Why Is Dodd Reopening Reg Reform Negotiations With Corker, Who Calls The CFPA ‘A Non-Starter’?

Sens. Chris Dodd (D-CT), Bob Corker (R-TN) and Richard Shelby (R-AL)

Sens. Chris Dodd (D-CT), Bob Corker (R-TN) and Richard Shelby (R-AL)

Last week, Senate Banking Committee Chairman Chris Dodd (D-CT) said that he was going to go ahead and draft a financial regulatory reform bill without Republican support, after talks between him and ranking member Sen. Richard Shelby (R-AL) reached an “impasse.” “We were stuck,” Dodd said. “I just feel like we weren’t getting anywhere.”

But Sen. Bob Corker (R-TN) has now stepped forward as the new Republican face of regulatory reform, telling Shelby and Minority Leader Mitch McConnell (R-KY) that he is going to work with Dodd to craft some sort of bipartisan agreement. “I feel like it’s an issue we need to deal with,” Corker said. “A bipartisan solution is going to be far better for the American people.”

One of the main hurdles that Dodd and Shelby couldn’t get over was whether or not to create an independent Consumer Financial Protection Agency (CFPA) that would be on equal footing with the bank regulators. The CFPA is an administration priority, but Shelby — along with the rest of the Republican caucus — has been blasting the agency as “folly and dangerous.”

When it looked like he would have to go it alone, Dodd seemed prepared to include the agency in his bill. However, Corker seems to have other ideas:

I know Sen. Dodd knows and everybody else knows that a free-standing agency is a non-starter on our side of the aisle. But I think there is a way to have a program to deal with it in another fashion that doesn’t bump up against or undermine the safety and soundness function of a bank or a regulator looking at a bank.

So if the main sticking point in the effort has already been called a “non-starter” by the GOP’s new point man, what’s the hope here? Corker is taking the same line on the agency that other Republicans have, claiming that breaking consumer protection away from regulating banks for “safety and soundness” is a problem. Rep. Barney Frank (D-MA), who managed to move legislation creating an independent CFPA through the House, ably took on this line of thinking:

No one familiar with the track record of the bank regulatory agencies with respect to protecting consumers can deny the need for an independent agency if we are going to have effective consumer protection. Bank regulators have traditionally treated their responsibilities for consumer protection as a second priority. Those who cite safety and soundness as a major reason to oppose increased consumer protection have it exactly backwards. In fact, the inability to protect consumers from abuse was a major cause of the financial crisis from which we are just emerging.

In the latest ABC News/Washington Post poll, 62 percent of respondents (and a majority of each party) said that they favored stricter federal regulation of banks and financial institutions. But Dodd seems to be heading down the same road that Sen. Max Baucus (D-MT) went down with his “Gang of Six” health care negotiations: stalling a bill in the hope that a Republican will buy in sometime.