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Democrats Have Their Own Finance Sector Priorities

Key Democratic lawmakers are skeptical of a new White House effort to create a powerful banking regulator and don’t want to sidetrack their own financial sector proposals that have been in the works for months.

“You hear the administration say they’d like it sooner rather than later,— Senate Banking, Housing and Urban Affairs Chairman Chris Dodd (D-Conn.) said recently. “I have to take the temperature of my colleagues.—

House Financial Services Chairman Barney Frank (D-Mass.) has been more explicit in rejecting the idea of a unilateral banking regulator. Aides say Frank is “more interested in solving problems with existing regulators rather than consolidating— them into a new, powerful oversight agency.

The White House circulated a draft proposal last week calling on Congress to create a new regulatory agency that would provide oversight of both the banking and insurance industries and also propose other new regulations. The administration believes this would serve as a safeguard against future banking crises, such as the one that plunged the United States into an economic crisis last fall, and would provide greater protections for consumers.

Frank’s committee has been among the most aggressive in holding hearings and marking up housing, banking and consumer protection bills in response to the financial crisis. His panel led the push for legislation cracking down on credit card lenders that the president signed into law last month.

Now, Frank favors creating a risk regulatory panel, composed of representatives from several existing oversight agencies, to monitor financial firms that would pose a risk to the economy if they failed. He’d give a separate body resolution authority to carefully dismantle — or “wind down— — failing banks and insurance agencies to prevent broader problems.

Frank said creating a new panel with wind-down authority is a sensible first step before creating a more powerful federal regulator. He conceded that adding new regulations would likely spark a political fight with the powerful banking and insurance lobbies.

Dodd, meanwhile, has signaled some interest in a more comprehensive approach. However, any Senate proposal would likely face opposition from Republicans, who have successfully forced changes to soften the impact of some consumer protection measures, including the recent credit card bill.

As a start, Dodd would back legislation creating a risk regulatory panel and a separate entity with wind-down authority, but he has not ruled out tacking on House-passed provisions that would seek to end predatory mortgage lending practices.

The White House’s ambitious plan, meanwhile, could draw pushback from lobbyists and split lawmakers.

Financial trade groups say they strongly oppose the White House’s call for a single banking regulator, citing the inherent bias against state-regulated banks it would create. They also oppose the administration’s proposal to give the Federal Deposit Insurance Corp. authority to wind down failing bank holding companies, saying they doubt the FDIC can handle such complex resolutions.

Financial groups have raised concerns about the administration’s plans for merging the Commodity Futures Trading Commission and Securities and Exchange Commission. They say the proposed merger could intensify jurisdictional battles between the Senate Banking panel and House and Senate Agriculture committees, which now oversee financial products regulated by both entities.

“When there’s power shifts there are winners and losers and that will create political tension,— one banking lobbyist said.

In any event, lawmakers could have little time to move on the administration’s proposal this year with health care, climate change and appropriations bills set to dominate the House and Senate floor calendars in coming months.

The House Financial Services Committee has already set hearings for next week to examine the need for increased consumer protections and another on whether executive compensation encourages risk. The Senate Banking panel has yet to schedule any new hearings.

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