Senate negotiators closed in on a deal on Wall Street regulations Monday, proposing a new entity inside the Federal Reserve to oversee consumer financial products ranging from credit cards to mortgages.
Three people familiar with the talks told The Associated Press that key members of the Senate Banking Committee were reviewing the plan but had not yet signed off on it.
If the details are worked out, the plan would represent a major step toward creating new regulations aimed at preventing a recurrence of the financial crisis of 2008.
Under the plan, the consumer agency, while housed in the Fed, would have autonomous authority to write consumer regulations. The proposal emerged during negotiations between Sen. Christopher Dodd, D-Conn., the Banking Committee chairman, and Sen. Bob Corker, a Tennessee Republican on the committee. Dodd had already rejected two consumer proposals from Sen. Richard Shelby of Alabama, the top ranking Republican on the committee.
Still, a Fed-housed consumer entity would fall short of President Barack Obama's initial demand for a stand-alone Consumer Financial Protection Agency that would replace the consumer oversight now assigned to bank regulators. A House-passed version of the Wall Street legislation would create a separate agency.
‘Strong independent authority’
The White House, eager to give Dodd room to negotiate, had backed off its insistence on a stand-alone agency. On Monday, White House spokesman Robert Gibbs said the agency still would have to have "strong independent authority, an independent head, an independent budget, independent authority to do what it needs to do."
The banking industry has opposed an independent agency, arguing that bank regulators retain authority over consumer protections.
If the latest Senate plan were to hold, it would represent a remarkable turnaround for the Fed, which has been criticized for failing to adequately protect consumers as part of its regulation of state-chartered banks and bank holding companies.
The consumer agency has been the final obstacle in Dodd's effort to get bipartisan support for the bill. The legislation also would create a council of regulators that would determine which financial institutions deserve special supervision because their size and breadth could pose a threat to the economy.
The legislation also would provide a mechanism to dismantle large failing institutions, with the cost borne by their banking peers.