Financial reform, chairman Bernanke and Senator Dodd

Most important, Dodd would end the relative independence in political terms of the Federal Reserve Board by expanding Senate influence in selecting the members of the regional bank boards around the nation and requiring approval of their chairmen.

A new Agency for Financial Stability would separate the Fed from bank supervision, while simultaneously leaving responsibility for monetary policy in place. Proposing no change in accountability, while removing principal tools for ensuring compliance, makes absolutely no management sense, but is guaranteed to generate headlines. Dodd also targets the FDIC (Federal Deposit Insurance Corporation), which both insures and regulates banks. He would move regulatory responsibility to a new agency.

The senator also wants to freeze interest rates on credit cards immediately and extend the tax credit for first time home buyers, now due to expire on December 1. This directly reflects understandable public anger at banks which have drastically increased such fees in the current recession.

Some of the suggestions no doubt have merit, but the very comprehensive nature of the senator's proposals will undercut effective evaluation. As the year draws to a close, Congress faces mountains of proposed legislation, especially the comprehensive health care initiatives.

Financial rule changes also frequently bring unintended consequences. For instance, last May Congress decreed that banks must give consumers advance notice before raising rates. To assist the banks, a forty-five day grace period was added before this would take effect. In consequence, many banks rushed immediately drastically to increase rates.

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