Washington, November 11 -- Connecticut Democrat and Senator Christopher Dodd unveiled a reform bill on Tuesday that will impose higher capital requirements on financial institutions.
Under the 1,136 page proposal, the Fed would be stripped off its role as a bank supervisor and the Congress will be given a greater role to choose officials. Fed will also now no longer be able to provide emergency loans to companies.
An agency for financial stability, which will have broad powers to protect the economy from financial risks, will be set up.
Approval of the bill awaited
The proposal comes when Fed Chairman Ben S. Bernanke waits for confirmation to a second term and Dodd a re-election to a sixth term next year.
Dodd believes that Bernanke is “doing a terrific job”, and that his proposal is “not about individuals and personalities. It’s about putting together an architecture that makes sense.”
The bill is “not designed to basically punish the Federal Reserve at all, but rather to enhance their role, and their independence,” he said. “You start loading up the Fed with additional responsibilities, and that independence can be threatened.”
Bankers not happy
The bankers, however, criticized it, and are not very happy with the decision.
The American Bankers Association said the single regulator idea failed "miserably" in Great Britain and would without doubt undermine the state chartered banking system.
The bill must be first approved by the Senate, and then signed by President Barack Obama in order to become law.
Fed’s main responsibility is the monetary policy
Dodd has left Fed with the main task of handling the monetary policy.
The commercial banks would be losing their power to appoint directors of the 12 regional Fed banks.
Directors would now be chosen by the Fed’s Senate confirmed governors. Currently, only two thirds of directors are chosen by private sector banks, and one third by the governors.
"For firms that play by the rules, this single prudential regulator will provide clarity, cut red tape and make it easier to compete," said the Connecticut Democrat. "But those institutions that would undermine the security of our economy will no longer be able to shop for the weakest regulator."
Currently, banks can choose between the Federal Reserve, the Federal Deposit Insurance Corp, the Office of the Comptroller of the Currency and the Office of Thrift Supervision as their regulators.