WASHINGTON – The senator trying to rewrite the nation's financial industry rules is dropping plans to create a stand-alone consumer financial protection agency and give a single regulator the power to oversee all banks, according to people familiar with the evolving proposal.

Backing away from the proposal he offered four months ago, the chairman of the Senate Banking, Housing and Urban Affairs Committee is now incorporating GOP ideas, and yet not one Republican senator is coming along so far.

Sen. Christopher Dodd's new regulatory scheme, expected to be released Monday, follows months of bipartisan negotiations that abruptly ended last week when he said it was time for his committee to consider a bill.

The legislation, a priority for President Barack Obama, aims to avoid a repeat of the financial crisis that caused the Wall Street meltdown 18 months ago.

Those familiar with the plan described it on condition of anonymity because they were not authorized to speak publicly. The details, they said, remained in flux.

Dodd, who's not running for re-election this fall, is planting himself squarely between a united bloc of Republicans on his committee and Democrats who have insisted on a strong, autonomous consumer agency. He's also facing Democratic pressure from outside his committee to take stronger measures to cut down the size of banks and to limit their activities.

In a signal that Republicans were not yet prepared to support Dodd's efforts, the committee's 10 Republicans urged Dodd in a letter Friday not to push the bill through before the Easter recess, which begins March 27.

Dodd wants to create a special council that would watch over the financial markets, looking for trouble spots that could threaten the economy. The council would have an independent chairman appointed by the president. Members would include the treasury secretary, the chairman of the Federal Reserve, and the heads of several regulatory agencies.

The Fed, which would have lost all its regulatory powers under Dodd's initial plan, would emerge with fewer banks to supervise, but retain the power to oversee some of the largest nonbank financial institutions.

The central bank, faulted for not seeing the recent crisis, would oversee all bank holding companies with assets of more than $50 billion — about 50 institutions in all. That's more than Dodd had considered as early as last week. Currently, the Fed supervises all bank holding companies.

The Fed would still supervise state-charted banks and the U.S. branches of foreign banks.

But the Fed would oversee nonbanks that the council determines are so large and interconnected that their failure would threaten the financial system.

Dodd's other significant shift is on consumer protections, after initially adopting Obama's plan for a separate agency.

The new bill would create a division within the Fed that would have the power to write regulations governing a range of consumer financial transactions, from mortgages to payday loans to credit cards. Those rules could be vetoed by a two-thirds vote of the council. The consumer agency would not have enforcement powers; other regulators would police the various parts of the financial industry.

This proposal is similar to what Dodd was negotiating with Tennessee Sen. Bob Corker, a Republican who had stepped into the talks after Dodd reached an impasse with Alabama Sen. Richard Shelby, the committee's top Republican.

Unlike Corker's plan, though, Dodd would let states write and enforce their own tougher consumer rules. Dodd's bill would incorporate language similar to the House bill, which would allow those state rules to be challenged in court if they "materially interfere" with the business of banking. Bankers have lobbied heavily against the right of states to write their own laws, fearing a patchwork of regulations.

Among other likely provisions in Dodd's proposal:

_Institutions that are bank holding companies, such as Goldman Sachs and Morgan Stanley, could not alter their status to avoid Fed oversight; thus they could enter Fed supervision but never leave.

_Unlike the House bill, with new requirements on broker-dealers and investment advisers, Dodd's measure would call for a study of potential investor protections before writing any new rules.

_Like the House bill, the legislation will require clearinghouses for most derivative trades, forcing them out into the open. Derivatives are instruments whose value depends on an underlying asset, such as mortgages or stocks. They can help hedge risks. But derivatives can also produce steep losses, or huge profits, if the value of their underlying asset sinks.

Banks and corporations are pushing for certain exemptions from central clearing and reporting requirements. It was unclear what those exemptions would be.


On the Net:

Senate Banking, Housing and Urban Affairs Committee: http://banking.senate.gov/public/