Never Fear, The Super-Regulator is Here!

Sen. Chris Dodd is about to propose an extremely ambitious legislative overhaul of the financial regulatory system, which would consolidate all bank regulators into one so-called super-regulator. It's much broader than the approach offered by the Obama administration, which consolidates two nationally bank regulators into one new office while maintaining supervision roles for the Federal Deposit Insurance Corporation and the Federal Reserve (although the Fed will lose consumer regulatory power to a new agency in both schemes and be forced to work more closely with Treasury).

Treasury considered this move last spring, but decided against it because it will be a hard political fight -- as well as battling the financial industry and Senate Republicans who oppose more stringent regulatory reform in the first place, this bill will require overcoming opposition from within the agencies themselves, who will fight fiercely for their turf. Interestingly, the administration has not directly criticized this idea; Treasury officials will tell you that their plan was designed to be passable and accomplish what is necessary, and they're not sure they can pull a super-regulator over the hump. (They do have concerns about putting the authority to take over failed banks in the hands of a committee, but this isn't that.)

Dodd, of course, has different incentives -- he's got to make it clear to his constituents that he's not the bankers' errand boy on Capitol Hill, and passing this plan would do just that. Whether or not he can actually pull it off is another question; either he's more in touch with what's possible than the administration (and he and his staff, as well as his House counterpart Barney Frank, were all involved in drafting the administration's plan) or he's actually starting off with his maximal demands, intending to negotiate from there, rather than presenting a prepackaged compromise, the latter of which has become a White House standby in the past year and hasn't seemed like the most effective legislative strategy.

-- Tim Fernholz