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A few weeks back I looked at the prospects for meaningful financial sector reform in the US, and ended on a decidedly pessimistic note. To recap, health care and climate change will soak the congressional agenda and shrink Obama's political capital, leaving an overhaul of the nation's financial regulatory structure for a less accommodating political environment in 2010.

The Politico agrees, in a wonky kinda way, with this interesting look at the impact of Ted Kennedy's death on the prospects for financial sector reform. Senator Chris Dodd, current chair of the Senate Banking, Housing and Urban Development Committee (financial sector reform), is next in line for the chair of the Senate Health, Education, Labor and Pensions Committee (health care reform). Following Kennedy's death, and in need of high-profile achievements in the midst of an uphill reelection bid, Dodd might jump ship from financial to health reform.

If Dodd does switch chairs, what would be the implications for the reform effort? Most importantly, the financial services industry would gain a major ally in Senator Tim Johnson, the next Dem in line for the Banking chair. By one account he has been a vigorous opponent of capping credit card fees/rates, proponent of 'voluntary' industry standards, and anti-mortgage renegotiation. The financial industry is also a major financial backer of the Senator.

Dodd has also been a big proponent of the proposed consumer protection agency, something Johnson, as a friend of credit card and mortgage lenders, would likely attempt to kill or diminish beyond recognition.

Dodd is often accused of being too close to the financial services industry, which he undoubtedly is, but to his credit he has been a driving force behind the president's reform proposals and instrumental in reforming the credit card industry. Switching committees would be a blow to the reform agenda.

Stay tuned...