WASHINGTON — The influential chairman of the Senate Banking Committee, often criticized for being too cozy with Wall Street, unveiled a sweeping new plan Tuesday to toughen oversight of the financial industry -- proposing changes even more dramatic than the Obama administration's at the risk of delaying passage of new rules this year.
The plan by Sen. Christopher J. Dodd (D-Conn.) would shatter the existing regulatory structure, installing a new federal banking authority to take the place of four agencies, a bold step the Obama administration declined to take.
"The financial crisis exposed a financial regulatory structure that was the product of historic accidents, one after another, over the past 80 years," Dodd said. "For decades, Washington has failed to deliver . . . substantial reform we need. If we fail again at this hour, our economy will be vulnerable to yet another crisis."
But Dodd's decision to offer a plan significantly different from legislation moving through the House further complicates White House efforts to pass an overhaul by year's end, efforts already hampered by Republican opposition. It also promises to ratchet up the intense lobbying on Capitol Hill over the most far-reaching changes to financial rules since the Great Depression. Industry lobbyists have amassed a $200-million war chest to try to derail measures that threaten banking profits.
Critics say Dodd's zeal to rein in Wall Street stands in stark contrast to a career spent as an ally of the financial industry, suggesting that his pro-consumer stance may stem from a difficult reelection fight looming next year.
"Despite Chris Dodd's election-year conversion to populism, he cannot escape the significant role he played in our nation's current economic crisis," said Amber Wilkerson Marchand, a spokeswoman for the National Republican Senatorial Committee, which is working to unseat Dodd.
Dodd said politics did not play a role in his decision to get tough on Wall Street. Rather, it was concern about the damage caused to average Americans by the financial crisis and regulators' failure to prevent it.
Although agreeing there is a need to update regulations -- particularly for derivatives and other complex securities at the heart of the financial meltdown of the last year -- most banks adamantly oppose creating a single banking agency. Current regulators have expressed strong reservations as well.
Combined with expected Republican opposition and concerns by some moderate Democrats, Dodd's single-regulator provision probably will need to be scaled back to pass the Senate.
Other key components of Dodd's plan mirror the one proposed by the administration in June, which is controversial in its own right. Among those pieces is one creating an agency to protect consumers in the financial marketplace, an idea that passed a House committee vote last month.
The lobbyists' No. 1 target has been the proposed Consumer Financial Protection Agency, which would have the power to override such bank actions as hikes in credit card interest rates and fees for overdraft protection and other services that it determines are "unfair, deceptive or abusive." The agency also could ban products such as subprime mortgages, require more detailed disclosure to customers of the risks of certain loans and levy fines on companies that don't comply.
Banks are particularly concerned about the agency's power to conduct detailed examinations to determine compliance with new consumer rules. The existing agencies have been criticized for their failure to focus adequately on consumer issues during their routine financial reviews.
Small banks complained that they would have to increase their staffs to deal with the additional exams. They successfully lobbied the House Financial Services Committee to exempt banks with less than $10 billion in assets from separate exams by the new agency.
"The community bankers made clear in a variety of ways -- personal visits, phone calls, e-mails, letters, flying into Washington -- that they were not part of the problem, they did not cause the financial meltdown and they should not bear any additional burden," said Steve Verdier, senior vice president of the Independent Community Bankers of America, a trade group representing small banks.
The nation's largest banks have a harder time making that claim. But they still strongly oppose creating a powerful consumer agency, arguing that it would restrict their ability to offer innovative products and add an extra layer of government regulation that would drive up costs.
Two of the largest bailout recipients have lobbied heavily on Capitol Hill. Bank of America Corp. has spent $2.4 million this year, and Citigroup Inc. has spent $4.25 million, with the regulatory overhaul one of their priorities.