Pushing for tougher changes in U.S. financial regulations, the Senate's top banking legislator on Tuesday proposed a new super-cop to police banks, a systemic risk agency and strong consumer protections.

Senator Christopher Dodd, who is fighting for his political life back home in Connecticut, unveiled a 1,136-page bill that leaps ahead of previous, more moderate financial reform proposals.

The long-awaited Dodd bill raises the stakes in a struggle under way for more than a year now, with Democrats working to bring the outdated U.S. regulatory system into the 21st century and prevent a repeat of the capital market crisis that last year pushed the financial system to the brink of disaster.

Senate Republican Leader Mitch McConnell told reporters there were no signs yet of Republican support for the bill.

Dodd would create a single bank regulator by closing two existing regulators and stripping two others, including the Federal Reserve, of direct bank supervision duties.

He also seeks crackdowns on over-the-counter derivatives, hedge funds, mortgage-backed securities, credit rating agencies and executive pay, reflecting Obama administration proposals in some ways, but charting new territory in others.

Flanked by eight other Democratic senators, Dodd released his comprehensive bill at a news conference. He said he is targeting early December for debate to begin in the Senate Banking Committee, which he chairs.

The financial crisis exposed a financial regulatory structure ... unable to prevent threats to our economic security, Dodd said. This proposal will create a new architecture to make our financial institutions more transparent, more responsible, and more accountable.

The late 2008 collapse of ex-Wall Street giant Lehman Brothers and massive taxpayer bailouts of firms such as AIG and Citigroup sparked a flood of concern over the risks of firms considered too-big-to-fail, exotic investment instruments and other areas.

While bank lobbyists and most Republicans are trying to preserve the status quo, the administration and Democrats in the House of Representatives have been making some halting progress.


The Dodd bill will restore momentum in the Senate to the issue. But it was expected to win little or no support from Republicans, setting the stage for still more debate, with analysts expecting no final Senate action until 2010.

The size, complexity and controversy of the Dodd measure mean it is unlikely that the bill will be passed by the Senate before the end of the year, said policy analyst Brian Gardner at investment firm Keefe Bruyette & Woods.

Reaction to the bill off and on Capitol Hill was mixed. Lobbyists for big banks and small alike criticized the proposed single bank regulator, while insurance industry groups questioned portions of the legislation.

Democratic colleagues of Dodd and consumer activists praised his support for the Obama administration's proposal to create a Consumer Financial Protection Agency that would regulate mortgages, credit cards and other financial products.

The bill's proposed super bank regulator, called the Financial Institutions Regulatory Administration, would consolidate the bank supervisory powers of four current regulators and abolish the Office of Thrift Supervision and the Office of the Comptroller of the Currency.

The Federal Deposit Insurance Corp and the Federal Reserve would lose their roles as direct bank supervisors.

Proposals from the Obama administration and a bill under development in the House both seek more modest centralization of bank supervision.


Dodd also proposed a council of regulators, with a staff, to monitor threats to the economy from large financial firms. The proposal expands on ideas for a systemic risk council from the administration and the House.

The agency could require companies that threaten the economy to divest some of their holdings, said a summary of the bill, highlighting the embrace by more policy makers of government powers to break up too big to fail firms.

Break-up power over large banks and financial firms is also being pursued in the European Union, where regulators are calling for higher bank capital standards and new regulations.

The Dodd bill would also establish a National Insurance Office in a first attempt by the U.S. government to monitor an industry that is now regulated by states.

The bill would also make the FDIC the primary agency for unwinding troubled financial firms, with the cost of dismantling them recouped later by assessments on other firms. Shareholders would get more say on pay practices and stronger corporate governance rules on pay.

The House is on track for a final vote on financial regulation reform before the end of the year. In July, it approved a bill to put new curbs on executive pay.

(Additional reporting by Rachelle Younglai, Karey Wutkowski, Charles Abbott and Susan Cornwell, with Karen Brettell in New York; Editing by Leslie Adler)