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WASHINGTON: President Barack Obama's stuttering bid to rein in the largest US banks got a shot in the arm on Monday, as a key Senate ally unveiled a reform package described as the most sweeping in 80 years.
Senate banking committee chairman Christopher Dodd outlined plans to regulate the massive US banking sector, warning an overhaul was needed to prevent another large-scale crisis that the US economy might not survive.
Speaking two years after the investment bank Bear Stearns collapsed - the opening salvo of a crisis that engulfed the globe - Dodd called for more government control over "too-big-to-fail" banks and for reform of a regulatory system that "remains hopelessly inadequate."
"If there was a watchdog on duty, it did not bark," Dodd said, "we need to strengthen not only its bark but also its bite."
The package's highlights include the creation of a consumer protection agency and a powerful committee to monitor systemic risks caused by large firms.
The bill would also clamp down on hedge funds and other risky investment instruments, which are accused of fuelling the crisis, and give shareholders a say on big executive bonuses.
Obama hailed the proposals as "a strong foundation to build a safer financial system."
Shortly after coming to office Obama, faced with an economy in meltdown, provided around 700 billion dollars to rescue the financial sector, a deeply unpopular bail out for banks, insurers and government-backed mortgage firms.
"We cannot wait any longer for real financial reform that brings accountability to the financial system and makes sure that the American taxpayer is never again asked to bail out the irresponsibility of our largest banks and financial institutions," he said.
Dodd warned that any efforts to delay reform invited calamity.
"Neither I nor anyone else can tell you with any degree of certainty that the American economy could survive another crisis of this magnitude," he said.
But the reforms have been the subject of fierce lobbying in Washington, with some of the city's biggest political hitters involved in tussles over what the rules should be, and who should enforce them.
Dodd's decision to house the consumer protection agency at the Federal Reserve has been met with barely concealed fury by Democratic colleagues who accused him rewarding a watchdog that failed miserably to prevent the worst financial crisis in decades.
In a bid to address some of those criticisms, Dodd said the agency would be headed by a director appointed by Obama, and would have the power to write rules governing all financial entities.
Today Americans face an alphabet soup of financial regulators. Depending on the complaint, redress might be found through the Federal Deposit Insurance Corporation, the Federal Reserve, the Office of the Comptroller of the Currency, the National Credit Union Administration or the Treasury's Office of Thrift Supervision.
Supporters say a new, powerful, independent consumer agency could transform policing of everything from mortgages, to credit cards to banking fees.
But in private, those close to the discussions accuse Dodd of watering down reforms, pandering to Republicans and the banking lobby in order to strike a deal before he retires later this year.
The Financial Services Roundtable, which represents many financial firms, expressed concern about the role of the consumer protection agency.
"The Roundtable believes that consumer protection should not be separated out from the regulators which govern the products. We are concerned with the autonomous authority given to such an entity," the group said in a statement.
Markets reacted calmly to the plan, with the blue chip Dow index slightly up in late trading.
Dodd's proposals are expected to face a vote in committee later this month. - AFP/de
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