Dodd reform bill would reduce U.S. deficit: report

WASHINGTON (Reuters) - The Democrat’s Senate financial reform bill would cut the U.S. budget deficit by $21 billion over the next 10 years, according to a cost estimate by the Congressional Budget Office obtained by Reuters.

The estimated reduction in the budget deficit over the 2011-2020 period stems largely from charging the financial industry assessments for a fund to liquidate large, troubled financial firms, the office said.

The bill authored by Senate Banking Committee Chairman Christopher Dodd is designed to ensure no financial firm is too big to fail and the senate may start debating it next week.

However, the idea of creating a $50 billion liquidation fund has been criticized by banks and Republicans and is not favored by the Obama administration.

The congressional office estimates the expenses of the resolution fund would ultimately exceed income from new assessments paid by financial firms, and thus add to the deficit in later years.

The $21 billion deficit reduction stemming from the resolution fund would make a relatively small dint in the U.S. budget shortfall. The United States is projected to post a record $1.5 trillion deficit this year. Deficits are projected to fall in coming years as the economy recovers before rising again due to an aging population.

Dodd’s bill would also create a bureau to regulate consumer financial products such as mortgages, as well as new rules to regulate derivatives and hedge funds. The bill aims to rein in banks’ risky activities and revamp financial regulation in wake of the worst economic crisis in decades.

The congressional office said it has not determined whether the estimated costs under the Democrats’ bill would be smaller or larger than the costs of other approaches to addressing future financial crises and the risks they pose to the economy.

Senate Democratic leaders plan to seek a key procedural vote on the financial reform bill on Thursday, with an eye toward a final Senate vote next Monday, a senior Democratic aide said.

The Senate version would then have to be reconciled with the version passed by the House of Representatives late last year.

Reporting by Rachelle Younglai and Karey Wutkowski; Editing by Andrew Hay