Dodd-Frank Bill produces changes in regulatory structure, financial oversight, and financial instruments

These are the key changes.

Regulatory  Structure. The bill creates the Consumer Financial Protection Bureau, which will be led by an independent director under the Federal Reserve. This agency will examine and enforce consumer regulations for banks and credit unions larger than $10 billion in assets. Smaller banks and credit unions will not be examined by this agency. The bureau will create a consumer hotline for customer complaints about financial products and services.

The bill eliminates the Office of Thrift Supervision, which was the lead regulatory agency for some of the largest failures in the industry (Washington Mutual, IndyMac). While the thrift charter will remain, the regulatory oversight will transfer to the Office of the Comptroller of the Currency (OCC).

The bill also includes language that will allow customers free access to personal credit scores in instances where a customer was denied credit or where it negatively impacted a person’s application for a job.

Financial Oversight. The Dodd-Frank bill creates the “Financial Stability Oversight Council” comprised of financial regulators, an independent member, and nonvoting members. This group will be responsible for monitoring the overall systemic risk in the financial system in the country. It will make recommendations with regards to capital, leverage, and risk management requirements as financial institutions grow in size. The committee will have the ability to break up large financial services institutions if they become of such a size that they may threaten the overall health of the financial system, and this will include the ability to liquidate an institution in an orderly manner. This council will also have the ability to authorize the regulation of non-bank financial service organizations by the Federal Reserve.

Financial Instruments. The bill grants regulatory authority to the Securities and Exchange Commission (SEC) for over-the-counter derivatives. It creates roles for regulators and clearing houses with regards to derivative transactions. Private equity advisors will be required to register with the SEC. State regulators will now regulate investment advisors with assets up to $100 million. The new bill also includes the “Volcker Rule,” which will prohibit proprietary trading by banks using their own funds. The new bill requires companies creating mortgage backed securities to retain at least five percent of the credit risk of the underlying loans, unless the assets securitized meet certain requirements.

For more information, please contact Neil Gavin.