Bank-taming bill biggest overhaul since 1930s

A new Democratic Senate bill to tame the financial markets would give the United States Government new powers to break up firms that threaten the economy, force the industry to pay for its failures and create a consumer watchdog within the Federal Reserve.

Legislation unveiled yesterday by Senate Banking Committee chairman Chris Dodd falls shy of the ambitious restructuring of federal financial regulations envisioned by President Barack Obama or contained in legislation already passed in the House.

But the bill, which includes provisions negotiated with Republicans, would still be the biggest overhaul of regulations since the 1930s.

It comes 18 months after Wall St's failures helped plunge the US and other economies around the world into a deep recession.

In its sweep, the bill would touch all corners of the financial sector, from storefront payday lenders to the highest penthouse office suites on Wall St.

"Americans are frustrated and angry, as we all know," Dodd said.

"They've lost faith in our markets and they wonder if anyone is looking out for them."

In announcing his bill, Dodd stood alone, a sign of the difficult task ahead of him in forging a bill that can pass the Senate. None of the 10 Republicans on his committee endorsed his plan.

Several Democrats have voiced dismay at Dodd's decision to reject a plan for a freestanding consumer agency, an Obama regulatory centrepiece.

The bill also does not fully embrace Obama's most recent demand to reduce the size of the largest financial institutions and to ban commercial banks from conducting risky trades on their own accounts.

Obama called Dodd's bill "a strong foundation" but he signalled it fell short of his requirements.

"I will take every opportunity to work with Chairman Dodd and his colleagues to strengthen the bill and will fight against efforts to weaken it," he said.

The bill envisions a leaner Federal Reserve that would gain new powers to regulate the size and the activities of the largest US financial firms. The central bank's independent consumer bureau would write regulations governing all lending transactions.

Bank regulators, however, could appeal those regulations if they believe they would affect the health of the banking system.

The bill creates a powerful nine-member financial stability oversight council that could:

* Place large, interconnected financial institutions such as insurance conglomerate American International Group under the supervision of the Federal Reserve.

* Approve the break-up of large complex companies if they pose a "grave threat" to the to the nation's financial system.

* Veto regulations written by the new consumer protections bureau at the Fed.

All those actions would require a two-thirds vote of the council.

The bill also would give shareholders of publicly held financial institutions a voice on executive pay by letting them cast a non-binding vote on compensation packages. Though advisory only, that step has drawn fire from Wall St as an intrusion into corporate governance.

Recognising New York as the capital of the financial sector, Dodd would upend the selection of the leadership of the Federal Reserve Bank of New York Fed, which counts five of the nation's seven largest banks under its supervision.

The president of the New York Fed would be appointed by the President and confirmed by the Senate for a five-year term.

Moreover, Dodd would prohibit past officers, directors or employees of institutions supervised by the Fed from serving on the boards of the regional Fed banks. Under current law, three of the nine directors in each of the 12 Fed regions are bankers.

The American Bankers' Association panned Dodd's regulatory effort.

"We oppose this bill because it will subject traditional banks, which did not cause this crisis, to heavy new regulation, while non-banks will have even further competitive advantage," said Edward Yingling, the ABA's president and chief executive officer.

- AP