Key US lawmaker proposes long-awaited clampdown on financial sector

Mar 15, 2010, 22:40 GMT

Washington - Democrat Christopher Dodd, chairman of the US Senate's powerful Banking Committee, on Monday proposed a stiff clampdown on the workings of Wall Street to help prevent another economic crisis from spiralling out of control.

Dodd's draft legislation is the result of weeks of negotiations with fellow committee members and marks the latest step in a long- running battle to stiffen US financial regulations in the aftermath of the worst economic crisis in decades.

The bill mirrors proposals offered by President Barack Obama over the last year but is opposed by most opposition Republicans and has been stalled for months. It awards the Federal Reserve new oversight powers over the country's largest banks and restricts the ability of financial firms to engage in trades using their clients' money.

'Let me be clear: we are still vulnerable to another crisis,' Dodd said at a press conference unveiling the draft bill. 'And neither I nor anyone else can tell you with any degree of certainty that the American economy could survive another crisis of this magnitude. It is certainly time to act.'

The legislation would create a controversial new consumer protection agency to regulate bank products like home mortgages and credit cards. The idea is to stop banks from offering irresponsible or misleading loans that families could not afford - a key driver of the financial crisis.

Conservative Republicans and much of the financial industry have strongly resisted creating a new agency for overseeing consumer financial products, warning it will unnecessarily hamper businesses. Dodd's legislation offers a partial compromise by proposing the new agency within the Federal Reserve, rather than standing alone as an entirely separate agency.

Obama, who has pushed for a separate consumer regulator, welcomed the compromise and said that Dodd's draft measure 'provides a strong foundation to build a safer financial system.'

The financial industry remained cautious.

Regulatory reform is landmark legislation, and we need to be sure to get it right,' said Steve Bartlett, head of the Financial Services Roundtable, a lobby group for the industry. Bartlett said the industry remained 'concerned with the autonomous authority' awarded the new consumer agency.

Dodd's Banking Committee could take up the legislation next week and would have to approve the measure before it could be brought up for a vote in the entire Senate. The House of Representatives approved its own version of financial reform legislation last year.