Dodd Exit Throws Jolt to US Financial Reforms

Senator Christopher Dodd made himself a lame duck on Wednesday, reducing his clout in the U.S. Senate as an advocate for tighter financial regulation but also liberating himself from political pressures with consequences that are difficult to predict.

The way Dodd handles his final months in office, how aggressive he is about reform and how seriously other key players take him are suddenly the big questions surrounding the financial reform debate, which is set to resume after the Senate reconvenes on Jan. 20.

Opponents of reform were quick to say that Dodd's decision not to run for re-election in November means scaled-down reform, possibly dooming his idea for a bank super-cop and the Obama administration's proposed financial consumer watchdog agency.

Both proposals, so the argument goes, exemplify a populist approach to reform meant to win votes in a campaign. Dodd doesn't need to win votes in his home state of Connecticut anymore, so now he can safely cut compromise deals to water down or kill such initiatives, said reform opponents.

But Dodd doesn't need campaign donations from banks and Wall Street firms anymore, either. And after decades in the Senate, he will be deeply concerned in months ahead about his legacy and the lasting impact of legislation bearing his name.

"Dodd is committed to continue working in a bipartisan fashion to pass strong financial reform this year," said banking committee Democratic spokeswoman Kirstin Brost.

Representative Barney Frank, whose name also will likely be on a final reform bill later this year, said in a statement: "I do look forward to working closely with (Dodd) for the rest of this year
on finishing the job of significant financial regulatory reform, to which he is committed, and to which he has already worked to advance."

CFPA Backed by Food

Dodd, like Frank, has been an outspoken advocate of President Barack Obama's proposed Consumer Financial Protection Agency, which would strip the Federal Reserve and other existing regulators of their consumer protection duties.

The CFPA would centralize those duties and work to shield Americans from deceptive mortgages, credit cards and payday loans, among other financial products.

"Dodd has been a champion for protecting consumers. That doesn't disappear when he announces he's retiring," said Travis Plunkett, legislative director for the Consumer Federation of America, a public interest advocacy group.

What does disappear, however, for Dodd is the clout of chairing a Senate Committee now and in the future.

His status as a lame duck will reduce his influence as chairman, undercutting his ability to get his way, said Douglas Elliott, a former JPMorgan investment banker now with the Brookings Institution, a Washington think tank.

Dodd may strongly back the CFPA, along with many Democrats. But American Bankers Association chief Edward Yingling, whose group fiercely opposes the CFPA, along with Republicans and many other business interests, said, "The concept of an independent CFPA is unlikely to pass in the Senate."

Dodd's decision, coupled with the retirement announcement on Tuesday of Democratic Senator Byron Dorgan, raises a broader question about Democratic control of the Senate, already tenuous, and the party's ability to win passage of reform.

Dodd's bill was slammed immediately after it was introduced by Senator Richard Shelby, the top Republican on the banking committee. Dodd responded by setting up four bipartisan teams of two committee members each to work on controversial issues.

Some committee members have said they are making progress toward agreement, with key provisions of Dodd's original bill undergoing significant change.

Compromise Still on Card

"Dodd was already going to have to compromise ... if he wanted to enact the bill. His decision to retire after the election does not alter this equation," said Jaret Seiberg, policy analyst at investment firm Concept Capital.

The one provision of Dodd's 1,139-page reform bill that bears his stamp more than any other is his proposed bank super-cop, which he wants to call the Financial Institutions Regulatory Administration (FIRA).




No such agency is proposed in a 1,279-page bill pushed through the House of Representatives last month by Frank.

Dodd's FIRA would become the sole federal bank supervisor, stripping the Fed and other agencies of their supervision duties. The agencies naturally oppose this, but Dodd may have bipartisan support for the concept, sources said this week.

It has been clear for months that Dodd was far behind in the polls in his home state where he has been hounded by questions about his ties to the unpopular financial industry.

In 2003, he took out two low-rate mortgages from Countrywide Financial Corp, which was widely criticized for its subprime mortgage business.

Critics said the loans represented a conflict of interest. A Senate ethics investigation followed. Dodd later refinanced the two loans, said he regretted doing business with Countrywide and made public related documents.

Dodd also has long-standing ties to Wall Street, having raised millions of dollars over the years from employees of firms such as Goldman Sachs [GS 174.26

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