WASHINGTON -- President Barack Obama's stuttering bid to rein in the largest US banks got a shot in the arm Monday, as a key Senate ally unveiled a package of bank reforms described as the most sweeping in 80 years.
Senate banking committee chairman Christopher Dodd outlined plans to regulate the massive US banking sector, warning an overhaul was needed to prevent another large-scale crisis that the US economy might not survive.
Speaking two years after the investment bank Bear Stearns collapsed -- the opening salvo in a crisis that engulfed the globe -- Dodd called for more government control over "too-big-to-fail" banks and for reform of a regulatory system that "remains hopelessly inadequate."
"If there was a watchdog on duty, it did not bark," Dodd said, outlining reforms.
The packages' highlights include the creation of a consumer protection agency and a powerful committee to monitor systemic risks caused by large firms.
The bill would also clamp down on risky investment instruments, which fueled the crisis, and give shareholders a say on big executive bonuses.
Dodd warned that any efforts to delay reform invited calamity.
"Neither I nor anyone else can tell you with any degree of certainty that the American economy could survive another crisis of this magnitude," he said.
But the reforms have been the subject of fierce lobbying in Washington, with some of the city's biggest political hitters involved in tussles over what the rules should be, and who should enforce them.
Dodd's decision to house the consumer protection agency at the Federal Reserve was met with barely concealed fury by some of his Democratic colleagues who accused him rewarding a watchdog that failed miserably to prevent the worst financial crisis in decades.
In a bid to address some of those criticisms, Dodd said the agency would be headed by a director appointed by Obama, and would have the power to write rules governing all financial entities.
Today Americans face an alphabet soup of financial regulators. Depending on the complaint, redress might be found through the Federal Deposit Insurance Corporation, the Federal Reserve, the Office of the Comptroller of the Currency, the National Credit Union Administration or the Treasury's Office of Thrift Supervision.
Supporters say a new, powerful, independent agency could transform policing of everything from mortgages, to credit cards to banking fees.
But in private, those close to the discussions accuse Dodd of watering down reforms, pandering to Republicans and the banking lobby in order to strike a deal before he retires later this year.
Ahead of the announcement, markets appeared increasingly concerned that political bickering will cause further uncertainty.
"One thing we know: The Democrats and Republicans are going to fight over it. And that is my worry." said Joel Naroff of Naroff Economic Advisors.
"Changing around the Fed and financial regulations in this political environment is dangerous. Politicians will likely disagree even if the proposals are good simply because they came from the other side."
Dodd's proposals will face a vote in committee later this month.