Democratic Senator Christopher Dodd pitched lawmakers Monday to support a bill aimed at overhauling America's complex web of financial regulation.

Senator Christopher Dodd, flanked by U.S. President Barack Obama and House financial services committee chair Barney Frank, must lobby support for his financial reform bill this week. (Gerald Herbert/Associated Press)

Combining Obama administration and Republican priorities, the leading Senate author of a sweeping rewrite of U.S. financial regulations is looking for consensus with a proposal that neither side of the political spectrum is ready to embrace.

"We must restore responsibility and accountability in our financial system to give Americans confidence that there is a system in place that works for and protects them," Dodd said at a news conference on Monday. "We must create a sound foundation to grow the economy and create jobs."

The bill trumpeted by the chairman of the Senate banking committee would expand the powers of the Federal Reserve and create a consumer protection entity with less authority than President Barack Obama initially demanded.

The bill would also restrict the size and interconnections of large financial institutions once deemed "too big to fail," tame previously unregulated shadow markets with new restrictions, and create a dismantling mechanism for failing financial giants without a bailout from taxpayers.

The bill has the ultimate goal of avoiding a repeat of the financial collapse that brought Wall Street and the global economy to its knees 18 months ago.

Dodd stood alone at the news conference announcing the plan's details, emblematic of the uphill battle he faces to get lawmakers on his side.

Opposition mounts

While altering earlier versions of the bill to try to appeal to all sides, Dodd has found new opposition from his Republican colleagues, even as Democrats inside and outside the finance committee and consumer advocates lobby for more change in his proposals.

"Members have to make up their minds," Dodd said Sunday in an interview with The Associated Press. "While they may not like everything here, I'm not going to give them much room to say we shouldn't do anything."

Dodd's main concession from a proposal he pitched four months ago is that the proposal would actually expand the powers of the Fed, an agency that has taken a lot of criticism for its stewardship of the economy.

The Federal Reserve would gain oversight of all financial firms that are considered the largest and most interconnected. That's an approach favoured by the Obama administration, as opposed to Dodd's earlier proposal for a new, single national regulator to oversee all banks.

The Fed would, however, lose supervision over smaller bank holding companies with less than $50 billion in assets. In addition, bank holding companies, such as Goldman Sachs and Morgan Stanley, would not be able to alter their status to avoid Fed oversight. The measure is being called the "Hotel California provision" because firms can enter Fed supervision but can never leave.

'He's offering a faux consumer protection agency that holds little promise to be effective in the long run.'—Consumer advocate John Taylor

The Fed would also house a consumer protection agency, to be headed by a presidential appointee.

The body, the idea of which has rankled consumer advocates, would have an independent source of funds not subject to congressional appropriations.

But its power to write regulations would be subject to review by a council of regulators that could veto consumer rules by a two-thirds vote.

John Taylor, head of the National Community Reinvestment Coalition, a consumer advocacy group, said Dodd was "capitulating to the industry's interests."

"He's offering a faux consumer protection agency that holds little promise to be effective in the long run," Taylor said.

The plan does, however, allow states enhanced ability to enforce consumer rules on a state level, something state attorneys general and the Obama administration have called for. Financial regulations approved by the House in December gave states more leeway to write and police their own consumer laws.

The plan unveiled Monday is different still from plans that were circulating in recent weeks, before Dodd decided it was time to stop negotiating and write a bill.

The consumer protection rules in particular veered from the agreement Dodd and Republican Senator Bob Corker reportedly reached last week. Though he called it a vast improvement over what Dodd had first recommended late last year, Corker said in an interview Sunday he didn't expect to support it.

"He has moved the bill to the left of where we were Thursday in order to ensure that he has all the Democratic members with him," Corker said.

The bill also provides shareholders with a say on pay and corporate affairs with a non-binding vote on executive compensation, something several corporations have moved toward in recent months.

With some more amendments, the bill could win bipartisan support, he said.

With files from The Associated Press