Nothing is more unpredictable than a politician freed from the burden of reelection. On Jan. 6, Chris Dodd—the senior Senator from Connecticut and chairman of the banking committee—announced that, in the face of an 11% deficit in local polls, he would not seek a sixth term. Immediately, bank lobbyists, consumer advocates, and Obama Administration advisers wondered what a liberated Dodd might mean for the one interest that unites them: financial regulatory reform.
The quick consensus is that, as a lame duck, Dodd now has far more running room to cut a financial reform deal—even if that deal ends up being tamer than he originally intended. Freed from the pressures of mounting a campaign, Dodd is less beholden to a White House demanding quick passage of the bill. He's also freed from liberal activists demanding a consumer protection agency and from Republicans on his committee arguing that he has been merely acting tough toward Wall Street to win reelection.
The draft reforms that Dodd, one of the most productive legislators in the Senate, initially pushed in November had an anti-industry hue. In a season of public rage directed at Wall Street, Dodd needed to showcase his pro-consumer bona fides. Moderate Democrats and Republicans opposed the Dodd draft, stalling progress and tossing the plausibility of timely reform into serious doubt.
Now, with one eye on his legacy, Dodd may cut a deal to cap his three-decade tenure in the Senate. "It's against his interest to carry anyone's water because at the end of the day it's his legacy," said Sam Geduldig, a financial-services lobbyist with Clark Lytle & Geduldig in Washington.
New Room to Negotiate Not everyone agrees that Dodd's impending retirement will give the financial overhaul new momentum. His exit plans "may embolden the Republicans to try to stall reform, wait Dodd out, and hope for a more Republican-friendly Senate after the election," says Camden Fine, president of the Independent Community Bankers of America.
Still, Dodd's unshackling gives him new room to negotiate. To get a deal done, Dodd might do away with the standalone consumer agency the White House wants but which his committee's ranking Republican, Richard Shelby of Alabama, opposes. A compromise would also likely displease large Wall Street firms by stripping the Federal Reserve of much of its supervisory power, giving oversight to a new national banking regulator that would combine four existing agencies and would not favor heavyweight banks over smaller ones.
The interests of Dodd's past campaign donors from the Street—such as Citigroup (C) and hedge fund SAC Capital Advisors—no longer matter as much. In fact, it was Dodd's ties to high finance and to mortgage firm Countrywide Financial, that drove much of his constituents' displeasure. The money game may now shift to Senator Tim Johnson, a South Dakota Democrat and victim of a near-fatal stroke in 2006, who is in line to succeed Dodd as Senate Banking chairman.
If Dodd gets a bipartisan bill that can attract the 60 votes needed to clear Senate procedural hurdles, it would be a sweet career-ending win. He would still need to close the gap with a far different House bill, though he may get help from a White House hungry for a major policy achievement. "The fact of the matter is, the Administration will take whatever the Senate passes," said Lendell Porterfield, a former Shelby staffer who represents financial-services companies.