One question bouncing around news outlets today is what Senate Banking Committee Chairman Chris Dodd’s (D-CT) retirement means for the regulatory reform effort. Does it make him more or less likely to compromise on key parts of the bill, including the Consumer Financial Protection Agency (CFPA)?

I think it’s hard to discern whether Dodd’s retirement will lead him to give in on a host of issues (as one “gleeful” financial services lobbyist told Politico it would) or compel him to put “it all on the line to get what he wants, bipartisanship be damned.”

But one thing is for certain: Dodd’s retirement means that the regulatory reform effort needs to wrap up this year, as Dodd’s likliest successor as chairman is Sen. Tim Johnson (D-SD), a very bank-friendly Democrat who would almost certainly produce a worse product. And this point hasn’t escaped Republicans, as the Wall Street Journal pointed out:

At the same time, [Dodd's] decision gives Republicans the incentive to draw out the process until after next year’s elections when a more business-friendly Democrat could ascend to the banking panel’s chairmanship. Next in line on the committee is Sen. Tim Johnson (D., S.D.), generally seen as more receptive to industry concerns.

According to Roll Call, “Senate Democrats said that no palace intrigue is expected to take place with the Banking panel” and that Johnson will take the gavel. So Republicans and the financial industry have ample motivation to gum up the works until Dodd is all the way out.

This same concern arose when it looked like Dodd might take the helm of the Senate HELP committee following the death of Sen. Ted Kennedy. Back then, Tim Fernholz wrote that “it would be bad news for regulatory reform if Johnson took over the [banking] committee; he’s received nearly a million dollars from the financial industry in the last 20 years.”

Johnson was the only Senate Democrat to vote against a credit card reform bill last year, and the banking industry has focused on him as one of the Democrats most likely to torpedo the CFPA. “No one is pro-industry today but he’s been historically very receptive,” said a top financial services lobbyist of Johnson. “He’s been sensitive to the impact of legislation on the financial service industry given the large number of jobs he represents.”

Even if Dodd gets a regulatory reform bill passed, as the investment research firm Concept Capital pointed out, Johnson’s chairmanship would likely result in other efforts to rein in banks going by the wayside. “His elevation to chairman should put to rest worries over interchange and interest rate caps,” the firm wrote.

There is one note of good news amidst all this, however: Connecticut Attorney General Richard Blumenthal will be running for Dodd’s seat, and his stance on regulatory issues is excellent.

The news that Senate Banking Committee Chairman Chris Dodd (D-CT) is retiring has thrown some light back onto financial regulatory reform, which is slowly being molded by that committee’s members. While the committee is nearing agreement on some issues — such as the proper regulatory role for the Federal Reserve — the “key stumbling block” remains the Consumer Financial Protection Agency (CFPA).

During the House regulatory reform debate, Rep. Walt Minnick (D-ID) proposed an amendment that would have gutted the CFPA by turning it into a loose council within the existing regulatory framework. The Minnick proposal would make the CFPA into a conflicted, ineffectual body (Rep. Barney Frank (D-MA) called it “the bureaucratic version of the Christmas song”), which is exactly what the financial services industry would love to see. And the proposal was only narrowly defeated.

Today, Financial Services Forum president Ron Nichols said on CNBC that his organization (which represents the 18 largest financial firms in the country) is actively pushing Minnick’s plan in the Senate:

We’ve talked to a lot of senators, on both sides of the aisle, who have seen what Walt Minnick has done. He is a conservative Democrat from Idaho and he proposed an amendment to the House bill that, instead of having a CFPA, would have a council — within each regulator would have an office of consumer protection and education that would get together, talk about best practices, talk about what they’re seeing in the marketplace, in lieu of a CFPA…It would marry consumer protection with the prudential regulator.

Watch it:

CNBC’s Becky Quick pointed out the obvious, noting that such a council would have “no real teeth in being able to implement anything.” Indeed, look at Nichols’ description of what the council would do — “talk” about this and that, but take no action.

Of course, the biggest financial firms in the country are loath to see a CFPA with rule-making and enforcement authority come into being. And they’re joined by Senate Republicans, who as Ryan Grim noted, “consider [the CFPA] as threatening as their current arch-nemesis regulator: the Environmental Protection Agency.” “From the Republican point of view, the idea of a separate agency is still anathema,” said Sen. Robert Bennett (R-UT).

But an independent agency with rule-writing and enforcement authority is exactly what we need to even the playing field between big banks and consumers. “For reform groups, this effort will not be successful without a stand-alone consumer agency,” said Graham Steele, policy counsel with Public Citizen’s Congress Watch. “These [bank] regulators repeatedly prioritized banks’ business practices over consumers’ financial security.” And only an independent agency that is on even-footing with the bank regulators can actively ensure that such pernicious practices don’t reemerge.