dodd said he was hopeful that his proposal would get Republican support.

Yet at least one Republican, Sen. Johnny Isakson of Georgia, said he thinks Dodd and others are moving too quickly. Isakson earlier this year sponsored legislation creating an independent, nonpartisan Financial Crisis Inquiry Commission to investigate exactly what caused the meltdown in the financial markets. That commission isn't scheduled to report back to the Senate until December 2010.

"I personally think a rush to reform and regulation in the absence of getting that report back is going off half-cocked," Isakson said. "The reason we created the [commission] is to have a forensic audit of the entire system so we can see where we may have from a regulatory standpoint missed something before."

U.S. Sen. Chuck Schumer (D-N.Y.) disagreed, saying action shouldn't be delayed.

"If we don't reform the system," Schumer said, "sure as shooting we're going to have another crisis."

Senate banking reform

Here's what the latest federal banking reform proposal would do:

- Create a single federal bank regulator, the Financial Institutions Regulatory Administration.

- Preserve the "dual-charter" system that lets states charter and regulate banks within their borders.

- Create a Consumer Financial Protection Agency to monitor and prevent banks from overcharging customers for fees on credit cards, mortgages and other products.

- Give shareholders more say on bank executives' compensation.

- Add regulations on risky derivatives, hedge funds and other financial instruments.

Source: Senate banking committee