Market Talk

Let's see them pearly whites!

Tomorrow we’ll find out for sure what Sen. Chris Dodd has in mind in terms of financial reform, before he retires to his humble cottage on the wild, wind-swept Irish west coast. Early reports this weekend are encouraging, in that the Senate proposal appears to have more teeth than previously assumed.

But given the almost lock-step opposition from the GOP, its survival is still up in the air. And some of those teeth may yet fall out.

From the Journal:

Senate Banking Committee Chairman Christopher Dodd (D., Conn.) is finalizing a bill to rework financial market rules that is expected to be tougher against banks than previously expected, people familiar with the matter said.

The biggest winner in the bill appears to be the Federal Reserve, which would see its powers expand considerably. Large financial companies, particularly big banks, could emerge as the biggest losers. They would face much higher scrutiny from bank supervisors and potentially face sanctions for violating consumer protection rules by an autonomous new division within the Fed.

The Fed kind of wins and loses. It gets the new protection agency, and the authority to monitor any financial institution with assets over $50 billion. But it currently overseas more than 5,000 banks of all sizes. Consumers kind of win and lose, too. The consumer protection agency will be created, but it would be housed within an institution that doesn’t exactly have a sterling record in regards to its regulatory and consumer-protection efforts.

The Times notes the bill includes provisions for regulating derivatives, and adds in some window dressing in the form of a few shareholder-friendly proposals, like a non-binding “say on pay” vote and the ability to nominate directors through proxy ballots.

The Volcker Rule doesn’t seem like it’s going to make it, but regulators will have some say over what kinds of activities regulated banks can engage in, if they threaten the bank or the economy.

There’s a long road to go here, and the details need to be hammered out. But we are getting relatively hopeful signs this weekend. It’s something.