Posted by Lew Rockwell on June 17, 2011 04:36 PM
BRIEF SUMMARY OF THE DODD-FRANK WALL STREET
REFORM AND CONSUMER PROTECTION ACT
Create a Sound Economic Foundation to Grow Jobs, Protect Consumers, Rein in
Wall Street and Big Bonuses, End Bailouts and Too Big to Fail, Prevent Another
Financial Crisis Years without accountability for Wall Street and big banks brought us
the worst financial crisis since the Great Depression, the loss of 8 million jobs,
failed businesses, a drop in housing prices, and wiped out personal savings.
The failures that led to this crisis require bold action.
We must restore responsibility and accountability in our financial system to give Americans
confidence that there is a system in place that works for and protects them.
We must create a sound foundation to grow the economy and create jobs.
HIGHLIGHTS OF THE LEGISLATION
Consumer Protections with Authority and Independence: Creates a new
independent watchdog, housed at the Federal Reserve, with the authority to
ensure American consumers get the clear, accurate information they need to
shop for mortgages, credit cards, and other financial products, and protect
them from hidden fees, abusive terms, and deceptive practices.
Ends Too Big to Fail Bailouts: Ends the possibility that taxpayers will be
asked to write a check to bail out financial firms that threaten the economy
by: creating a safe way to liquidate failed financial firms; imposing tough
new capital and leverage requirements that make it undesirable to get too
big; updating the Fed’s authority to allow system-wide support but no longer
prop up individual firms; and establishing rigorous standards and
supervision to protect the economy and American consumers, investors and
Advance Warning System: Creates a council to identify and address systemic
risks posed by large, complex companies, products, and activities before they
threaten the stability of the economy. Transparency & Accountability for Exotic Instruments: Eliminates
loopholes that allow risky and abusive practices to go on unnoticed and
unregulated -- including loopholes for over-the-counter derivatives, assetbacked securities, hedge funds, mortgage brokers and payday lenders.
Executive Compensation and Corporate Governance: Provides shareholders
with a say on pay and corporate affairs with a non-binding vote on executive
compensation and golden parachutes.
Protects Investors: Provides tough new rules for transparency and
accountability for credit rating agencies to protect investors and businesses.
Enforces Regulations on the Books: Strengthens oversight and empowers
regulators to aggressively pursue financial fraud, conflicts of interest and
manipulation of the system that benefits special interests at the expense of
American families and businesses.
STRONG CONSUMER FINANCIAL PROTECTION WATCHDOG
The Consumer Financial Protection Bureau
Independent Head: Led by an independent director appointed by the
President and confirmed by the Senate.
Independent Budget: Dedicated budget paid by the Federal Reserve
Independent Rule Writing: Able to autonomously write rules for
consumer protections governing all financial institutions – banks and nonbanks – offering consumer financial services or products.
Examination and Enforcement: Authority to examine and enforce
regulations for banks and credit unions with assets of over $10 billion and
all mortgage-related businesses (lenders, servicers, mortgage brokers, and
foreclosure scam operators), payday lenders, and student lenders as well
as other non-bank financial companies that are large, such as debt
collectors and consumer reporting agencies. Banks and Credit Unions
with assets of $10 billion or less will be examined for consumer complaints
by the appropriate regulator.
Consumer Protections: Consolidates and strengthens consumer protection
responsibilities currently handled by the Office of the Comptroller of the Currency,
Office of Thrift Supervision, Federal Deposit Insurance Corporation,
Federal Reserve, National Credit Union Administration,
the Department of Housing and Urban Development, and Federal Trade
Will also oversee the enforcement of federal laws intended to
ensure the fair, equitable and nondiscriminatory access to credit for
individuals and communities.
Able to Act Fast: With this Bureau on the lookout for bad deals and
schemes, consumers won’t have to wait for Congress to pass a law to be
protected from bad business practices.
Educates: Creates a new Office of Financial Literacy.
Consumer Hotline: Creates a national consumer complaint hotline so
consumers will have, for the first time, a single toll-free number to report
problems with financial products and services.
Accountability: Makes one office accountable for consumer protections.
With many agencies sharing responsibility, it’s hard to know who is
responsible for what, and easy for emerging problems that haven’t
historically fallen under anyone’s purview, to fall through the cracks.
Works with Bank Regulators: Coordinates with other regulators when
examining banks to prevent undue regulatory burden. Consults with
regulators before a proposal is issued and regulators could appeal
regulations they believe would put the safety and soundness of the
banking system or the stability of the financial system at risk.
Clearly Defined Oversight: Protects small business from unintentionally
being regulated by the CFPB, excluding businesses that meet certain
LOOKING OUT FOR THE NEXT BIG PROBLEM: ADDRESSING
The Financial Stability Oversight Council
Expert Members: Made up of 10 federal financial regulators and an
independent member and 5 nonvoting members, the Financial Stability
Oversight Council will be charged with identifying and responding to
emerging risks throughout the financial system. The Council will be
chaired by the Treasury Secretary and include the Federal Reserve Board,
SEC, CFTC, OCC, FDIC, FHFA, NCUA, the new Consumer Financial
Protection Bureau, and an independent appointee with insurance expertise.
The 5 nonvoting members include OFR, FIO, and state banking,
insurance, and securities regulators.
Tough to Get Too Big: Makes recommendations to the Federal Reserve for
increasingly strict rules for capital, leverage, liquidity, risk management
and other requirements as companies grow in size and complexity, with
significant requirements on companies that pose risks to the financial
Regulates Nonbank Financial Companies: Authorized to require, with a
2/3 vote and vote of the chair, that a nonbank financial company be
regulated by the Federal Reserve if the council believe there would be
negative effects on the financial system if the company failed or its
activities would pose a risk to the financial stability of the US.
Break Up Large, Complex Companies: Able to approve, with a 2/3 vote
and vote of the chair, a Federal Reserve decision to require a large,
complex company, to divest some of its holdings if it poses a grave threat
to the financial stability of the United States – but only as a last resort.
Technical Expertise: Creates a new Office of Financial Research within
Treasury to be staffed with a highly sophisticated staff of economists,
accountants, lawyers, former supervisors, and other specialists to support
the council’s work by collecting financial data and conducting economic
Make Risks Transparent: Through the Office of Financial Research and
member agencies the council will collect and analyze data to identify and
monitor emerging risks to the economy and make this information public
in periodic reports and testimony to Congress every year.
No Evasion: Large bank holding companies that have received TARP
funds will not be able to avoid Federal Reserve supervision by simply
dropping their banks. (the “Hotel California” provision)
Capital Standards: Establishes a floor for capital that cannot be lower than
the standards in effect today and authorizes the Council to impose a 15-1
leverage requirement at a company if necessary to mitigate a grave threat
to the financial system.
ENDING TOO BIG TO FAIL BAILOUTS
Limiting Large, Complex Financial Companies and Preventing Future