American Banker
February 8, 2010
Regulatory Reform Turns New Corner as Talks Stall

Frequently Asked Questions

Dodd presses ahead without Shelby, but can he succeed?

WASHINGTON — Though Senate Banking Committee leaders said Friday that negotiations on a regulatory reform bill had reached an impasse, the situation was not as dire as it appeared, analysts and congressional aides said.

The very public breakdown in talks was an attempt by Chairman Chris Dodd to gain leverage in the talks, which have dragged on for months and so far have appeared to favor Sen. Richard Shelby, the panel's lead Republican. Dodd is trying to move a reform bill this month with the hope of forcing Shelby to come at least partway toward his positions or of picking off other Republicans who may support his bill.

With all the political intrigue, we offer the following frequently asked questions about what is really going on.

So what happened Friday?
After a meeting between Dodd and Shelby on Thursday evening, Dodd released a public statement Friday saying the talks had broken down. Though he did not spell out what had caused the impasse, Shelby followed up with his own statement, citing a breakdown on the consumer protection provisions.

So are they fighting over creating a new consumer agency?
Not exactly. It has been clear for at least a month that the creation of a separate consumer protection agency has no hope of winning bipartisan support. Dodd appears ready to compromise by suggesting a separate division within a regulatory agency or the Treasury Department that would focus solely on consumer protections.

The fight is over how much power such a division would have. Dodd wants it to have rule-writing authority, but Shelby is worried that this would let the division override safety-and-soundness concerns.

Is that the only issue?
No, but it is a main one. Shelby and Dodd are also debating the details of proposed resolution powers for the government. Shelby wants to ensure that the government can never again bail out a large bank, but Dodd wants to give regulators limited flexibility to guard against an economic collapse.

Who pulled out of the talks?
Dodd. Sources said his staff felt that they were giving ground but that Shelby was not. Dodd is already facing several disadvantages that have given Shelby the upper hand. After announcing he would not run for reelection, Dodd clearly has made regulatory reform a legacy issue — one that he must complete this year. Put simply: Dodd needs reform more, and to enact it, he must strike a deal with the Republicans.

How does pulling out help Dodd?
Politics is a kabuki dance. Dodd wants to try and jump-start the reform engine and force Shelby to make concessions by threatening to go ahead without him. Dodd can almost certainly succeed in passing a bill out of committee and then could blame Republicans for holding up reform on the Senate floor.

He hopes that, by starting to move forward, Shelby — who is known for waiting until the last minute to strike a bargain — will be made willing to give more ground. But Dodd is also trying to pick off some other Republicans.

Is that likely to happen?
When Dodd and Shelby divided up regulatory reform in December to let bipartisan teams work on specific parts of the bill, many analysts saw the move as an attempt to get the support of Republicans other than Shelby. If GOP committee members got some leeway in writing particular parts of the bill, they might support the end product.

Who is likely to defect?
The Republican to watch at the moment is Sen. Bob Corker from Tennessee. He has made great progress with Sen. Mark Warner, D-Va., on provisions dealing with systemic risk and resolution. Their staffs were seeking to hammer out legislative language over the weekend to present to Dodd's staff by today.

Speaking to reporters on Friday, Corker sounded ready to deal. He said he was disappointed that negotiations had broken down but that he remained committed to crafting a bipartisan bill. He mentioned that he had spoken to Dodd that morning.

"Chairman Dodd has assured us that our work on the sections of the bill that we are working on will be included into whatever draft he puts forth. … I still hope that by the time we have our committee meeting that we end up with a bipartisan bill," Corker said. "Dodd would like to have a markup toward the end of the month … . I plan to be involved in every aspect of the bill with appropriate changes that I might seek that need to take place."

Any other Republicans who are vulnerable?
Sen. Judd Gregg of New Hampshire is negotiating with Sen. Jack Reed, D-R.I., on provisions designed to better regulate derivatives. The two lawmakers' staffs met again Friday, and Gregg said in an interview they are making progress. Still, he also warned that Republicans need to stick together.

"I would think we want to have united voices as Republicans," he said. "My hope is that we can get back to negotiations and that this can be brought back together."