Highlights of the Dodd-Frank Wall Street Reform and Consumer Protection Act

[ProSense]

Highlights of the Dodd-Frank Wall Street Reform and Consumer Protection Act

July 15, 2010
By Caleb Gibson Heather C. McGhee

Today, the Senate votes to pass the Dodd-Frank Wall Street Reform and Consumer Protection Act, sending the landmark legislation to President Obama's desk for signature next week. The bill is not perfect, but it will bring greater security to American consumers, investors and Main Street businesses. Most importantly, it turns the page on an era of misguided deregulation that has cost Americans 8 million jobs and trillions in lost household wealth. Demos has contributed to the reform effort with policy analysis and advocacy on three major issues:

1. A Fairer Financial Marketplace for American Consumers. The bill establishes the Consumer Financial Protection Bureau (CFPB), an independent federal entity housed within the Federal Reserve, with the sole mission of protecting consumers from unfair, deceptive and illegal practices in the lending market...

2. An End to the Conflict of Interest for Wall Street Ratings Agencies....The Act also includes a number of other worthy provisions to strengthen the oversight and regulation of credit rating agencies: For the first time, the SEC will have an Office of Credit Ratings with the authority to write rules and levy fines. Investors will now be able to recover damages in private anti-fraud actions brought against rating agencies for gross negligence in the rating. And raters must apply ratings consistently for corporate bonds, municipal bonds, and structured finance products and instruments.

3. Limits on Wall Street Risk. After decades of deregulation, America's financial industry has grown riskier, more interconnected, and more concentrated...

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Highlights of the Act's approach to systemic risk include the Merkley-Levin amendment's stronger version of the Volcker Rule. The rule ensures that banks do not make risky "proprietary" bets for their own accounts with taxpayer-backed deposit funds, and limits bank investment in private leveraged funds. Proprietary trading and private fund speculation introduces needless volatility into our core credit markets, puts banks in conflict with their clients and diverts bank capital away from loans to America's small businesses and families. Senator Scott Brown (R-MA) was able to win a carveout in the Volcker Rule's original private fund ban to allow banks to continue to own these funds, and invest up to 3% of their capital in them. However, banks have to set aside in capital reserves amounts equal to their investment in these funds and are prohibited from bailing them out. The Merkley-Levin provision also bans firms from packaging risky securities for customers and then betting that they will fail, a practice at the center of the recent Goldman Sachs SEC fraud case.

The Act also creates a council of regulators to monitor systemic risk and, through the Kanjorski Amendment, empowers the council to break up banks that pose a grave threat to the economy. For the first time, it requires regulators to impose higher capital, leverage and liquidity standards on the largest, riskiest financial firms and creates bank-like oversight for large, interconnected "shadow bank" financial companies like AIG, GE Capital and mortgage financers that were at the center of the crisis. Unfortunately, the final bill includes a last-minute Senate amendment that unnecessarily allows any financial firm with more than 15 percent of its assets or revenue from commercial activities to escape oversight from the systemic risk council, no matter the threat the firm could pose to the economy. The Act also fails to impose statutory limits on the leverage, or debt, of a financial firm. To address the dangerous degree of interconnection on Wall Street (through derivatives contracts, repurchase ("repo") agreements and other non-deposit funding), the Act imposes limits on bank exposure to any single financial counterparty or to their own affiliates.

What's Next. The Wall Street Reform and Consumer Protection Act is only the beginning of the work that needs to be done to rebuild our regulatory structure. Demos will continue to work with policymakers, experts, advocates and engaged citizens to provide timely research to inform the regulatory process. We will also continue to make the case for structural reforms to ensure that the financial sector helps create, not undermine, broadly-shared prosperity for American families and businesses.

[CaliforniaPeggy]

1. I am encouraged.

Recommend.

[mdmc]

3. much better then more de-regulation

:toast:

[mdmc]

2. The people I know on Wall Street think this is okay

much ado...

(of course I only know 3 players... still, they don't think this is too much regulation - they think it is just fine..)

I'll support any effort to reduce de-regulation.. Now is the time for strong regulation!

[Moochy]

4. Kick

wow so much to read... do you work at all?