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The positive effects of the law have been widely covered in the press. A number of the articles that highlight the law's positive effects can be found below.
Richard Cordray said the consumer bureau will use its powers to wipe out illegal payday lending practices—such as unauthorized debits on a person's checking account—while it works on a broader regulatory framework for the industry. Payday loans are short-term loans that cash-strapped consumers can obtain online or at storefront locations around the country to get cash quickly.
"There are some payday lenders engaged in practices that present immediate risk to consumers and are clearly illegal," Mr. Cordray said at the hearing in Birmingham, Ala. , which is grappling with how to regulate the products. "Where we find these practices we will take immediate steps to eliminate them. "
WASHINGTON — Payday lenders, money transfer agencies, credit bureaus and debt collectors, take notice: the Consumer Financial Protection Bureau is coming after you, and quickly.
The recess appointment of Richard Cordray on Wednesday as director of the consumer bureau finally gives the fledgling agency the legal standing to supervise those types of financial enterprises, something it has lacked since the bureau was created with the signing of the Dodd-Frank financial regulation act in July 2010.
Although the Dodd-Frank law authorized the consumer agency to regulate the so-called nonbank financial companies, which previously had little supervision, the law was purposely written such that the bureau could not invoke its powers until it had a director.
The American Bankers Association "fully supports the bureau's preliminary efforts to define its nondepository supervisory scope as it prepares for the future exercise of that supervision authority," Virginia O'Neill, senior counsel for the ABA's Center for Regulatory Compliance, wrote in a letter Aug. 15. "This approach has been a model effort to seek broad, careful, and thoughtful input in the important early stages of developing a rule proposal. "
In addition to its authority over banks, the Dodd-Frank Act authorized the bureau to write and enforce rules for all nonbank mortgage lenders, payday lenders and private education lenders, as well as certain nonbank firms in other markets. But first the bureau must define the scope of the nonbank firms it will supervise. Meanwhile, the bureau is limited by the fact that it does not have a confirmed director in place, which under the law prevents the agency from actually supervising any nonbank.
The Consumer Financial Protection Bureau was created last year under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the most sweeping overhaul of financial regulations in decades. The bureau is supposed to promote financial education and enforce federal consumer financial protection laws, and it was given rulemaking powers that would head off unfair, deceptive and abusive financial practices and products.
The agency is supposed to be up and running by July 21. But if Republican senators have their way, it will never become what it was meant to be — an unapologetic protector of consumers. For the most part, we have allowed the financial services industry to police itself. How has that worked for us?
The bureau has one purpose: to shield consumers from unfair, misleading and deceptive lending. The purpose of the Republican bills is twofold. One is to deprive the agency of the power to fulfill its mission. Another is to attract campaign money. As long as the Senate and White House are controlled by Democrats, the bills are unlikely to become law. But by advancing them in the House, Republicans can demonstrate how thoroughly they would dismantle reform if they controlled Washington and, in the process, rake in Wall Street donations.
As for Elizabeth Warren? Barney Frank says: “Let’s fight! ”, Reuters [March 21, 2011]
The former Democratic chairman of the House Financial Services Committee, who co-authored the Dodd-Frank financial regulation bill, tells MSNBC’s “Morning Joe” that Warren might survive a confirmation battle.
And some of the issues that complicated previous efforts no longer exist, as a result of changes mandated by the new financial law. Some in the mortgage industry had long resisted more explicit disclosure of fees that a broker receives from a lender when a borrower agrees to pay a higher interest rate than he or she qualifies for. Such fees were essentially banned by the financial overhaul.
"The new consumer bureau is based on a pretty simple idea: people ought to be able to read their credit card and mortgage contracts and know the deal. They shouldn’t learn about an unfair rule or practice only when it bites them—way too late for them to do anything about it. The new law creates a chance to put a tough cop on the beat and provide real accountability and oversight of the consumer credit market. The time for hiding tricks and traps in the fine print is over. This new bureau is based on the simple idea that if the playing field is level and families can see what’s going on, they will have better tools to make better choices. ” –Elizabeth Warren
Derivatives
The financier Wilbur L. Ross Jr. , known for his investments in distressed assets, said that speculation in commodities had obviously gotten a little out of hand. “It’s pretty clear that, for example, $10 to $20 of the price of a barrel of oil was mostly due to speculators and there were probably similar proportions in other commodities,” Mr. Ross said.
But regulators will soon have the power to lay down their own rules for trading in commodities and derivatives. The Dodd-Frank Act, passed after the 2008 financial crisis, gave the Commodity Futures Trading Commission the authority to alter margin rules and set position limits to combat excessive speculation and manipulation in the markets.
Among [the] many provisions [of the Dodd-Frank Wall Street Reform and Consumer Protection Act] related to derivatives — all designed to lessen their systemic risk — is a series of rules that would make it close to impossible for the likes of JPMorgan to pawn risky derivatives off on municipalities. Dodd-Frank requires sellers of derivatives to take a near-fiduciary interest in the well-being of a municipality.
You would think Bachus would want these regulations in place as quickly as possible, given the pain his constituents are suffering. Yet, last week, along with a handful of other House Republican bigwigs, he introduced legislation that would do just the opposite: It would delay derivative regulation until January 2013.
It is hard not to see this move as an act of hostility toward any derivative regulation. After all, by 2013 a presidential election will have taken place, and if the Republicans take the White House and the Senate, one can expect that the next step would be to roll back derivative regulation entirely. Even if it is just about delay, rather than outright obstruction, that means the Republicans are asking for two more years during which the industry will add trillions of dollars worth of “financial weapons of mass destruction” (to use Warren Buffett’s famous description) to the $466.8 trillion of unregulated derivatives already in existence. How can this possibly be good?
The new financial-regulatory law in the U.S. will require stricter standards and more transparency in the market for derivatives.
Derivatives are financial instruments that derive their value from the movement of something else—for instance, the level of interest rates or the price of commodities. In the past decade, the market soared for derivatives known as credit-default swaps—bets on a borrower's ability to repay a debt. Derivatives played a prominent role in the global financial crisis.
Under the new law, many derivatives will now be traded on exchanges, rather than in private transactions between dealers. This could make them far less profitable for Wall Street than the customized, off-market trades that ballooned this decade.
The Dodd Frank law gives the CFTC and the Securities and Exchange Commission broad new powers to police the over-the-counter derivatives market. It will require key players in the market, including swap dealers and major traders, to execute many of their deals on trading platforms and route their swaps through clearinghouses, which stand between parties to guarantee trades. If a swap isn't suitable for clearing, then each counterparty to the trade will have to post collateral and abide by stricter capital standards.
Warren Buffett’s Berkshire Hathaway Inc. , which has more than $60 billion at risk in derivatives, may scale back offering new contracts because of collateral- posting requirements, said a company executive.
"There will be those that try to weaken the rules, but I think the Congress has been very specific," Gensler said. "There is going to be transparent trading of the standard swaps. "
There is no doubt that regulating the freewheeling derivatives market is important work. If done right, heightened scrutiny could well eliminate the potential for another disastrous bank run like the one that threatened world markets in September 2008 when the American International Group imploded. The insurer had written insurance on mortgage securities— a derivative known as a credit default swap — and almost collapsed after, among other things, onerous collateral calls from its trading partners drained its cash.
Changing the way this market operates is also crucial because major firms like JPMorgan Chase, Goldman Sachs and Morgan Stanley currently run it. These companies don’t want to open trading facilities to more participants because they prefer that their customers have limited access to bids and offers; such black-box arrangements generate far more profits to dealers than open and transparent markets.
Congress wisely recommended broadening access to an array of prices so that customers trading swaps could get a feel for what they might pay or receive for an instrument before they committed to a transaction — a process known as pretrade price transparency. Carrying out this goal is where it gets tricky, and where the existing dealers hope to protect their profits.
The largest US banks are deferring more than 60 per cent of senior bank executives’ bonuses, according to a survey by the Federal Reserve.
The new trend in bank pay comes after a crisis many blame on excessive risk-taking by bankers and traders who were compensated for taking short-term risks without having to suffer the long-term consequences of their actions. Financial regulators around the world initiated a crackdown.
[A] new atmosphere is the result of the Dodd-Frank financial-overhaul law, which gives shareholders at all but the smallest companies an advisory vote on executive pay, something governance advocates have long sought. This week, companies including aluminum producer Alcoa Inc. and medical-devices company Zimmer Holdings Inc. will face the music at their annual meetings.
Attention instead focused on the procedural matter of how often the vote should be held, and the challenge investors face in considering the sheer volume of proposals.
WASHINGTON—The Securities and Exchange Commission, in a 3-2 vote, moved forward with new restrictions on bonuses at large brokers and investment advisers, including hedge funds.
The new restrictions, objected to by the commission's Republicans, are nearly identical to rules proposed by the Federal Deposit Insurance Corp. last month that apply to the banks that the regulator oversees. The Dodd-Frank financial-overhaul law, which mandates the bonus rules, requires seven federal regulators to write the rules jointly.
Wednesday's proposal would require brokers and advisers with more than $1 billion in assets to disclose the bonus arrangements of their executives, directors and lower-rung employees to the SEC annually. Bonus arrangements deemed by regulators to encourage inappropriate risks or that could cause financial loss would be banned under the proposal.
Lavish Wall Street bonuses, long the scorn of lawmakers and shareholders, have met a new foe: the Securities and Exchange Commission.
The agency on Wednesday proposed a crackdown on hefty compensation awarded at big banks, brokerage firms and hedge funds — a move intended to rein in pay packages that encouraged excessive risk-taking before the financial crisis.
The proposal would for the first time require Wall Street firms to file detailed accounts of their bonuses with the S.E.C., which could then ban any awards it deemed excessive. The rules would be aimed at top executives and hundreds of rank-and-file employees who receive incentive-based pay.
Although the overall size of the cash-bonus pool declined, Mr. DiNapoli's report said overall compensation, calculated from the firms' financial statements, "was higher by 6% in 2010. "
Banks and securities firms are issuing more deferred compensation to bankers and traders to avoid a rerun of the excessive risk-taking that contributed to staggering losses during the financial crisis. Base salaries also have increased, reducing bonuses as a proportion of compensation.
Likely the biggest issue confronting boards this proxy season is 'say on pay. ' Under the new Dodd-Frank financial overhaul law, any company whose stock-market value exceeds $75 million must let shareholders voice their approval or disapproval on pay packages for the top brass. The requirement, which took effect in late January, gives shareholders a potent weapon to express disapproval of board oversight. Businesses must reveal whether and how they consider results of advisory 'say-on-pay' votes in setting management rewards.
Whatever arguments there might be about the complexity of the Dodd-Frank rules, the notion of publishing pay numbers is a good one. If nothing else, it could be the starting point of a conversation in which America’s business leaders explain, to their shareholders and to the wider public, exactly why they need so much money to get the job done.
Hidden in Wall Street overhaul: Broader federal sway over pay; Obscure provision of law lets regulators set specific rules, Washington Post [August 19, 2010]
That largely overlooked provision of the law gives federal agencies expanded powers to write regulations dictating pay at financial firms. How they choose to use these powers could have a major impact on whether banks pursue excessive risks.
‘The financial crisis made patently clear that the direct regulation of the choices that banks make is bound to be imperfect because regulators are often following behind,’ said Lucian A. Bebchuk, a Harvard Law School professor who has advised the Obama administration on executive compensation issues. ‘It's valuable for regulators to have an extra tool to influence the private incentives that will shape executives' decision-making. ’”
Editorial: Open Book Test - Financial Times, [March, 6 2011]
The Dodd-Frank Act, which the US Congress passed last year, was designed to reform financial regulation. But it may also prove an important tool in the fight against international corruption. The legislation requires US-listed companies involved in oil, gas or minerals extraction anywhere in the world to report all payments they make to governments to the Securities and Exchange Commission, project by project and country by country. Those that fail to do so face exclusion from US capital markets. Moves are afoot to introduce a similar law in the European Union this year.
Jane Allen, UK co-ordinator for the campaign, said: "Too often the potential for growth and development in countries rich in natural resources is squandered as vast sums of money are misused by governments and individuals.
"By committing to legally binding measures that will make these payments open to scrutiny, the UK and Europe can play a critical role in reversing this 'resource curse' by fighting corruption and poverty. "
Gordon Brown promoted a voluntary approach, known as the Extractive Industries Transparency Initiative, launched in 2002; but US politicians have now legislated to force American firms to be more transparent. Sarkozy wants Europe to follow suit.
ONE, with the global grassroots Publish What You Pay coalition, has been in the vanguard, highlighting the dangers. It lobbied the White House and forced an amendment to the landmark Dodd-Frank finance reform bill last year. The Cardin-Lugar amendment received bipartisan support. This is an attempt to force real transparency in the extractive industries and in the exploitation of minerals. It makes it legally binding for all companies registered on the New York Stock Exchange to reveal the details of their extraction deals with African countries. In turn, this empowers civic societies with the information they need to hold their governments to account. Sudanese entrepreneur Mo Ibrahim has said that the Cardin-Lugar amendment is more important to Africa than the debt relief of the last decade.
M.D.G.’s for Beginners . . . and Finishers, New York Times [ September 18, 2010]
"Well, I’m pleased to give you an update on an intervention that some of us thought of and fought for as critical: hidden somewhere in the Dodd-Frank financial reform bill (admit it. . .you haven’t read it all either) there is a hugely significant “transparency” amendment, added by Senators Richard Lugar and Benjamin Cardin. Now energy companies traded on American exchanges will have to reveal every payment they make to government officials. If money changes hands, it will happen in the open. This is the kind of daylight that makes the cockroaches scurry. ” – Bono, the lead singer of the band U2 and a co-founder of the advocacy group ONE and (Product)RED
Back in February G.O.P. legislators admitted frankly that they were trying to cripple financial reform by cutting off funding. And the recent House budget proposal, which calls for privatizing and voucherizing Medicare, also calls for eliminating resolution authority, in effect setting things up so that the bankers will get as good a deal in the next crisis as they got in 2008.
Of course, that’s not how Republicans put it. They claim that their goal is to “end the cycle of future bailouts,” under the general rubric of “ending corporate welfare. ”
In a budget bill designed to reduce spending "homeowners facing foreclosure and other Americans with legal problems would be hurt by a $70 million cut to legal aid. Financial regulators would endure deep cuts that would cripple their ability to carry out the Dodd-Frank financial reform law. That’s asking for another financial crisis. "
The Republican-led House of Representatives passed a federal spending plan on Saturday that would cut the Commodity Futures Trading Commission’s budget by a third. The Senate, which is controlled by Democrats, is unlikely to approve such deep cuts, although the agency’s budget remains a target there. In contrast, President Obama has proposed increasing the commission’s budget by more than 80 percent.
The agency’s Democratic commissioners asserted on Thursday that any cuts, big or small, would be disastrous, as they say it needs every cent to prevent a repeat of the 2008 financial crisis.
The Dodd-Frank financial regulation law passed in July 2010 was a far-reaching effort to promote financial stability. Whether the legislation can achieve that goal, though, depends on how it is implemented. On this, there are some worrying signs. The House of Representatives has voted to cut funding by a third to the Commodity Futures Trading Commission. It also stripped $25m from the Securities and Exchange Commission. Squeezing two of the most important regulators jeopardises the progress made in creating a safer financial system.
Too much regulation did not cause the financial crisis. In the last decade, the SEC and CFTC have anyway been stretched. Over that time, the industry’s complexity and size have grown. Technology has also changed the way markets operate, and regulators are as yet inadequately equipped with tools to monitor that change.
Even if the remit of these two bodies had not expanded, therefore, to cut their budgets would be ill-advised. To do so when Dodd-Frank has added to their tasks, is irresponsible. The White House understands this: the proposed 2012 budget would nearly double the CFTC’s funds and increase the SEC financing by a fifth.
It is imperative that the SEC and CFTC are properly resourced. They are already behind schedule in writing the regulatory detail. This strain is particularly acute for the CFTC, which is taking on a proportionately greater burden under Dodd-Frank: previously unregulated derivatives fall largely under the CFTC’s purview.
The current funding model is not the only option. User fees could be a viable alternative to congressional financing. Some other financial regulators already self-fund; the SEC partly does so. The futures industry has lobbied against this model for the CFTC. What matters most, however, is that regulators receive enough funding without strings attached.
The pressure to cut the SEC and CFTC budgets is part of the Republican war on the White House. Dodd-Frank is not perfect, but it improves on what came before. It cannot work, however, if politicians do not support regulators’ efforts. If the Republicans want another financial crisis, they are going about it the right way.
"Many of those who have opposed the CFPB are still trying to chip away at its independence by subjecting it entirely to Congressional appropriations without any dedicated funding from the Federal Reserve," Warren said. "Politicizing the funding of bank supervision would be a dangerous precedent, and it would deprive the CFPB of the predictable funding it will need to examine large and powerful banks consistently and to provide a level playing field with their nonbank competitors. "
Editorial: Running on Empty at the S.E.C., The New York Times [February 13, 2011]
The new financial regulation law gave the Securities and Exchange Commission a big new job to police hedge funds, derivatives dealers and credit agencies — some of the main culprits in the financial meltdown. It authorized raising the commission’s budget to $2.25 billion, over five years. Now Congress is threatening to deny the S.E.C. the necessary financing to carry out its duties.
What makes this even more absurd is that the S.E.C. doesn’t cost taxpayers a dime. Its budget, like that of other financial regulators, is covered by fees assessed on Wall Street firms. While the other regulators decide their own financing needs, Congress sets the S.E.C.’s budget.
"Dodd-Frank was born out of necessity and not out of a desire for regulation for regulation's sake," said Pennsylvania Securities Commissioner Steven Irwin, in a statement. "Congress must not repeal Dodd-Frank and rip open the regulatory gaps it seeks to close. " . . .
NASAA's agenda calls for, among other things, that Congress at a minimum provide the U.S. Securities and Exchange Commission with $1.3 billion in fiscal 2011, the 18 percent budget increase authorized by Dodd-Frank.
Partisan wrangling in the U.S. Congress has left the SEC's funding stuck at 2010 levels.
Who's to blame for crisis? , The Attleboro Sun Chronicle - Op-Ed - Ned Bristol [January 30, 2011]
The Sun Chronicle area can take pride in having Frank as one of its congressmen. Local residents should be listening when Frank says, as he did this past week, that the budget cuts being pushed by the new Republican House majority would undermine the law intended to prevent another financial crisis, or at least make the next one less ruinous. The law is called the Dodd-Frank Wall Street Reform and Consumer Protection Act and it was signed by President Obama in July.
"The Republicans will defund the agencies effectively not because [of the deficit]--this is relatively small compared to what is spent at the Pentagon and elsewhere--but because they are philosophically opposed to this kind of regulation," he said. "And I don't think the public wants to go back to the days of unrestrained trading and derivatives. "
In a letter to Rep. Barney Frank (D. , Mass), Schapiro said the whistleblower program, mandated by last year's Dodd-Frank regulatory overhaul, is already providing "significant benefits. "
"Making significant changes in the program before it has had an opportunity to demonstrate its full value seems premature, particularly in the absence of any evidence of problems with the current program," Schapiro wrote.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, which President Obama signed into law on July 21, created a bounty program that rewards individuals who provide ‘original information’ to the SEC with up to 30 percent of any successful enforcement action that exceeds $1 million. Given the size of penalties levied against wayward companies -- Germany engineering conglomerate Siemens paid a record-breaking $800 million in 2008 for violating the Foreign Corrupt Practices Act -- the potentially lucrative incentive for employees to report fraud is causing companies to proactively rethink their internal compliance policies.
"Until now, duty to the customer has flowed from the perspective and legal regimes of the adviser or broker, not from the perspective of the investor we are seeking to protect. "
Since the start of the financial crisis, lawmakers, investors and judges have criticized the agency for giving bosses a pass while accusing companies of wrongdoing, as in recent cases involving Citigroup Inc. and Bank of America Corp. The Dodd-Frank regulatory act lowers the bar for filing fraud lawsuits against individuals and authorizes the SEC to double its spending within five years.
So why should this matter to you?
“This is about empowering consumers,” said Elizabeth Warren, the presidential assistant who is setting up the bureau that was created to better protect consumers. “A home loan is the biggest financial commitment most Americans will make in a lifetime. Getting stuck with the wrong home loan can cost tens of thousands of dollars over the life of the loan, and sometimes it can even cost the family its home. ”
Under the Dodd-Frank Act, the CFPB does not have to issue a final version of the form until July 2012. But the bureau has already invited industry representatives, bankers and consumer advocates to weigh in on the model forms, which will be tested on focus groups and revised throughout the summer before the formal rulemaking process even begins.
"I think what was probably the most refreshing was just the fact that you had a room of bankers there … folks who use this every single day and have to explain it to customers every single day," Ron Haynie, the president and CEO of ICBA Mortgage, said about a meeting with CFPB officials this week. "And the folks at the CFPB were asking questions — does this work? They want the feedback, and bankers are not a shy bunch. "
The new two-page form will eventually replace the Good Faith Estimate and Truth in Lending forms, which must be sent to consumers within three days of a home-loan application. Those two forms now total five pages — and tend to be difficult to decipher.
The CFPB’s new prototype forms, released Wednesday, certainly are simple to read, and make it clear how much the loan would cost over the life of the loan — along with its estimated monthly payments, estimated taxes and insurance, as well as origination fees.
The prototype forms also offer a “comparison” section to help guide buyers when they compare loan offers from different lenders. The CFPB is calling its project “Know Before You Owe,” and it’s asking consumers to comment on its current prototype forms. See the sample forms on the CFPB’s site.
“This project aims to provide consumers with up-front, easy-to-understand information that helps them compare different mortgage offers and find one that’s best for them,” said Elizabeth Warren, assistant to President Barack Obama and special adviser to the secretary of the Treasury on the CFPB, in a conference call. “The goal of this project is to make it easier for families to see the costs and risks up front. … It is always good for consumers to know the real costs of a mortgage. ”
This alone may make a big difference on moving forward after decades of struggle to harmonize the two laws. "It's the mortgage industry's Vietnam," said Brian Chappelle, a partner in Potomac Partners, referring to melding the two sets of disclosure requirements. "Once you bring it under one roof, you remove the turf battle between the Fed and HUD. "
…Proponents say the office's central mission is to help spot the next financial crisis as it is forming. "This gets to the essence of what really causes problems," says Clifford Rossi, a former chief risk officer at Citigroup (C) now with the University of Maryland's Center for Financial Policy. "No single agency was really looking holistically across the entire system, going 'holy smokes, we've got a bubble of monumental proportions here. "
In the coming weeks, policy makers are expected to propose new regulations intended to limit federally insured banks from making bets with their own money, according to a government official with knowledge of the process. The rules — part of the Dodd-Frank Act, the regulatory overhaul enacted in the wake of the crisis — take aim at a practice called proprietary trading, in which companies speculate for their own gains rather than for their customers’.
NEW YORK -- If there's an upside to the embattled Dodd-Frank laws, it's made it less likely that a rogue trader could topple a major U.S. financial institution.
It's also more difficult now for a rogue trader to cause a U.S. bank to lose, say $2 billion, the amount that a UBS trader may have cost the Swiss bank this week via unauthorized trades.
It sets limits on U.S. banks' ability to trade their own funds. That wasn't the case in 2008, when losses from bad bets that banks made on mortgages led to the ensuing meltdown of Bear Stearns and Lehman Brothers.
Implementation of the Volcker Rule is expected to be pushed back from its original deadline of July 21, 2012. Yet most of the largest U.S. banks have already sold or shuttered the desks that make these trades -- the so-called "prop" or proprietary trading desks.
When first-quarter earnings start rolling in from the nation’s biggest banks Wednesday, the question will be: Can boring be profitable?
The sweeping Dodd-Frank Wall Street Reform and Consumer Protection Act, which followed the financial crisis, is not yet in full effect. But many firms have already moved to comply with its provisions limiting the amount of trading that can be done with their own capital.
Instead, banks are relying more on traditional lending services, as well as advising companies on mergers and acquisitions and stock and bond sales. Among its many provisions, the new law requires banks to hold more high-quality capital and to rely less on cheaper, short-term funding, cutting into the bottom line but increasing stability.
Wall Street is also taking steps to comply with new restrictions on how much money banks can invest in private-equity and hedge funds. Last month, Citigroup sold its private-equity unit to Lexington Partners for more than $900 million. Morgan Stanley is on the verge of selling its hedge fund FrontPoint.
The Volcker rule, named after its chief champion, former Federal Reserve chairman Paul A. Volcker , has two prongs. The first prohibits banks from buying and selling financial products with their own money, although the firms can still trade government and agency securities. The second limits the ability of banks to operate and invest in hedge funds and private-equity funds.
The S.E.C., which was founded during the Depression to protect Main Street investors, has been charged with implementing the 2,300-page Dodd-Frank financial reform law but has not been given the resources to do the work necessary. For 2012, the S.E.C. asked for an increase of $222 million in its budget; it is slated to receive no increase at all. Those in Congress who complain that the S.E.C. is behind schedule on Dodd-Frank and wonder why need only look at the budgets they approve.
Last week, Representative Spencer T. Bachus of Alabama, the chairman of the House Financial Services Committee, said he would introduce a bill called, immodestly, the “S.E.C. Modernization Act. ” The bill would micromanage lines of reporting within the commission and break up the commission’s Office of Compliance Inspections and Examinations. Another Republican proposal, by Representative Scott Garrett of New Jersey, would subject nearly every securities law ever passed — including laws passed in 1933 and 1934 that created the commission and established its core functions — to a cumbersome and impossibly subjective review of their relative costs and benefits.
Whether or not these bills pass, we are witnessing a pattern of Congress’s grabbing the steering wheel of an independent agency. Dodd-Frank imposed upon the S.E.C. new procedures that should have been left to the discretion of the agency’s leadership. Congress has criticized the S.E.C.’s investigation of Ponzi schemes but then has neglected to adequately finance its investigations.
The Bachus bill takes this trend even further. It proposes rejiggering the flow chart of the S.E.C. — an almost comical intrusion into the inner workings of the commission.
The Securities and Exchange Commission proposed sweeping new rules on Wednesday to overhaul the rating business — regulations that would force tougher internal controls, potentially curb conflicts of interest and even mandate that the agencies periodically test the competence of their employees.
The regulator was forced to write rules due to the Dodd-Frank Act, which was approved in the wake of the financial crisis of 2008. The bipartisan commission voted 5 to 0 to introduce the proposals.
Rating agencies have come under stinging criticism for their role in the financial crisis. Many of the leading firms gave their highest ratings, such as the coveted AAA, to mortgage securities packaged from subprime loans. Such loans were extended to borrowers deemed to be at high risk of default.
In reference to a recent SEC decision not to file a fraud suit against Moody’s Investors Services for improper actions taken in 2007 involving $1 Billion worth of debt securities. The New York Times noted that “Because the securities had been issued in Europe, the regulator said, its jurisdiction in bringing such a case was questionable. ”
The New York Times also noted that “Under the Dodd-Frank legislation that was signed into law this summer, the S.E.C. would have clear jurisdiction over such a case if it occurred today. ”
The decision followed an S.E.C. investigation, and the commission used the opportunity to warn all of the national credit rating agencies that it would use new powers under the Dodd-Frank banking law to take action against similar conduct, even if it occurred outside the United States, as the Moody’s case did.
"Uncertainty regarding a jurisdictional nexus between the U.S. and the relevant ratings conduct" led the SEC to drop the probe, the agency said in the report. That uncertainty was removed by the Dodd-Frank law, enacted in July, which clarifies the SEC’s power to sue for misconduct that has a substantial effect within the U.S., the report said.
Moody's Investor Services provided powerful ammunition Wednesday to those who argue the regulatory reform law ended the era of bailouts by downgrading the long-term rating of Bank of America Corp. and Wells Fargo & Co. , as well as the short-term rating of Citigroup Inc. , citing increased probability that the government would let such firms fail.
The Dodd-Frank Act would have enabled an orderly unwinding of Lehman Brothers Holdings Inc. (LEHMQ) that would have averted major losses by creditors and taxpayers, the Federal Deposit Insurance Corp. said in a report.
Dodd-Frank, the financial regulatory overhaul signed into law by President Barack Obama in July, expands the agency’s longstanding authority to wind down deposit-taking institutions to any firm whose failure is deemed a threat to the financial system. Analysts and economists including Standard & Poor’s have questioned whether the new powers would be enough to avert government bailouts like the $700 billion Troubled Asset Relief Program that followed the collapse of Lehman.
The Cleveland Federal Reserve Bank researchers, in a report that could foreshadow congressional testimony, said the orderly liquidation provision of the Dodd-Frank laws "is an important step toward addressing the too-big-to-fail problem. "
It sets up a new way for the U.S. government to dismantle large non-bank financial firms on the brink of collapse. The new process is supposed to avert future bailouts while being less jarring to markets than bankruptcy, with policy-makers in Europe eyeing similar reforms.
The Fed will be writing rules on credit exposure as well as concentration and leverage limits. It is to apply "prompt corrective action" — the program of taking increasingly severe steps against a company as its capital falls — to holding companies, too. Companies will be forced to design "living wills," or road maps for unwinding their operations in the event of failure.
So that's what's coming. It will replace a balkanized system that led examiners to look too narrowly at the institutions under their direct supervision. Broad and sophisticated assessments will be made of a firm's capital and liquidity as well as its growth and exposures and its interplay with other financial players.
U.S. regulators can prevent a repeat of the financial crisis that toppled Lehman Brothers Holdings Inc. if they fully apply new authority granted by lawmakers, Federal Deposit Insurance Corp. Chairman Sheila Bair said.
Mr. Kohn said of the crisis, "There isn’t any decision that we made that I would undo," but added, "I regret that we, the U.S. government, didn’t have the tools to deal with Bear Stearns, Lehman, A.I.G., in a more stabilizing way that produced less moral hazard," referring to the idea that a company may behave more recklessly in the future if it believes it will not have to bear the full consequences of its actions.
The hearing’s second witness, Sheila Bair, chairwoman of the Federal Deposit Insurance Corp. , focused on the collapse of two large banks — Washington Mutual and Wachovia. She said the two cases illustrate that under the rules in place in 2008 there could be "disparate treatment for investors and counterparties in different institutions," but that the sweeping financial regulation bill passed by Congress should make the process more equitable.
But she added: "If implementation is not properly carried out, the reforms could be ineffective in preventing future crises or containing financial market disruptions should they occur. "
Ms Bair said the new law should end investors’ belief in "too big to fail", which gives an implicit government guarantee and thus cheaper borrowing costs to large institutions: "If they think it’s still around they should read the statute itself. "
The Dodd-Frank legislation gives the Fed oversight over the largest financial institutions, including those that are not banks. It gave the Fed a prominent role in the Financial Stability Oversight Council, a body of regulators with the power to seize and break up a systemically important company if it threatens economic stability. The F.D.I.C. would manage that process, known as resolution.
. . . Under pointed but polite questioning from members of the Financial Crisis Inquiry Commission, Mr. Bernanke, the chairman of the Federal Reserve, signaled that the central bank was eager to embrace its expanded powers under the Dodd-Frank financial regulatory law that President Obama signed in July.
"If there is a systemic crisis, we can't go and say, Well the Fed had the bank holding companies, the OCC had national banks, and SEC had the investment banks, we are all put together in the same room," she said. "It's our job to manage systemic risk and make sure there are no regulatory gaps. We have accountability. We have ownership. If we don't do our job, we should be held strongly accountable. "
MONTREAL — Paul A. Volcker, the former Fed chairman and an economic adviser to President Obama, said on Wednesday that sweeping financial reform legislation now before Congress would make the United States a model for the world.
“The United States will go from laggard to the head of the parade if we get this legislation passed,” Mr. Volcker told a conference of financial market regulators. “I’m really hopeful for the first time there is a chance of getting international acceptance for the basic principles. ”
Mr. Volcker said he expected Congressional negotiations to produce a “reasonably coherent” legislative package within about two weeks.
“I have the impression that it’s on a pretty good glide path,” he said at a meeting of the International Organization of Securities Commissions. “This American legislation will be a kind of launching point for other countries. ”
The Securities and Exchange Commission voted 3 to 2 to approve new rules giving shareholders new powers to nominate directors to corporate boards. Supporters say the rules will give shareholders the ability to hold boards accountable for overseeing executive pay and other decisions that companies make.
‘Shareholders should have a means of nominating candidates to the boards of the companies that they own,’ SEC Chairman Mary Schapiro said. ‘These rules reflect compromise and weighing competing interests". . .
…Though the SEC had long insisted it had the power to write this rule, it had approached the issue cautiously out of concern that it was inferring too great an authority from federal securities laws. The Dodd-Frank financial overhaul signed into law in July made it clear that the SEC does have this authority.
The Hewlett-Packard board is back to doing what it does best: shooting itself in the foot. By filing an embarrassing lawsuit against the company’s former chief executive, Mark V. Hurd, this week — a suit that unwittingly highlights the mistakes it made in the way it let Mr. Hurd go — the H.P. board can now lay claim, officially, to the title of the Most Inept Board in America. It’s going to take a yeoman effort to dethrone these guys . . .
When I spoke to Ms. Minow [of the Corporate Library] earlier this week, I was startled at the vehemence with which she condemned the H.P. board. “They have a worse record than a stopped clock,” she said. She told me the Corporate Library had given the H.P. board a “D” ranking.
But when I asked her what could be done about a board like H.P.’s, she lit up. Under the new Dodd-Frank bill, she said, shareholders for the first time will be able to nominate their own candidate for the board. To do so, the nominating shareholders have to hold 3 percent of the stock — for three years.
Editorial: A year of Dodd-Frank, Financial Times [July 24, 2011]
Dodd-Frank’s crucial innovation was to recognise the shadow banking system as a source of systemic risk, and to provide regulatory tools to mitigate the problem. Nobody should wish to roll that back. Across the finance industry, the law provides for closer oversight and wider margins of safety. The failures and excesses revealed by the financial crisis confirm the need for both. Here and there the details may be wrong – they can be revised on the fly – but the thrust of the law is right . . . Looking forward, the biggest worry is that a campaign of non-co-operation by Republicans in Congress will starve, delay or stop implementation of the law’s key components. Last week Elizabeth Warren was forced to withdraw her candidacy to head the consumer protection agency created by the law. The GOP is threatening to block any appointment to that post unless the law is changed to provide, as they argue, better accountability.
Dodd-Frank isn’t perfect, but already its influence on the financial system has been positive, in ways big and small. Accounting is more transparent; off-balance-sheet assets are largely a thing of the past. Some banks are selling units that are too risky, or that require them to hold capital they don’t have. As Bloomberg News has reported, banks are even hiring consumer advocates to make sure their policies on overdraft fees and credit cards will pass muster, now that the new Consumer Financial Protection Bureau is about to send out examiners.
Rational Irrationality: Alan Greenspan: The Fountainhead is Back, The New Yorker [April, 5 2011]
While I was away, Alan Greenspan wrote a remarkable piece in the Financial Times criticizing the Dodd-Frank reform bill and the very concept of financial reform. At first, I thought the article was an early April Fool’s joke—it appeared in the edition of March 30th—but apparently not. Having admitted in 2008 that the financial crisis had revealed a “flaw” in his free-market ideology, Greenspan has now reverted to full-on Ayn Rand Objectivism, noting that, “With notably rare exceptions (2008, for example), the global ‘invisible hand’ has created relatively stable exchange rates, interest rates, prices, and wage rates. ”
Greenspan is Wrong: We Can Reform Finance, Financial Times - Op-Ed - Barney Frank [April, 3 2011]
Since the passage of the Wall Street Reform and Consumer Protection Act, known as Dodd-Frank, many commentators have suggested ways in which it might be improved. But until last week no one had seriously suggested that we should have done nothing in response to the financial crisis. Yet, writing in these pages, Alan Greenspan suggests that we should not even have tried. By and large, he says, things went well over the long period of deregulation and light-touch oversight, and he argues that the global financial system is now so “unredeemably opaque” that policymakers and legislators cannot hope to address its complexity. Mr Greenspan is wrong on both counts.
The statistical evidence is overwhelming. As countries get richer, their banks and capital markets grow larger relative to gross domestic product, and more complex. Mr Greenspan points out that the financial share of US gross domestic product rose from 2.4 to 7.4 per cent between 1947 and 2008.
“They don’t want to take it on head on,” Frank told The Hill. “It’s too popular. ”
Washington, D.C. (February 7, 2011)- The Independent Community Bankers of America (ICBA) lauded the Federal Deposit Insurance Corporation (FDIC) board of governor's decision today to approve a final plan that imposes parity between small and large banks within the deposit-insurance system by basing the assessment base on average consolidated total assets minus average tangible capital instead of domestic deposits. ICBA has long advocated for the change, which was one of the association's key priorities in the Wall Street Reform Act.
"ICBA led the charge throughout the Wall Street reform debate to create fairness within the deposit insurance system so that Main Street community banks, which are the lifeblood that drive economic stability and prosperity in thousands of communities across the nation, can continue to serve their customers and keep money where it belongs-in the community," said James MacPhee, ICBA chairman and CEO of Kalamazoo County State Bank, Schoolcraft, Mich. "ICBA thanks the FDIC for approving this pivotal final rule, which will ultimately benefit the communities we serve. "
The second type of arbitrage is what happened in the last cycle. That was the siphoning of financial activity out of the regulated financial system and into the shadow banking system.
That may not be as easy to do this time around. The Dodd-Frank financial regulations in the United States and the new Basel requirements both have provisions aimed at reducing the capital advantages of lending through the securitization market.
The Wall Street bailout. The stimulus bill. The health care bill. The financial reform bill.
Far and away, it's the one that was crafted by local Fourth District Congressman Barney Frank: the financial reform bill.
The financial bill, according to a Sept. 13 Gallup poll, has the support of 61 percent of the American public. None of the other bills currently polls close to 50 percent.
“In the US, the Dodd-Frank legislation makes several efforts to tackle the risks posed by the shadow banking sector. Hedge funds will be required to register and provide information to the Securities and Exchange Commission, giving US regulators far more oversight of such firms than before.
Nicolas Veron, who follows regulation at the Brussels-based Bruegel Institute, says the US has so far done the best job. "Their vision was to regulate all financial firms, whether they are banks or not," he says. "In Europe, we are wedded to pigeonholing institutions. The EU has not realised how much risk transfer occurs across different categories of finance that can escape sectoral regulation. "
"Some things would hopefully have been identified earlier," he said. While his critics have contended that regulators missed warning signs about impending problems, he said he had little visibility into certain businesses, like A.I.G., until it was too late.
Financial regulation moves into new era; Senate passes landmark bill in triumph for Obama, Washington Post [July 16, 2010]
Within three months, the new Financial Services Oversight Council, including an assortment of regulators and chaired by the Treasury secretary, must hold its first meeting. Within six months, new rules providing shareholders with more of a say on executive pay take effect.
Within a year, the consumer protection bureau must be up and running, and the Office of Thrift Supervision -- one of several bank regulators that failed to preempt the financial meltdown -- will be abolished. Eighteen months out, new rules must be issued to restrict the trading that financial companies can do with their own accounts, a practice known as proprietary trading. And within two years, regulators must propose simpler mortgage disclosure forms.
To comply with Dodd-Frank, the SEC is required to develop more rules and complete more studies than any other regulator. It must write regulations governing the multibillion-dollar derivatives market, study whether brokerages must meet higher business standards, begin to inspect hedge funds, write many rules describing what companies must disclose to their shareholders and tighten oversight of the credit-rating industry.
Committee on Financial Services
United States House of Representatives
News
The Wall Street Reform and Consumer Protection Act, which was signed into law last year, has already begun to diminish the conditions which caused the financial crisis and to protect consumers and shareholders.
INDEX
Derivatives
Executive Compensation
Extractive Industries Transparency
Funding Regulators
Incentives for Whistle Blowers
Investor Protection
Mortgage Reform
Office of Financial Research
Executive Compensation
Extractive Industries Transparency
Funding Regulators
Incentives for Whistle Blowers
Investor Protection
Mortgage Reform
Office of Financial Research
Consumer Protection
Consumer Bureau Targets Payday Loans, Wall Street Journal [January 19, 2012]
WASHINGTON—The federal government will give payday loans "much more attention," said the newly appointed head of the Consumer Financial Protection Bureau during the agency's first field hearing.
The bureau had taken responsibility for existing regulations on consumer products at banks and thrifts, it was not able to write new regulations for banking products like mortgages and credit cards until it had a permanent leader.
Banks Declare Peace with Consumer Bureau Over Regulating Nonbanks, American Banker [August 24, 2011]
Forty-four Republican senators, in a letter to President Obama, threatened to hold up the nomination of anyone selected to head the new consumer bureau, regardless of party affiliation, unless certain changes on how the agency is structured are made.
Party Like It’s 2013, Editorial: New York Times [May 3, 2011]
Starting on Wednesday, the committee’s majority is expected to pass bills to cripple the Consumer Financial Protection Bureau, one of the most important innovations in the 2010 Dodd-Frank financial reform law.
New Push on Home-Loan Disclosure, Wall Street Journal [September 22, 2010]
The financial overhaul gave the Consumer Financial Protection Bureau broad authority over mortgage disclosure and removed many of the bureaucratic obstacles that stymied changes in the past.
Derivatives
Even though many policy makers in Washington, from President Obama on down, have complained that run-ups in commodity prices may have gone too far, there was no direct nudging from regulators to raise the silver margins, the CME said.
Sewers, Swaps and Bachus, New York Times [April 22, 2011]
Banks Pile Into Safer Bets, Wall Street Journal [October 5, 2010]
It's Not Over Until It's In the Rules, New York Times [August 29, 2010]
Congress wisely recommended broadening access to an array of prices so that customers trading swaps could get a feel for what they might pay or receive for an instrument before they committed to a transaction -- a process known as pretrade price transparency.
The Commodity Futures Trading Commission has the power to use the ambiguity of wording in the Dodd-Frank financial reform act to extend its reach to financial products that share some of the characteristics of derivatives, lawyers have said.
Executive Compensation
US banks defer 60% of executive bonuses, Financial Times [October 5, 2011]
Some of the most senior US bankers are seeing more than 80 per cent of their incentive compensation paid out over a longer time frame, the Fed said after surveying pay packages at 25 of the biggest banks doing business in the US.
Shareholders get their say, Boston Globe [May 13, 2011]
Here’s a moment I thought I’d never live to see: Executives running public companies all over America have to stand up in public this spring and ask stockholders to approve of all the money they make.
Most public companies have added “say-on-pay’’ questions to the agendas of their annual meetings this year, a new requirement under last year’s Dodd-Frank Wall Street Reform and Consumer Protection Act.
The moves show that despite some early skepticism, the prospect of such votes has sparked boardroom debates over executive-pay practices that were long just rubber-stamped.
Talking cure eases remuneration tension, Financial Times, April 25, 2011
One of the few provisions of the [Financial Reform] bill to affect the broader corporate world, the introduction of new “say on pay” rules, appears to be having an immediate effect on the traditionally adversarial relationship between shareholders and corporate executives.
“Both sides are reporting that they are talking more to one another, and investors like that, they want to hear from the companies, for the companies to explain what they are doing and why they did what they did,” said Robin Ferracone, head of Farient Advisors, a consultancy.
Dodd-Frank requires companies to hold non-binding shareholder votes at their annual meetings on executive pay programmes, on the frequency of future say-on-pay votes and on “golden parachutes” – payments to executives in the event that the company is sold.
Initially these votes were regarded as of little consequence since companies could technically ignore the result.
“Say on pay threatened to suck all the oxygen out of the room this proxy season,” said Patrick McGurn of proxy adviser Institutional Shareholder Services.
But the advisory nature of the vote appears to have actually encouraged its use.
Wall Street Bonuses Head South, Wall Street Journal [February 24,2011]
"Cash bonuses are down, but that's not an indicator of a weakness on Wall Street," Mr. DiNapoli said in a statement. "Wall Street is changing its compensation practices in response to regulatory reforms adopted in the aftermath of the greatest financial meltdown since the Great Depression. "
Stuffing Their Pockets, For CEOs, a lucrative recession, Newsweek [September 13, 2010]
“For the all the changes to the regulatory fabric contained in the landmark Dodd-Frank law, none might be more significant to the financial sector's health than Section 956(a).
Regulators Seek to Foil Bank Moves to Undermine Pay Reform, Reuters [February 7, 2010]
Regulators began their most forceful attempt yet to clamp down on bank bonuses since the 2007-2009 financial crisis, and warned firms they would seek to counter attempts to circumvent the reforms.
Barney Frank Prepares Latest Salvo in War on Wall Street Bonuses, Politico [January 13, 2010]
The veteran Massachusetts Democrat has long argued for the need to curb compensation practices that encourage Wall Street bankers to take on far too much risk in order to win bonuses based on short-term performance. “Heads you win, tails you break even” is how Frank has often summed up the current situation.
House Panel Approves Restraints on Executive Pay, The New York Times [July 28, 2009]
In an important victory for the White House, a Congressional committee approved legislation on Tuesday that closely resembled an Obama administration proposal seeking to impose new restraints on executive pay.
Extractive Industries Transparency
Britain backs 'publish what you pay' rule for oil and mining firms in Africa, The Guardian [February 20, 2011]
The long-running Publish What You Pay campaign, supported by a coalition of civil society groups worldwide, argues that if the scale of the payouts to host-country governments were revealed, voters would hold their leaders to account.
A fresh chapter is opening in Africa's history, The Guardian [February 19, 2011]
EU Closer to US-style Financial Reform - Financial Times [March 3, 2011]
Momentum is building across the European Union to replicate the corporate transparency enforcements contained in the US Dodd-Frank financial reform bill, with draft proposals expected by November, according to EU officials.
Funding Regulators
Springtime for Banker, New York Times, [May 1, 2011]
But as we’ve already seen, future bailouts will happen whatever today’s politicians say — and they’ll be bigger, more frequent and more expensive without effective regulation.
Regulators Decry Proposed Cuts in C.F.T.C. Budget, New York Times [February 24, 2011]
Gary Gensler, the Commodity Futures Trading Commission’s chairman, is looking to expand his regulatory agency, not cut it back.Top regulators of the derivatives markets are fighting back against a Congressional assault on their budget, arguing that funding cuts will derail a much-needed overhaul of the $600 trillion industry.
Warren, Castigating GOP, Says CFPB Can't Do Its Job on a Thin Budget, American Banker [February 16, 2011]
At a speech before the Consumers Union's 75th-anniversary event Tuesday in New York, Warren said cutting CFPB's budget would threaten its independence and undermine its effectiveness.
States Urge Congress Not to Water Down Dodd-Frank, Reuters [February 2, 2011]
State securities regulators on Wednesday urged Congress to preserve state and federal investor protections in last year's Dodd-Frank financial reform law.
The states also want lawmakers to reject using industry self-regulatory organizations to supervise investment advisers and instead provide funding to help state and federal regulators handle the expanded work load.
Frank Says Spending Cuts Could Undo Derivatives Rules, Bloomberg [January 25, 2011]
Parts of the Dodd-Frank financial services overhaul face a “potential undoing” by Republican proposals to cut spending.
Frank Accuses GOP of Trying to Defang Financial Regulators, National Journal [January 25, 2011]
Rep. Barney Frank, D-Mass. , accused House Republicans on Tuesday of trying to defund the Dodd-Frank financial overhaul that he championed last year.
Frank, now the ranking Democrat on the House Financial Services Committee, said that GOP lawmakers are out to sabotage the act under the guise of deficit-cutting.
Barney Frank Vows Fight to Defend Wall Street Reform, Boston Herald[January 4, 2011]
Rep. Barney Frank is vowing a “major battle” if Republicans try to block his 2010 Wall Street reform law by denying funds to government agencies charged with enforcing the new measure.
“They can expect a major fight,” said Frank, a Newton Democrat who last year helped usher the massive Dodd-Frank Wall Street Reform and Consumer Protection Act through Congress
Incentives for Whistle Blowers
WASHINGTON (MarketWatch) -- The Securities and Exchange Commission's new whistleblower program is already yielding results and lawmakers should hold off making changes to it until there's proof it's causing problems, SEC Chairman Mary Schapiro told a key House Democrat Wednesday.
Her letter comes as a House Financial Services' panel is expected to vote on a bill later Wednesday that would make several changes to the program, including require potential whistleblowers to report the wrongdoing first to their company unless the SEC determines there was evidence the company's top management participated in the fraud or that the company showed bad faith.
New awards for informants who help the Securities and Exchange Commission uncover fraud are already prompting a surge in tips, the agency says.
The Dodd-Frank financial law passed in July provides for the larger bounties, with the hope of fingering wrongdoers such as Bernard Madoff before they swindle thousands of people.
Investor Protection
SEC Seeking Comment on Dealer, Adviser Standards, Wall Street Journal [July 28, 2010]
Referring to a provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act that requires the SEC "to study the differing fiduciary standards for dealers and investment advisers who advise retail clients", Mary Schapiro said.
More Executives to Face Court Reckoning as SEC Flexes New Power, Bloomberg [September 21, 2010]
Mortgage Reform
Bureau drafts new forms to make adjustable-rate mortgages’ true costs clearer, Washington Post [May 20, 2011]
The Consumer Financial Protection Bureau has begun testing two prototypes of mortgage disclosure forms that the new agency hopes will help people applying for home loans.
New CFPB Mortgage Disclosures Win Praise for Content and Process, American Banker [May 19, 2011]
WASHINGTON — The Consumer Financial Protection Bureau's prototypes for a single mortgage disclosure form won praise from industry groups Wednesday for their streamlined format, as well as the unorthodox way they are being developed.
Mortgage-loan forms to get overhaul - Consumer agency seeks comments on proposed disclosure forms, Market Watch [May 18, 2011]
SAN FRANCISCO — The Consumer Financial Protection Bureau, the agency created by the Dodd-Frank financial-reform law, is testing a new home-loan disclosure form to make it easier for consumers to shop for a mortgage, the Treasury Department said Wednesday.
Wednesday, August 25, 2010
Several past attempts to reconcile requirements of the Truth in Lending Act with those in the Real Estate Settlement Procedures Act have failed due to regulatory turf fights and a lack of direction from Congress.
But the Dodd-Frank Act gave sole oversight of both laws to the Consumer Financial Protection Bureau, stripping TILA authority from the Federal Reserve Board and Respa oversight from the Department of Housing and Urban Development.
Office of Financial Research
In a nod to its abilities to peer into the uncharted depths of the financial system, lobbyists are calling it the CIA of financial regulators…
Proprietary Trading
UBS Scandal Is a Reminder About Why Dodd-Frank Came to Be, New York Times [September 19, 2011]
When UBS revealed on Thursday that a rogue trader had lost a quantity of money so large that it potentially wiped out profits for the entire quarter, the case cast a glaring spotlight on banks’ risk-taking activities and evoked painful memories of the financial crisis. Such blowups had helped bring the system to the brink, forcing governments to bail out banks and prompting a global economic slowdown.
The timing is bad for banks.
Contained within the Dodd-Frank legislation, which was passed in 2010, is the Volcker Rule, named after former Fed chair Paul Volcker.
Banks are expected to report significantly lower returns from stock and bond trading as Wall Street shifts from a higher-risk model that drove huge profits over the past decade but also helped contribute to the financial crisis and subsequent Great Recession.
Brokers and big banks with capital-markets operations have come under pressure from lawmakers and other critics who said they contributed to the 2008 financial meltdown by taking too much risk with their own capital.
The Dodd-Frank financial-regulation overhaul bill signed into law by President Barack Obama this summer restricts such operations.
Major banks gird for 'Volcker rule'; Big source of profit banned Firms reorganize, await details on compliance, Washington Post [August 14, 2010]
Rating Agency Reform
Rating Agencies Face Crackdown, New York Times [May 18, 2011]
Securities regulators are out to tame the credit rating agencies, crucial Wall Street players at the center of the financial crisis.
SEC seeks to limit credit-rater conflicts - Proposals want to block revolving door and ratings shopping, Market Watch [May 19, 2011]
WASHINGTON — The Securities and Exchange Commission on Wednesday voted to propose a package of regulations that proponents say would stop credit-rating agencies from providing inflated opinions to get more business.
The SEC highlighted the fact that the Dodd-Frank financial reform act, which came into effect in July, now gives federal courts express jurisdiction over enforcement actions outside the US where conduct includes ‘significant steps or a foreseeable substantial effect’ in the US.
The move is required under the recently passed Dodd-Frank financial legislation, which gives regulators a year to review the use of private credit ratings and then calls for private credit ratings to be replaced.
The FDIC's move marks one of the first big rule-writing steps by regulators under the new legislation, part of a broader rethinking of capital levels required to be held by banks by regulators who want financial institutions to maintain the cushion necessary to weather market gyration.
Credit Rating Agency Bill Backed by House Panel, Reuters [October 28, 2009]
Credit rating agencies would be more tightly regulated and more exposed to lawsuits under legislation approved on Wednesday by the U.S. House of Representatives Financial Services Committee.
Resolution Authority
WASHINGTON — More than a year after the Dodd-Frank Act was supposed to put the issue to rest, the question of whether "too big to fail" still exists is once again consuming the financial services industry.
Dodd-Frank Would Have Rescued Lehman Creditors, FDIC Says, Bloomberg [April 18, 2011]
If the FDIC had been able to initiate a prompt structured sale of Lehman in 2008, general unsecured creditors could have recovered 97 cents on every $1 of claims, compared with 21 cents estimated in the most recent bankruptcy reorganization plan, according to the paper released today in the FDIC Quarterly.
“The Lehman failure provides an excellent model to contrast the tools available to the FDIC to effectuate an orderly resolution of a large financial institution,” Sheila Bair, chairman of the FDIC, said in a press release today.
Fed paper backs Wall Street reform under GOP attack, Reuters [January 5, 2011]
WASHINGTON (Reuters) - Federal Reserve economists endorsed on Wednesday one of the crown jewels of 2010's Wall Street reform laws -- orderly liquidation of troubled financial firms -- which a top Republican has targeted for repeal.
The provision is one of several interlocking measures in Dodd-Frank, approved in July, meant to prevent a repeat of the 2007-2009 financial crisis that deeply wounded the economy and led to huge taxpayer bailouts.
Representative Spencer Bachus, the new chairman of the House Financial Services Committee since Republicans took control of the House of Representatives, told Reuters in September that his top priority as chairman would be to kill parts of Dodd-Frank, specifically orderly liquidation
Regulators Try New Ways to 'See Around Corners' to Next Crisis, American Banker [September 30, 2010]
In addition to regulatory innovations, Dodd-Frank required a bunch of new regulations designed to help prevent another crisis.
The Dodd-Frank law, which empowers regulators to guard against systemic risk and dismantle failing firms, could have prevented the tumult that followed Lehman’s September 2008 bankruptcy, Bair said today in remarks prepared for a Financial Crisis Inquiry Commission hearing in Washington.
Retiring Fed Official Considers More Bank Action, New York Times [September 5, 2010]
Bernanke’s testimony focuses on regulatory shortfalls, Boston Globe [September 3, 2010]
Bernanke regrets reticence on Lehman, Financial Times [September 2, 2010]
Sheila Bair, the chairman of the Federal Deposit Insurance Corporation, said in testimony before the panel that the Dodd-Frank financial reforms passed by Congress in July should help to end the problem.
Bair insisted that the Financial Stability Oversight Council, which was formed by the Dodd-Frank law enacted July 21, will be held accountable.
Bair warns U.S. can break up uncooperative banks, Reuters [September 2, 2010]
The Dodd-Frank law aims to solve the issue of allowing banks and other financial companies from getting "too big to fail" by allowing the government to seize troubled but systemically important firms and wind them down.
Shareholder Rights
SEC gives shareholders long-sought boost, The Washington Post [August 26, 2010]
Miscellaneous
Banking Run Amok Is Less Likely a Year After Dodd-Frank, Bloomberg [July 17, 2011]
Today, the economy remains weak, not because of overzealous regulators but because of the lingering fallout of the financial crisis. Fixing all of this will take more than a year, and is bound to rile financial institutions because, well, it was meant to.
Greenspan, Finance and Growth, Financial Times [3/30/11]
Alan Greenspan does not like the Dodd-Frank financial regulation act. His warning against ill-considered regulation is distorted by the pro-market ideology that blinded him to the pre-crash excesses in financial markets. But the former chairman of the Federal Reserve is on more solid ground when he praises the contribution of finance to economic growth.
Charlie Rose Talks to Barney Frank (Interview), BusinessWeek [March 24, 2011]
The co-sponsor of the Dodd-Frank financial reform bill on death panels for banks, the GOP backlash, and Elizabeth Warren as consumer protection czar.
House GOP Moving Cautiously on Wall Street Law Rollback, The Hill [March 16, 2011]
Rep. Barney Frank (D-Mass. ), the ranking member on the committee and titular sponsor of the law, said the public desire to rein in Wall Street has conservatives on their heels.
Assessment Base Change Keeps Money Where It Belongs—In the Community, Independent Community Bankers of America News Release
Those are the four biggest legislative achievements of the first two years of the Obama presidency.
Which is the most popular?
The new Financial Stability Oversight Council also has the power to demand information from non-banks with more than $50bn in assets and it can place such firms under the supervision of the Federal Reserve if it believes they pose a threat to US financial stability.
Paulson Likes What He Sees In Overhaul, New York Times [July 13, 2010]
Mr. Paulson said that even more than the resolution authority, he saw the legislation's creation of a systemic risk council as perhaps the most important aspect of the bill and crucial to preventing the next crisis. The council would give the various parts of government insight into what was going on elsewhere and the power to shut firms down or change practices that might put the system at risk.
Almost immediately, a new Federal Insurance Office will be set up, and the government will have the authority to seize big, failing companies as soon as the bill is enacted.
After financial bill battles, SEC reaches out; Schapiro tells executives agency wants business input in writing rules, Washington Post [July 28, 2010]
SEC Head Mary Schapiro Talks 'Flash Crash,' Madoff, Dodd-Frank, New York Observer [September 7, 2010]
Schapiro said that although the agency did not obtain the self-funding it had sought — through fees collected in the process of regulating financial firms — she was "very pleased" with Congress' "generosity," and that the agency is on a better path than it had been before Dodd-Frank.
Congress Passes Financial Oversight Reform, The New York Times [July 15, 2010]
Congress approved a sweeping expansion of federal financial regulation on Thursday, reflecting a renewed mistrust of financial markets after decades in which Washington stood back from Wall Street with wide-eyed admiration.
From Card Fees to Mortgages, a New Day for Consumers, The New York Times [June 25, 2010]
After months of haggling, the terms of financial reform are set, so long as both houses of Congress vote to accept them in the coming days.
Regulatory Reform Marks a Triumph for Barney Frank, Politico [June 17, 2010]
House Financial Services Committee Chairman Barney Frank (D-Mass. ), having shepherded a twice-in-a-century Wall Street reform bill to the cusp of final passage, says the toothy legislation proves that many reporters and lefties are wrong to “believe that big money dominates everything.
Additional Articles
Dodd-Frank's Say on Pay Rules Pose Triple Threat to Directors, American Banker
Dodd-Frank Fulfills a Century-Old Vision for Regulation, American Banker
Consumer Bureau Targets Payday Loans, Wall Street Journal
Appointment Clears the Way for Consumer Agency to Act, New York Times
Wall Street Meets Reality, New York Times
US banks defer 60% of executive bonuses, Financial Times
Moody’s Downgrades Credit Ratings of Three Large Banks, New York Times
UBS Scandal Is a Reminder About Why Dodd-Frank Came to Be, New York Times
GOP stalls confirmation of consumer agency nominee, L.A. Times
Banks Declare Peace with Consumer Bureau Over Regulating Nonbanks, American Banker
Barney Frank, Financial Overhaul's Defender in Chief, New York Times
Banking Run Amok Is Less Likely a Year After Dodd-Frank, Bloomberg
Mortgage-loan forms to get overhaul - Consumer agency seeks comments on proposed disclosure forms, Market Watch
SEC seeks to limit credit-rater conflicts - Proposals want to block revolving door and ratings shopping, Market Watch
Sewers, Swaps and Bachus, New York Times
Dodd-Frank Would Have Rescued Lehman Creditors, FDIC Says, Bloomberg
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