Why Reforming the Banking Industry Is Most Important Issue

Reforming the banking industry is the most important matter facing America. The issue takes precedence over health care. There is of financial safety net to more systemic risks from occuring. The Senate Banking, Housing and Urban Affairs committee is tackling the problem. Chairman Chris Dodd has unveiled the ambitious Restoring American Financial Stability Act. The bill would stop regulatory and prevents financial institutions from becoming too big to fail. The bill is already being opposed by the banking industry and Senate Republicans.

Dodd has a long way to go if he wants to win support from the Republican leader. Senate Minority Leader Mitch McConnell (R-Ky.) came out swinging last week, sharply criticizing a proposal he said was not supported by any Republican.

“I don’t think the public is clamoring for us to pass yet another thousand-page bill, and I’m not sure where they’d find the time to do this on the Senate floor, since it’s obvious health care’s going to be the dominant issue for the coming months,” McConnell said.

Republicans do not want to see reforms of the deceptive lending practices being used on mortgages and credit cards. That is exactly what the proposed Consumer Financial Protection Agency would do. The agency would operate as an independent watchdog and inform the public and have the power to stop "hidden fees, abusive terms, and deceptive practices." The bill would end the oversight role of the regional Federal Reserve banks. The banking industry picks those regional Chairman. Former Federal Reserve Bank of New York chairman Tim Geithner has been against a proposal to make the chairmen federal appointments. Dodd proposes a single Federal Bank regulator.

Eliminates the convoluted system of multiple federal bank regulators to increase accountability and end unnecessary overlap, conflicting regulation, and “charter shopping;” keeps in place the healthy dual banking system that governs community banks.

A huge potential hurdle to the bill's passage is a allowing shareholders to have a vote in executive compensation and corporate affairs. Dodd wrote legislation that would cap the executive bonues, of companies receiving bailout money, at $100,000. Geithner had the provision stripped from the legislation. Dodd took heat and Geithner didn't admit he was responsible. Only after Dodd told the media that the Treasury Department pushed to strip the provision was when Geithner stepped forward.

The Dodd bill would give the newly created Consumer Financial Protection Agency the power to investigate and enforce banking regulation. Dodd's idea is this will consolidate federal agencies and decrease red tape. The FDIC and the Federal Reserve will give up their regulatory responsibilities.

The FDIC will focus on its jobs as deposit insurer and resolver of failed institutions, retaining backup examination authority over troubled banks and gaining additional authority to accompany the new agency on examinations of healthy banks and holding companies to ensure it has sufficient information to perform its insurance functions. The Federal Reserve will focus on monetary policy without being distracted by responsibilities for bank oversight and consumer protections. The Federal Reserve will continue to play a key role in assessing financial stability and have guaranteed access to financial institutions and any needed information.

The White House is not thrilled with Dodd's proposal.

Austan Goolsbee, who sits on the White House's Council of Economic Advisers, said he felt some "nervousness" about Dodd's proposal to create a committee independent of the Federal Reserve to oversee risks in the financial system and police potential threats to the economy.

"The administration's view is that systemic institutions ought to be governed by the Fed," Goolsbee said. A different group could be charged with looking at problems on the horizon, "The Dodd version is 'let's combine both of those and create some new agency,'" he said. "I am a little worried that to create that new agency would take a long time and by the time you got to that we are back into this world."

This is the same White House that has been telling Harry Reid to drop the public option, but still supports mandating that every American buying health insurance. The White House is pro-corporatist. The Republicans look at Wall Street as their true base. Reforming the financial industry should have been the first issue both parties addressed when President Obama was sworn into office. America does not have the money for another bailout and the economy is (finally) recovering too slowly. The anger from progressives and tea party protesters is from Washington's bailing out the banking industry. People are scared and turning to clowns like Glenn Beck and conspiracy theories for answers. The public needs to get behind the Restoring American Financial Stability Act. Free markets are a wonderful thing. However, another economic meltdown is not an option.