Dodd–Frank Wall Street Reform and Consumer Protection Act
The Fed is required to establish prudent standards for the institutions they supervise that include: Archived from the original on 5 May
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You have previously logged in with a different account. Millions of Americans lost their jobs in the Great Depression, and The Stamp Act of was the first internal tax levied directly on American colonists by the British government. The Great Recession was a global economic downturn that devastated world financial markets as well as the banking and real estate industries. The crisis led to increases in home mortgage foreclosures worldwide and caused millions of people to lose their life savings, their jobs When the United States Treasury began investigating Capone for income tax The Townshend Acts were a series of measures, passed by the British Parliament in , that taxed goods imported to the American colonies.
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Financial institutions must increase the amount of money they hold in reserve to account for potential future slumps. This agency works with bank regulators to stop risky lending and other practices that could hurt American consumers. It also oversees credit and debit agencies as well as certain payday and consumer loans. As the finalized bill emerged from conference, President Obama said that it included 90 percent of the reforms he had proposed.
The bills that came after Obama's proposal were largely consistent with the proposal, but contained some additional provisions and differences in implementation.
The Volcker Rule was not included in Obama's initial June proposal, but Obama proposed the rule  later in January , after the House bill had passed. The initial version of the bill passed the House largely along party lines in December by a vote of —,  and passed the Senate with amendments in May with a vote of 59—39  again largely along party lines. One provision on which the White House did not take a position  and remained in the final bill  allows the SEC to rule on " proxy access " — meaning that qualifying shareholders, including groups, can modify the corporate proxy statement sent to shareholders to include their own director nominees, with the rules set by the SEC.
The " Durbin amendment "  is a provision in the final bill aimed at reducing debit card interchange fees for merchants and increasing competition in payment processing. The provision was not in the House bill;  it began as an amendment to the Senate bill from Dick Durbin  and led to lobbying against it.
The New York Times published a comparison of the two bills prior to their reconciliation. The House passed the conference report, — on June 30, The Dodd—Frank Wall Street Reform and Consumer Protection Act is categorized into sixteen titles and, by one law firm's count, it requires that regulators create rules, conduct 67 studies, and issue 22 periodic reports. To promote the financial stability of the United States by improving accountability and transparency in the financial system, to end "too big to fail", to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.
The Act changes the existing regulatory structure, by creating a number of new agencies while merging and removing others in an effort to streamline the regulatory process, increasing oversight of specific institutions regarded as a systemic risk, amending the Federal Reserve Act , promoting transparency, and additional changes. The Act's intentions are to provide rigorous standards and supervision to protect the economy and American consumers, investors and businesses; end taxpayer-funded bailouts of financial institutions; provide for an advanced warning system on the stability of the economy; create new rules on executive compensation and corporate governance; and eliminate certain loopholes that led to the economic recession.
All of the new agencies, and some existing ones that are not currently required to do so, are also compelled to report to Congress on an annual or biannual basis, to present the results of current plans and explain future goals. Of the existing agencies, changes are proposed, ranging from new powers to the transfer of powers in an effort to enhance the regulatory system.
The institutions affected by these changes include most of the regulatory agencies currently involved in monitoring the financial system Federal Deposit Insurance Corporation FDIC , U. As a practical matter, prior to the passage of Dodd—Frank, investment advisers were not required to register with the SEC if the investment adviser had fewer than 15 clients during the previous 12 months and did not hold itself out generally to the public as an investment adviser. The act eliminates that exemption, thereby rendering numerous additional investment advisers, hedge funds, and private equity firms subject to new registration requirements.
Certain non-bank financial institutions and their subsidiaries will be supervised by the Fed  in the same manner and to the same extent as if they were a bank holding company. To the extent that the Act affects all federal financial regulatory agencies, eliminating one the Office of Thrift Supervision and creating two Financial Stability Oversight Council and the Office of Financial Research in addition to several consumer protection agencies, including the Bureau of Consumer Financial Protection, this legislation in many ways represents a change in the way America's financial markets will operate in the future.
Few provisions of the Act became effective when the bill was signed. Title I, or the "Financial Stability Act of ",  outlines two new agencies tasked to monitor systemic risk and research the state of the economy and clarifies the comprehensive supervision of bank holding companies by the Federal Reserve.
These two agencies are designed to work closely together. The Council is formed of 10 voting members, 9 of whom are federal regulators and 5 non-voting supporting members, to encourage interagency collaboration and knowledge transfer.
Title I introduced the ability to impose stricter regulations on certain institutions by classifying them as SIFI's systemically important financial institutions ; according to Paul Krugman , this has allowed institutions to reduce risk-taking so they could to avoid such classification. Under section d, certain institutions must prepare resolution plans so-called "living wills" , the first round of which was rejected by the Federal Reserve System in The Financial Stability Oversight Council is tasked to identify threats to the financial stability of the United States, promote market discipline , and respond to emerging risks in order to stabilize the United States financial system.
At a minimum, it must meet quarterly. The Council is required to report to Congress on the state of the financial system, and may direct the Office of Financial Research to conduct research. The Office of Financial Research is designed to support the Financial Stability Oversight Council through data collection and research. The Director has subpoena power and may require from any financial institution bank or non-bank any data needed to carry out the functions of the office.
It is intended to be self-funded through the Financial Research Fund within 2 years of enactment, with the Federal Reserve providing funding in the initial interim period. In many ways, the Office of Financial Research is to be operated without the constraints of the Civil Service system. For example, it does not need to follow federal pay scale guidelines see above , and it is mandated that the office have workforce development plans  that are designed to ensure that it can attract and retain technical talent, which it is required to report about Congressional committees for its first 5 years.
Before Dodd—Frank, federal laws to handle the liquidation and receivership of federally regulated banks existed for supervised banks, insured depository institutions, and securities companies by the FDIC or Securities Investor Protection Corporation SIPC. Dodd—Frank expanded these laws to potentially handle insurance companies and non-bank financial companies, and changed these liquidation laws in certain ways.
Provided that the Secretary of Treasury, in consultation with the President, may also determine to appoint a receiver for a financial company. When a financial institution is placed into receivership under these provisions, within 24 hours, the Secretary shall report to Congress.
Also, within 60 days, there shall be a report to the general public. In taking action under this title, the FDIC shall comply with various requirements: To the extent that the Act expanded the scope of financial firms that may be liquidated by the federal government, beyond the existing authorities of the FDIC and SIPC, there had to be an additional source of funds, independent of the FDIC's Deposit Insurance Fund , used in case of a non-bank or non-security financial company's liquidation.
Initially, the Fund is to be capitalized over a period no shorter than five years, but no longer than ten; however, in the event the FDIC must make use of the Fund before it is fully capitalized, the Secretary of the Treasury and the FDIC are permitted to extend the period as determined necessary. The severity of the assessment fees can be adjusted on an as-needed basis depending on economic conditions and other similar factors and the relative size and value of a firm is to play a role in determining the fees to be assessed.
To the extent that a covered financial company has a negative net worth and its liquidation creates an obligation to the FDIC as its liquidator, the FDIC shall charge one or more risk-based assessment such that the obligation will be paid off within 60 months 5 years of the issuance of the obligation.
Under certain conditions, the assessment may be extended to regulated banks and other financial institutions. The matrix shall take into account: In the event that the Fund and other sources of capital are insufficient, the FDIC is authorized to buy and sell securities on behalf of the company or companies in receivership to raise additional capital. Established inside the U. Bankruptcy Court for the District of Delaware, the Panel is tasked with evaluating the conclusion of the Secretary of Treasury that a company is in or in danger of default.
In his appointments, the Chief Judge is instructed to weigh the financial expertise of the candidates. In all appellate events, the scope of review is limited to whether the decision of the Secretary that a company is in or in danger of default is supported by substantial evidence. Also, it is intended to reduce competition and overlaps between different regulators by abolishing the Office of Thrift Supervision and transferring its power over the appropriate holding companies to the Board of Governors of the Federal Reserve System , state savings associations to the FDIC, and other thrifts to the Office of the Comptroller of the Currency.
Title IV, or the "Private Fund Investment Advisers Registration Act of ",  requires certain previously exempt investment advisers to register as investment advisers under the Investment Advisers Act of Title V - Insurance is split into two subtitles: Federal Insurance Office, and B. The Office is headed by a director appointed for a career-reserved term by the Secretary of the Treasury.
Generally, the Insurance Office may require any insurer company to submit such data as may be reasonably required in carrying out the functions of the Office. A state insurance measure shall be preempted if, and only to the extent that the Director determines that the measure results in a less favorable treatment of a non-US insurer whose parent corporation is located in a nation with an agreement or treaty with the US. Subtitle B, also called the " Nonadmitted and Reinsurance Reform Act of "  applies to nonadmitted insurance and reinsurance.
Regarding to nonadmitted insurance, the Act provides that the placement of nonadmitted insurance will only be subject to the statutory and regulatory requirements of the insured's home state, and that no state, other than the insured's home state, may require a surplus lines broker to be licensed to sell, solicit, or negotiate nonadmitted insurance respecting the insured.
Furthermore, no bank with a direct or indirect relationship with a hedge fund or private equity fund "may enter into a transaction with the fund, or with any other hedge fund or private equity fund that is controlled by such fund" without disclosing the relationship's full extent to the regulating entity, and assuring that there is no conflict of interest.
Also, it must comply with the Act within two years of its passing, although it may apply for time extensions. Responding to the Volcker Rule and anticipating of its ultimate impact, several commercial banks and investment banks operating as bank holding companies have already begun downsizing or disposing their proprietary trading desks. The rule distinguishes transactions by banking entities from transactions by nonbank financial companies supervised by the Federal Reserve Board.
The rule also bans conflict of interest trading. Financial instruments have the means given the terms in section 1a of the Commodity Exchange Act 7 U. The Act repeals exemption from regulation for security-based swaps under the Gramm—Leach—Bliley Act : The title provides that, "Except as provided otherwise, no Federal assistance may be provided to any swaps entity with respect to any swap, security-based swap, or other activity of the swaps entity. Title VIII, called the "Payment, Clearing, and Settlement Supervision Act of ",  aims to mitigate systemic risk within and promote stability in the financial system by tasking the Federal Reserve to create uniform standards for the management of risks by systemically important financial organizations and institutions by providing the Fed with an "enhanced role in the supervision of risk management standards for systemically important financial market utilities; strengthening the liquidity of systemically important financial market utilities; and providing the Board of Governors an enhanced role in the supervision of risk management standards for systemically important payment, clearing, and settlement activities by financial institutions.
Title IX, sections to , known as the "Investor Protections and Improvements to the Regulation of Securities",  revises the Securities and Exchange Commission 's powers and structure, as well as credit rating organizations and the relationships between customers and broker-dealers or investment advisers. This title contains ten subtitles, lettered A through J. Subtitle A provides authority for the SEC to impose regulations requiring " fiduciary duty " by broker-dealers to their customers.
It also requires the SEC to study the standards of care that broker-dealers and investment advisers apply to their customers and to report to Congress on the results within 6 months. Subtitle B gives the SEC further powers of enforcement, including a "whistleblower bounty program"  which is partially based upon the successful "qui tam" provisions of the Amendments to the False Claims Act as well as an IRS whistleblower reward program Congress created in The law also provides job protections for SEC whistleblowers and promises confidentiality for them.
Recognizing credit ratings that credit rating agencies had issued, including nationally recognized statistical rating organizations NRSROs , are matters of national public interest, that credit rating agencies are critical "gatekeepers" in the debt market central to capital formation, investor confidence, and the efficient performance of the United States economy, Congress expanded regulation of credit rating agencies.
Subtitle C cites findings of conflicts of interest and inaccuracies during the recent financial crisis contributed significantly to the mismanagement of risks by financial institutions and investors, which in turn adversely impacted the US economy as factors necessitating increased accountability and transparency by credit rating agencies. Subtitle C grants the Commission some authority to either temporarily suspend or permanently revoke the registration of an NRSRO respecting a particular class or subclass of securities if after noticing and hearing that the NRSRO lacks the resources to produce credit ratings with integrity.
Moreover, Subtitle C requires the SEC to conduct a study on strengthening the NRSRO's independence, and it recommends the organization to utilize its rulemaking authority to establish guidelines preventing improper conflicts of interest arising from the performance of services unrelated to the issuance of credit ratings such as consulting, advisory, and other services.
In Subtitle D, the term "Asset-Backed Security" is defined as a fixed-income or other security collateralized by any self-liquidating financial asset, such as a loan, lease, mortgage, allowing the owner of the Asset-Backed Security to receive payments depending on the cash flow of the ex. For regulation purposes, Asset-Backed Securities include but are not limited to: The regulations are to prescribe several asset classes with separate rules for securitizers, including but are not limited to residential mortgages, commercial mortgages, commercial loans, and auto loans.
Both the SEC and the federal banking agencies may jointly issue exemptions, exceptions, and adjustments to the rules issues provided that they: The SEC may classify issuers and prescribe requirements appropriate for each class of issuers of asset-backed securities. Within one year of enactment, the SEC must issue rules directing the national securities exchanges and associations to prohibit the listing of any security of an issuer not in compliance of the requirements of the compensation sections.
And once every six years, there should be a submitted to shareholder vote whether the required approval of executive compensation should be usually that once every three years. The company must also disclose to shareholders whether any employee or member of the board of directors is permitted to purchase financial instruments designed to hedge or offset any decrease in the market value of equity securities that are part of a compensation package.
Subtitle F contains various managerial changes intended to increase and implement the agency's efficiency, including reports on internal controls , a triennial report on personnel management by the head of the GAO the Comptroller General of the United States , a hotline for employees to report problems in the agency, a report by the GAO on the oversight of National Securities Associations , and a report by a consultant on reform of the SEC. Under Subtitle J, the SEC will be funded through "match funding", which will in effect mean that its budget will be funded through filing fees.
Subtitle G provides the SEC to issue rules and regulations including a requirement permitting a shareholder to use a company's proxy solicitation materials for nominating individuals to membership on the board of directors. This provision of the statute creates a guarantee of trust correlating a municipal advisor who provide advice to state and local governments regarding investments  with any municipal bodies providing services.
Also, it alters the make-up of the Municipal Securities Rulemaking Board "MSRB" and mandates that the Comptroller General conducts studies in relation to municipal disclosure and municipal markets. The new MSRB will be composed of fifteen individuals. Also, it will have the authority to regulate municipal advisors and will be permitted to charge fees regarding trade information.
Furthermore, it is mandated that the Comptroller General makes several recommendations, which must be submitted to Congress within 24 months of enacting the law. Its provision allows the SEC to authorize necessary rules respecting securities for borrowing.
The SEC shall, as deemed appropriate, exercise transparency within this sector of the financial industry. The new Bureau regulates consumer financial products and services in compliance with federal law. The Bureau is not placed within the Fed, but it operates independently.
Within the Bureau, a new Consumer Advisory Board assists the Bureau and informs it of emerging market trends. The Consumer Financial Protection Bureau can be found on the web. The Bureau was formally established when Dodd—Frank was enacted, on July 21, After a one-year "stand up" period, the Bureau obtained enforcement authority and began most activities on July 21, A new position is created on the Board of Governors , the "Vice Chairman for Supervision", to advise the Board in several areas and: Additionally, the GAO is now required to perform several different audits of the Fed: The Fed is required to establish prudent standards for the institutions they supervise that include: The Fed may require supervised companies to "maintain a minimum amount of contingent capital that is convertible to equity in times of financial stress".
Title XI requires companies supervised by the Fed to periodically provide additional plans and reports, including: The title requires that in determining capital requirements for regulated organizations, off-balance-sheet activities shall be taken into consideration, being those things that create an accounting liability such as, but not limited to: Title XII, known as the "Improving Access to Mainstream Financial Institutions Act of ",  provides incentives that encourage low- and medium-income people to participate in the financial systems.
Amendments to the Housing and Economic Recovery Act of and other sections of the federal code to specify that any proceeds from the sale of securities purchased to help stabilize the financial system shall be: