Congress returned to session last week following the Fourth of July district work period. On Thursday, July 15, 2010, the Senate approved, by a 60-39 vote, the conference report for H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act. President Obama is expected to sign the bill into law this week.
Summary by Title
I. Financial Stability – establishes a new oversight structure, the Financial Stability Oversight Council. This entity will determine which nonbanks will be subject to regulation, and will make recommendations to the Fed for the implementation of the increased prudential standards to be applied to bank-holding companies with total consolidated assets of $50 billion or more and to designated nonbanks.
II. Orderly Liquidation Authority – authorizes federal authorities to place both “large bank-holding companies” and “significant nonbanks” in receivership under Federal control for liquidation in the event that the institution is deemed to significantly threaten the stability of the broader financial system.
III. Enhancing Financial Institution Safety and Soundness – eliminates the Office of Thrift Supervision (“OTS”). Under the new legislation, the Fed will assume responsibility for regulating savings and loan holding companies (“SLHCs”), the OCC will assume responsibility for federal savings associations, and the FDIC will have responsibility for State savings associations. The transfer of functions is generally expected to occur one year from the date of enactment. The Act also provides for a permanent increase of FDIC deposit insurance per depositor from $100,000 to $250,000, and modifies elements of the deposit insurance assessment program. This includes increasing the minimum reserve ratio for the Deposit Insurance Fund from 1.15 percent to 1.35 percent, but requires the FDIC to offset the effect of the increase on institutions with assets of less than $10 billion.
IV. Regulation of Advisers to Hedge Funds and Others – requires that advisors to “private funds” register with the SEC. “Private funds” are defined as any issuer that would be an “investment company,” including most private equity funds, hedge funds, and venture capital funds.
V. Insurance – creates the Federal Insurance Office, a new federal office charged with studying the insurance industry and reporting to Congress on recommendations concerning federal regulation of insurance. Previously under state supervision, this provision will subject the activities of the insurance industry to federal scrutiny.
VI. Improvements to Regulation of Bank and Savings Association Holding Companies and Depository Institutions – limits the ability of certain bank and bank-related entities to engage in proprietary trading or investing in hedge funds and private equity funds to 3 percent of the entity’s Tier 1 capital. This Title also places new restrictions on acquisitions that would result in a financial company controlling more than 10% of liabilities as defined in the Act, and requires Fed approval for a financial holding company to acquire a company with consolidated assets of more than $10 billion.
VII. Regulation of Over-the-Counter Swaps Markets – prohibits the Fed or the FDIC from providing Federal assistance to insured depository institutions involved in the swaps markets, except for certain swap activities. Additionally, this provision requires clearing and exchange trading for derivatives contracts that are eligible for clearing and accepted by newly established derivatives clearing organizations. The law imposes new capital and margin requirements and various reporting obligations on OTC swap dealers and major OTC swap participants. However, there remains some debate over the correct interpretation of the section governing commercial end users, and whether margining requirements will be required for their hedging swaps. With respect to all of the provisions in this Title, the SEC and CFTC will have joint rulemaking authority.
VIII. Payment, Clearing, and Settlement Supervision – establishes a structure for a systemic approach to ensuring the stability of the payment, clearing and settlement systems.
IX. Investor Protections and Improvements to the Regulation of Securities – imposes risk retention requirements in connection with certain asset-backed securities. Additionally, by reforming the regulation of credit rating agencies, this Title establishes an Investor Advisory Committee charged with providing the SEC with investor perspectives and recommendations. The Title also establishes an Office of Investor Advocate that will be charged with assisting investors and recommending regulatory changes to protect investors, and gives the SEC authority to establish a fiduciary duty standard of care for broker-dealers providing personalized investment advice to a retail customer. This Title requires the SEC to adopt rules mandating that institutional investment managers (Form 13F filers) publicly disclose short sales of securities, and expands the regulation of credit rating agencies, including nationally recognized statistical ratings organizations (“NRSROs”) by the SEC. Additionally, it amends the Sarbanes-Oxley Act to permanently exempt non-accelerated filers from section 404(b) of the Act.
X. Bureau of Consumer Financial Protection – establishes the Bureau of Consumer Financial Protection, which has authority to prohibit practices that it finds to be unfair, deceptive, or abusive, and to mandate particular disclosures and to prohibit or restrict pre-dispute arbitration practices. The Bureau also has responsibility for mortgage reform and enforcement as set forth in Title XVI, the “Mortgage Reform and Anti-Predatory Lending Act.” In addition to creation of the Bureau, this Title also limits interchange fees for debit card transactions (including those involved with certain prepaid card products) to an amount that is deemed to be reasonable under regulations issued by the Fed.
XI. Federal Reserve System Revisions – tightens the conditions under which the Fed may provide emergency assistance to institutions. This Title also authorizes the FDIC to guarantee debts of banks and bank holding companies.
XII. Improving Access to Mainstream Financial Institutions – establishes a program of incentives (that may include grants, and various contracts or agreements) intended to enable low-and moderate-income individuals to establish accounts in an insured depository institution that are appropriate to meet their needs. This Title also establishes a program to provide low-cost, small dollar value loans. These programs would involve loans of $2,500 or less that will be required to be repaid in installments, and that do not have any pre-payment penalty.
XIII. Pay It Back Act – decreases the TARP funds authorized under the Emergency Economic Stabilization Act of 2008 (“EESA”) from $700 billion to $475 billion. This Title mandates that any funds received from the sale of obligations and securities of Fannie Mae, Freddie Mac, or funds provided to a state under the American Recovery and Reinvestment Act (“ARRA”) that are not accepted by the state’s Governor or by the state legislature will be rescinded and placed in the General Fund of the Treasury.
XIV Mortgage Reform and Anti-Predatory Lending Act – places new regulations on mortgage originators and imposes new disclosure requirements and appraisal reforms.
XV. Miscellaneous Provisions – restricts U.S. funding of IMF loans to heavily indebted countries. This Title also declares that trade of conflict minerals in the Congo is helping to finance conflict. It imposes greater safety-related disclosure requirements on companies operating mines, and requires that any resource extraction issuer must include in its annual report all payments made to foreign governments or the Federal Government for the purpose of development of oil, natural gas, or minerals.