| Full title | An Act 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. |
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| Colloquial name(s) | Dodd–Frank, Wall Street Reform, Financial Regulatory Reform |
| Enacted by the | 111th United States Congress |
| Effective | July 21, 2010 |
| Citations | |
| Public Law | Pub.L. 111-203 |
| Stat. | 124 Stat. 1376–2223 |
| Codification | |
| Act(s) amended | Commodity Exchange Act, Consumer Credit Protection Act, Federal Deposit Insurance Act, Federal Deposit Insurance Corporation Improvement Act of 1991, Federal Reserve Act, Financial Institutions Reform, Recovery, and Enforcement Act of 1989, International Banking Act of 1978, Protecting Tenants at Foreclosure Act, Revised Statutes of the United States, Securities Exchange Act of 1934, Truth in Lending Act |
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| Major amendments | |
| Relevant Supreme Court cases | |
The Dodd–Frank Wall Street Reform and Consumer Protection Act (Pub.L. 111-203, H.R. 4173) is a federal statute in the United States that was signed into law by President Barack Obama on July 21, 2010.[1] The Act implements financial regulatory reform sponsored by the Democratically controlled 111th United States Congress and the Obama administration. Passed as a response to the late-2000s recession, the Act brought the most significant changes to financial regulation in the United States since the regulatory reform that followed the Great Depression,[2][3][4] representing a significant change in the American financial regulatory environment affecting all Federal financial regulatory agencies and almost every aspect of the nation's financial services industry.[5][6] As with other major financial reforms, some legal and financial scholars on both sides of the political spectrum have criticized the law, arguing on the one hand that the reforms were insufficient to prevent another financial crisis or additional "bail outs" of financial institutions, and on the other hand that the reforms went too far and would unduly restrict the ability of banks and other financial institutions to make loans.[7]
In addition to the headline regulatory changes covering capital investment by banks and insurance companies, the Act introduces new regulation of hedge funds, alters the definition of accredited investors, requires reporting by all public companies on CEO to median employee pay ratios and other compensation data, enforces equitable access to credit for consumers, and provides incentives to promote banking among low- and medium-income residents.
The law was initially proposed by the Obama Administration in June 2009, when the White House sent a series of proposed bills to Congress. A version of the legislation was introduced in the House in July 2009. On December 2, 2009, revised versions were introduced in the House of Representatives by Barney Frank, and in the Senate Banking Committee by Chairman Chris Dodd. Due to their involvement with the bill, the conference committee that reported on June 25, 2010,[1] voted to name the bill after the two members of Congress.[8]
The financial crisis of 2007–2010 led to widespread calls for changes in the regulatory system.[10] In June 2009, President Obama introduced a proposal for a "sweeping overhaul of the United States financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression."[11]
As the finalized bill emerged from conference, President Obama stated that the bill included 90 percent of the proposals.[12] Major components of Obama's original proposal, listed by order in which they appear in the "A New Foundation" outline,[11] include:
At Obama's request, congress later added the Volcker Rule to this proposal in January 2010.[13]
The bills that came after Obama's proposal were largely consistent with the proposal, but contained some additional provisions and differences in implementation.[14]
The Volcker Rule was not included in Obama's initial June 2009 proposal, but Obama proposed the rule[13] later in January 2010, after the House bill had passed. The rule, which prohibits depository banks from proprietary trading (similar to the prohibition of combined investment and commercial banking in the Glass–Steagall Act[15]) was passed only in the Senate bill,[14] and the conference committee enacted the rule in a weakened form, Section 619 of the bill, that allowed banks to invest up to 3% of their Tier 1 capital in private equity and hedge funds[16] as well as trade for hedging purposes.
The initial version of the bill passed the House along party lines in December by a vote of 223-202,[1] and passed the Senate with amendments in May 2010 with a vote of 59-39[1] once again along party lines.[1] The bill then moved to conference committee, where the Senate bill was used as the base text[17] although a few House provisions were included in the bill's base text.[18]
One provision on which the White House did not take a position[19] and remained in the final bill[19] 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. This rule was unsuccessfully challenged in conference committee by Chris Dodd, who – under pressure from the White House[20] – submitted an amendment limiting that access and ability to nominate directors only to single shareholders who have over 5% of the company and have held the stock for at least two years.[19]
The "Durbin Amendment"[21] is a provision in the final bill aimed at debit card interchange fees and increasing competition in payment processing. The provision was not in the House bill;[14] it began as an amendment to the Senate bill from Dick Durbin[22] and led to lobbying against it.[23] The law applies to banks with over $10 billion in assets, and these banks would have to charge debit card interchange fees that are "reasonable and proportional to the actual cost" [24] of processing the transaction. The bill aimed to restrict anti-competitive practices and encourage competition, and included provisions which allow retailers to refuse to use cards for small purchases and offer incentives for using cash or another type of card.[14]
The Durbin Amendment also gave the Federal Reserve the power to regulate debit card interchange fees, and on December 16, 2010 the Fed proposed a maximum interchange fee of 12 cents per debit card transaction,[25] which CardHub.com estimated would cost large banks $14 billion annually.[26] On June 29, 2011, the Fed issued its final rule, which holds that the maximum interchange fee an issuer can receive from a single debit card transaction is 21 cents plus 5 basis points multiplied by the amount of the transaction.[27] This rule also allows issuers to raise their interchange fees by as much as one cent if they implement certain fraud-prevention measures.[27] An issuer eligible for this adjustment, could therefore receive an interchange fee of as much as 24 cents for the average debit card transaction (valued at $38),[27] according to the Federal Reserve. This cap — which will take effect on October 1, 2011 rather than July 21, 2011 as was previously announced — will reduce fees roughly $9.4 billion annually, according to CardHub.com.[26] As a result of the government limiting their revenue from interchange fees, banks made plans to raise account maintenance fees to compensate.[28]
The New York Times published a comparison of the two bills prior to their reconciliation.[29] On June 25, 2010, conferees finished reconciling the House and Senate versions of the bills and four days later filed a conference report.[1][30] The conference committee changed the name of the Act from the "Restoring American Financial Stability Act of 2010." The House passed the conference report, 237–192 on June 30, 2010.[31] On July 15, the Senate passed the Act, 60–39.[32][33] President Obama signed the bill into law on July 21, 2010.[34]
The Act is categorized into sixteen titles and by one law firm's count, it requires that regulators create 243 rules, conduct 67 studies, and issue 22 periodic reports.[35] The stated aim of the legislation is:
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.[36]
The Act changes the existing regulatory structure, such as creating a host 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 purports to provide rigorous standards and supervision to protect the economy and American consumers, investors and businesses, purports to end taxpayer funded bailouts of financial institutions, claims to provide for an advanced warning system on the stability of the economy, creates rules on executive compensation and corporate governance, and eliminates some loopholes that led to the 2008 economic recession.[37] The new agencies are either granted explicit power over a particular aspect of financial regulation, or that power is transferred from an existing agency. 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 to explain future goals. Important new agencies created include Financial Stability Oversight Council, the Office of Financial Research, and the Bureau of Consumer Financial Protection.
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.S. Securities and Exchange Commission (SEC), Comptroller, Federal Reserve (the "Fed"), the Securities Investor Protection Corporation (SIPC), etc.), and the final elimination of the Office of Thrift Supervision (further described in Title III – Transfer of Powers to the Comptroller, the FDIC, and the FED).
As a practical matter, prior to the passage of the Dodd–Frank Act, 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 Dodd–Frank Act eliminates that exemption, thereby rendering numerous additional investment advisers, hedge funds, and private equity firms subject to new registration requirements.[38]
Certain non-bank financial institutions and their subsidiaries will be supervised by the Fed[39] in the same manner and to the same extent as if they were a bank holding company.[40]
To the extent that the Act impacts 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.[41] Only over the next 18 months as various regulatory agencies write rules that implement various sections of the Act, will the full importance and significance of the Act be known.[41]
Title I outlines two new agencies tasked with monitoring systemic risk and researching the state of the economy and clarifies the comprehensive supervision of bank holding companies by the Federal Reserve. Title I creates the Financial Stability Oversight Council and the Office of Financial Research. The two new offices are attached to the Treasury Department, with the Treasury Secretary being Chair of the Council, and the Head of the Financial Research Office being a Presidential appointment with Senate confirmation. The Financial Stability Oversight Council is charged with identifying threats to the financial stability of the United States, promoting market discipline, and responding to emerging risks to the stability of the United States financial system. At a minimum, it must meet quarterly. Specifically, there are three purposes assigned to the Council:[42]
In the course of pursuing its goal (in its entirety), the Council has several duties enumerated to it that can broadly be described as anything required to:
More specifically, the Council must collate data (received from affiliated agencies, and optionally from the companies themselves) to assess risks to the financial system, monitor the financial services marketplace, make general regulatory recommendations to affiliated agencies reflecting a broader consensus, and it may also compel the Federal Reserve to assume an oversight position of certain institutions considered to pose a systemic risk. The Council must monitor domestic and international regulatory proposals and developments, and advise Congress in these areas. The Council and the associated Office of Financial Research are charged to facilitate information sharing and coordination among the member agencies and other Federal and State agencies regarding domestic financial services policy development, rule-making, examinations, reporting requirements, and enforcement actions.[43]
The Financial Stability Oversight Council has ten voting members:[44]
There are five non-voting advisory members who may go into the equivalent of executive session when discussing confidential supervisory information:
The Federal Advisory Committee Act, which limits the powers of advisory committees, does not apply to the council. The council has an almost unlimited budget in that the Council may draw on virtually any resource of any department or agency of the Federal government. Any employee of the Federal government may be detailed to the Council without reimbursement and without interruption or loss of civil service status or privilege. Any member of the Council who is an employee of the Federal Government serves without additional compensation. In addition, "An employee of the Federal Government detailed to the Council shall report to and be subject to oversight by the Council during the assignment to the Council, and shall be compensated by the department or agency from which the employee was detailed."[45] Additionally, "Any expenses of the Council shall be treated as expenses of, and paid by, the Office of Financial Research".[46]
The Council has very broad powers to monitor, investigate and assess any risks to the US financial system. The Council has the authority to collect information from any State or Federal financial regulatory agency, and may direct the Office of Financial Research, which supports the work of the Council, "to collect information from bank holding companies and nonbank financial companies".[47] The Council monitors domestic and international regulatory proposals, including insurance and accounting issues, and advises Congress and the Federal Reserve on ways to enhance the integrity, efficiency, competitiveness and stability of the US financial markets. On a regular basis, the Council is required to make a report to Congress describing the state of the US Financial System. Each voting member of the Council is required to either affirm that the Federal Government is taking all reasonable steps to assure financial stability and mitigate systemic risk, or describe additional steps that need to be taken.[48] Under specific circumstances, the Chairman of the Council (who is also the Secretary of the Treasury), with the concurrence of 2/3 voting members, may place nonbank financial companies or domestic subsidiaries of international banks under the supervision of the Federal Reserve if it appears that these companies could pose a threat to the financial stability of the US.[49] The Federal Reserve may promulgate safe harbor regulations to exempt certain types of foreign banks from regulation, with approval of the Council.[50] Under certain circumstances, the Council may provide for more stringent regulation of a financial activity by issuing recommendations to the primary financial regulatory agency, which the primary financial agency is obliged to implement – the Council reports to Congress on the implementation or failure to implement such recommendations.[51]
The Council may require any bank or non-bank financial institution with assets over $50 billion to submit certified reports as to the company's:[52]
The Comptroller General of the United States may audit the Council or anyone working for the Council, and may have access to any information under the control of or used by the Council.[53]
Established as a department within the Treasury, the Office is tasked with providing administrative, technical, budget analysis and other support services to the Council and its affiliated agencies.[54]
The Director of the Office of Financial Research is appointed for a 6-year term. To the extent that his or her duties are exclusively focused on the Council and the Office of Financial Research, the Director is in effect the executive director of the Council. The Director, in consultation with the Chairman of the Council (who is the Secretary of the Treasury) proposes the annual budget of the Office.[55] The Director may set salaries of the Office’s employees “without regard to chapter 51 or subchapter III of chapter 53 of Title 5 of the United States Code, relating to classification of positions and General Schedule pay rates.”[56]
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.[57]
The Director reports to and testifies before only the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services of the House of Representatives. Testimony shall be annual on the activities of the Office, including the work of the Data Center and the Research and Analysis Center and the assessment of significant financial and market developments and potential emerging threats to the financial stability of the Country. These reports to Congress are independent of any political influence in that "No officer or agency of the United States shall have any authority to require the Director to submit the testimony... for approval, comment, or review prior to the submission of such testimony."[58]
Like the Council, the Office of Financial Research may request, from department or agency of the United States, "such services, funds, facilities, staff, and other support services as the Office may determine advisable. Any Federal Government employee may be detailed to the Office without reimbursement, and such detail shall be without interruption or loss of civil service status or privilege."[59] Within the Treasury Department, there is a revolving fund, the "Financial Research Fund" into which all appropriations, fees, and assessments that the Office receives are deposited. Surplus funds may be invested. It is contemplated that within 2 years of establishment that the Office will be self-funding.[60]
The Office has broad latitude in performing support services for both the Council and other Member Agencies, including data collection, applied research and essential long-term research, and developing tools for monitoring risk. The Office can also issue guidelines to standardizing the way data is reported, constituent agencies have three years to implement data standardization guidelines.[61] In many ways, the Office of Financial Research is to be operated without the constraints of the Civil Service system. For example, does not need to follow Federal pay scale guidelines (see above), and it is mandated that the office have:[62]
The Office is supported by two entities:
The Financial Research Fund is a quasi-revolving fund that the Office uses to fund its operations. All appropriations and assessments are deposited into the Fund; surpluses may be invested. Funds are not subject to apportionment for any other purposes. Within 2 years of enactment, the Office should become self-funding. During the 2-year time following date of enactment, the Federal Reserve shall fund the Office.[60]
For a period of five years after enactment, the Office shall submit an annual report to the Senate Committee on Banking, Housing and Urban Affairs, and the House Committee on Financial Services, what amounts to a management report, including:[65]
In addition to the supervised banks, insured depository institutions and securities companies that may be liquidated under existing law by the FDIC or Securities Investor Protection Corporation (SIPC), Covered Financial Companies that may be liquidated under this title include insurance companies and non-bank financial companies not covered elsewhere.[66] Once it is determined that a financial company satisfied the criteria for liquidation, if the financial company's board of directors does not agree, provisions are made for judicial appeal.[67] Some procedures for FDIC and the SIPC to liquidate companies are revised. In addition to the policies and procedures that are in place for the financial institutions covered by FDIC and SIPC, this title provides for the orderly liquidation of other financial institutions. Depending on the type of financial institution, different regulatory organizations may jointly or independently, by 2/3 vote, determine whether a receiver should be appointed for a financial company:[68]
Provided that the Secretary of Treasury, in consultation with the President may also made a determination to appoint a receiver for a financial company.[69] And the GAO shall review and report to Congress about the Secretary's decision.[70]
When a financial institution is placed into receivership under these provisions, within 24 hours the Secretary shall report to Congress, and within 60 days there shall be a report to the general public.[71] The report on the recommendation to place a financial company into receivership shall contain various details on the state of the company, the impact of its default on the company, and the proposed action.[72]
Unless otherwise stated, the FDIC is the liquidator for financial institutions who are not members of SIPC or banking members of the FDIC or insurance companies. In taking action under this title, the FDIC shall comply with various requirements:[73]
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 needed to be an additional source of funds, independent of the FDIC's Deposit Insurance Fund, to be used in case of a non-bank or non-security financial company's liquidation. The Orderly Liquidation Fund is to be an FDIC-managed fund, to be used by the FDIC in the event of a covered financial company's liquidation[74] that is not covered by FDIC or SIPC.[75]
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.[36] The method of capitalization is by collecting risk-based assessment fees on any "eligible financial company" – which is defined as "[…] any bank holding company with total consolidated assets equal to or greater than $50 billion and any nonbank financial company supervised by the Board of Governors." 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.[36] The eligibility of a financial company to be subject to the fees is periodically reevaluated; or, in other words, a company that does not qualify for fees in the present, will be subject to the fees in the future if they cross the 50 billion line, or become subject to Federal Reserve scrutiny.[36]
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.[76] The assessments will be charged to any bank holding company with consolidated assets greater than $50 billion and any nonbank financial company supervised by the Federal Reserve. Under certain conditions, the assessment may be extended to regulated banks and other financial institutions.[77] Assessments are imposed on a graduated basis, with financial companies having greater assets and risk being assessed at a higher rate.[78]
Assessments will be implemented according to a matrix that the Financial Stability Oversight Council recommends to the FDIC. The matrix shall take into account:[79]
When liquidating a financial company under this title (as opposed to FDIC or SIPD) there is a maximum limit of the Government's liquidation obligation, i.e., the Government's obligation can not exceed:[80]
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.[36] Taxpayers shall bear no losses from liquidating any financial company under this title and any losses shall be the responsibility of the financial sector, recovered through assessments:[81]
Established inside the United States Bankruptcy Court for the District of Delaware, the Panel is tasked with evaluating the conclusion of the Secretary of the Treasury that a company is in (or in danger of) default. The Panel consists of three bankruptcy judges drawn from the District of Delaware, all of whom are appointed by the Chief Judge of the United States Bankruptcy Court for the District of Delaware. In his appointments, the Chief Judge is instructed to weigh the financial expertise of the candidates.[36] If the Panel concurs with the Secretary, the company in question is permitted to be placed into receivership; if they do not concur, the Secretary has an opportunity to amend and refile his or her petition.[36] In the event that a Panel decision is appealed, the United States Court of Appeals for the Third Circuit has jurisdiction; in the event of further appeal, a writ of certiorari may be filed with the United States Supreme Court. 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.[36]
Title III, or the "Enhancing Financial Institution Safety and Soundness Act of 2010"[82] is intended to streamline banking regulation and 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.[83] The thrift charter is to remain, although weakened. Additional changes include:
Title IV introduces significant regulation of hedge funds, and other similar investment intermediaries for the first time, and is known severally as the "Private Fund Investment Advisers Registration Act of 2010".[87] In general, it increases the reporting requirements of investment advisors, and limits the ability of these advisors to exclude information in reporting to the various Federal government agencies. However, there is an exemption in reporting for Venture Capital Fund Advisors,[88] certain advisors with assets under management under $150 million,[89] and family offices (as defined by the Commission).[90] The Act changes the definition of accredited investor, which means someone with personal or (joint with spouse) net worth over a 4-year period, that averages more than $1 million, to exclude the value of the person's residence from the calculation.[91] The Commission is allowed to adjust this value with time. The Act also provides that the SEC shall, every five years, adjust for the effects of inflation, that any factor used in rule or regulation be in multiples of $100,000.[92]
Studies required under this title include:
Subtitle A, also called the "Federal Insurance Office Act of 2010",[95] establishes within the Department of the Treasury the Federal Insurance Office which is tasked with:[96]
The Office is headed by a director who is appointed for a career-reserved term by the Secretary of the Treasury.[97]
In general, 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.[98]
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 country with an agreement or treaty with the United States.[99]
Subtitle B, also called the "Nonadmitted and Reinsurance Reform Act of 2010"[100] says the States may enter into a compact to establish procedures to allocate among the States the premium taxes paid to an insured's home State.[101] After 2-years, a State may not collect any "fees relating to licensing of an individual or entity as a surplus lines broker in the State unless the State has in effect at such time laws or regulations that provide for participation by the State in the national insurance producer database."[102]
Title VI is also called the "Bank and Savings Association Holding Company and Depository Institution Regulatory Improvements Act of 2010".[103] It introduces the so called "Volcker Rule" after former Chairman of the Federal Reserve Paul Volcker by amending the Bank Holding Company Act of 1956. With the aim of reducing the amount of speculative investments on large firms' balance sheets, it limits banking entities to owning no more in a hedge fund or private equity fund than 3% of the total ownership interest.[104] The total of all of the banking entity’s interests in hedge funds or private equity funds cannot exceed 3% of the Tier 1 capital of the banking entity. Furthermore no bank that has 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 full extent of the relationship to the regulating entity, and assuring that there are no conflicts of interest,[105] “Banking entity” includes an insured depository institution, any company controlling an insured depository institution and such a company’s affiliates and subsidiaries, and must comply with the Act within two years of its passing, although it may apply for time extensions.
The rule distinguishes transactions by banking entities from transactions by nonbank financial companies supervised by the Federal Reserve Board.[106] The rule states that in general, "an insured depository institution may not purchase an asset from, or sell an asset to, an executive officer, director, or principal shareholder of the insured depository institution, or any related interest of such person… unless— the transaction is on market terms; and if the transaction represents more than 10 percent of the capital stock and surplus of the insured depository institution, the transaction has been approved in advance by a majority of the members of the board of directors of the insured depository institution who do not have an interest in the transaction."[107] Providing for the regulation of capital, the Volcker Rule says that regulators are required to impose upon institutions capital requirements that are "countercyclical, so that the amount of capital required to be maintained by a company increases in times of economic expansion and decreases in times of economic contraction," to ensure the safety and soundness of the organization.[108][109] The rule also provides that an insured State bank may engage in a derivative transaction only if the law with respect to lending limits of the State in which the insured State bank is chartered takes into consideration credit exposure to derivative transactions.[110] The title provides for a three year moratorium on approval of FDIC deposit insurance received after November 23, 2009, for an industrial bank, a credit card bank, or a trust bank that is directly or indirectly owned or controlled by a commercial firm.[111]
The Volcker Rule was first publicly endorsed by President Obama on January 21, 2010.[112][113] The final version of the Act prepared by the conference committee included a strengthened Volcker rule by including language by Senators Jeff Merkley, D-Oregon, and Carl Levin, D-Michigan, that covers a greater range of proprietary trading than originally proposed by the administration, with the notable exceptions of trading in U.S. government securities and bonds issued by government-backed entities, and the rule also bans conflict of interest trading.[108][114] The rule seeks to ensure that banking organizations are both well capitalized and well managed.[115] The proposed draft form of the Vocker Rule was presented by regulators for public comment on October 11, 2011, with the rule due to go into effect on July 21, 2012.[116]
Title VII, also called the Wall Street Transparency and Accountability Act of 2010,[117] concerns regulation of over the counter swaps markets.[118] Included in this section are the credit default swaps and credit derivative that were the subject of several bank failures c. 2007. Financial instruments have the meanings given the terms in section 1a of the Commodity Exchange Act (7 U.S.C. § 1a).[119] On a broader level, the Act requires that various derivatives known as swaps, which are traded over the counter be cleared through exchanges or clearinghouses.:55
The Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) both regulate derivatives known as swaps under the Act, but the SEC has authority over "security-based swaps". The Act repeals exemption from regulation for security-based swaps under the Gramm–Leach–Bliley Act[120]:55 The regulators are required to consult with each other before implementing any rule-making or issuing orders regarding several different types of security swaps.[121] The CFTC and SEC, in consultation with the Federal Reserve are charged with further defining swap related terms that appear in Commodity Exchange Act (7 U.S.C. § 1a(47)(A)(v)) and section 3(a)(78) of the Securities Exchange Act of 1934 (15 U.S.C. § 78c(a)(78)).[122]
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."[123] An "Interagency Group" is constituted to the oversight of existing and prospective carbon markets to ensure an efficient, secure, and transparent carbon market, including oversight of spot markets and derivative markets.[124]
Title VIII, called the "Payment, Clearing, and Settlement Supervision Act of 2010",[125] 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."[126]
Title IX, sections 901 to 991, known as the "Investor Protections and Improvements to the Regulation of Securities",[127] revises the powers and structure of the Securities and Exchange Commission, credit rating organizations, and the relationships between customers and broker-dealers or investment advisers. This title calls for various studies and reports from the SEC and Government Accountability Office (GAO). This title contains nine subtitles.
Subtitle A contains provisions:
Subtitle A provides authority for the SEC to impose regulations requiring "fiduciary duty" by broker-dealers and investment advisers to their customers.[120]:158 Although the Act does not create such a duty immediately, the Act authorizes the SEC to establish such a standard and requires that the SEC study the standards of care which broker-dealers and investment advisers apply to their customers and report to Congress on the results within 6 months.[120] Under the law, commission and limited product range would not violate the duty and broker-dealers would not have a continuing duty after the investment advice is given.[133]
Subtitle B gives the SEC further powers of enforcement. This includes a "whistleblower bounty program"[134] which is based upon a similar program established by the IRS in 2006; the program allows persons who provide information which leads to a successful SEC enforcement to receive 10 to 30% of the monetary sanctions over $1 million.[120]:79 Section 921 under the title allows the SEC to prohibit pre-dispute mandatory binding arbitration. Section 929I exempts the SEC from disclosing information obtained pursuant to 17(b) of the Securities Exchange Act of 1934 or information "based upon or derived from" such information "obtained by the Commission for use in furtherance of the purposes of this title, including surveillance, risk assessments, or other regulatory and oversight activities" – meaning information derived from examinations.[135] The SEC rejected a Freedom of Information Act request on July 27, 2010 based upon this new law; while the SEC has stated that this legal change is necessary for registrants to comply with the examinations, the provision has been criticized for allowing the SEC to avoid the typical disclosure rules applicable to federal agencies.[135]
Importantly, section 921I amends SEC Act of 1934 and the Investment Company Act of 1940 to allow the Securities Exchange Commission to not disclose records or information that have been obtained for uses such as “surveillance, risk assessments, or other regulatory and oversight activities” except it may not withhold information from judicial or congressional inquiry.[136] The effective result of this change is that the US Freedom of Information Act no longer applies to the SEC; the SEC can refuse to supply documents it deems as being part of its regulatory and oversight activities. Previously, the SEC used a narrower existing exemption for trade secrets when refusing Freedom of Information Requests.[137]
Recognizing credit ratings issued by credit rating agencies, 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.[138]
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 health of the United States economy as factors necessitating increased accountability and transparency by credit rating agencies.[139]
Subtitle C mandates the creation by the SEC of an Office of Credit Ratings (OCR) to provide oversight over NRSROs and enhanced regulation of such entities.[140]
Securities and Exchange Commission
Subtitle C grants authority to the Commission to temporarily suspend or permanently revoke the registration of an NRSRO with respect to a particular class or subclass of securities if after notice and hearing the NRSRO lacks the resources to produce credit ratings with integrity.[141] Additional key provisions of the Act are:
Nationally Recognized Statistical Rating Organizations
Enhanced regulations of credit rating agencies include:
In addition, Subtitle C requires the SEC to conduct a study on strengthening NRSRO independence and recommends the SEC utilize its rulemaking authority to establish guidelines to prevent improper conflicts of interest arising from the performance of services unrelated to the issuance of credit ratings such as consulting, advisory, and other services.[142] The Act requires the Comptroller General of the United States to conduct a study on alternative business models for compensating NRSROs[143]
In Subtitle D, the term “Asset-Backed Security” is defined as a fixed-income or other security collateralized by any type of self-liquidating financial asset, such as a loan, lease, mortgage, that allows the owner of the Asset-Backed Security to receive payments that depend on the cash flow of the (ex.) loan. For regulation purposes, Asset-Backed Securities are described as including (but not limited to):[144]
For regulation purposes, Asset-Backed Securities do not include securities issued by a finance subsidiary to its parent company or company controlled by the parent company. Within nine months of enactment, rules and regulations are to be issued regarding requiring any securitizer to retain an economic interest in a portion of the credit risk. Regulations for assets that are):[145]
Specifically, securitizers are:
The regulations are to prescribe several asset classes with separate rules for securitizers, including but not limited to, residential mortgages, commercial mortgages, commercial loans, and auto loans. The SEC and the Federal banking agencies may jointly issue exemptions, exceptions, and adjustments to the rules issues provided that they:[147]
Additionally, the following institutions and programs are exempt:
The SEC may classify issuers and prescribe requirements appropriate for each class of issuers of asset-backed securities.[148] The SEC shall also adopt regulations requiring each issuer of an asset-backed security to disclose, for each tranche or class of security, information that will help identify each asset backing that security.[149] Within six months of enactment, the SEC shall issue regulations prescribing representations and warranties in the marketing of asset-backed securities:[150]
The SEC shall also prescribe a Due Diligence analysis/review of the assets underlying the security, and a disclosure of that analysis.
Within one year of enactment, the SEC must issue rules that direct the national securities exchanges and associations to prohibit the listing of any security of an issuer that is not in compliance with the requirements of the compensation sections.[151] At least once every 3 years, a public corporation is required to submit to a shareholder vote the approval of executive compensation. And once every six years there should be a submitted to shareholder vote whether the required approval of executive compensation should be more often that once every three years.[152] Shareholders may disapprove any Golden Parachute compensation to executives via a non-binding vote.[153] Shareholders must be informed of the relationship between executive compensation actually paid and the financial performance of the issuer, taking into account any change in the value of the shares of stock and dividends of the issuer and any distributions[154] as well as:[155]
The company shall also disclose to shareholders whether any employee or member of the board of directors is permitted to purchase financial instruments that are designed to hedge or offset any decrease in the market value of equity securities that are part of a compensation package.[156] Members of the Board of Director’s Compensation Committee shall be an independent member of the board of directors, a compensation consultant or legal council, as provided by rules issued by the SEC.[157] Federal regulators, within 9 months of enactment of this legislation, shall proscribe regulations that a covered company shall disclose to the appropriate Federal regulator, all incentive-based compensation arrangements with sufficient information such that the regulator may determine:[158]
Within Subtitle F are various managerial changes intended to increase the efficiency of the agency will be implemented, 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 of the title, the SEC will be funded through "match funding" which will in effect mean that its budget will be funded through filing fees.[120]:81
Subtitle G provides that the SEC may issue rules and regulations that include a requirement that permit a shareholder to use a company’s proxy solicitation materials for the purpose of nominating individuals to membership on the board of directors.[159] The company is also required to inform investors the reason why the same person is to serve as chairman of the board of directors and chief executive officer, or why different individuals are to serve as chairman of the board of directors and chief executive officer.[160]
This provision of the statute creates a guarantee of trust which correlates a municipal advisor (who provide advice to state and local governments regarding investments)[161] with any municipal bodies which provides services. Also it alters the make-up of the Municipal Securities Rulemaking Board ("MSRB") and mandates that the Comptroller General conducts studies relating to municipal disclosure and municipal markets. The new MSRB will be composed of fifteen individuals, have the authority to regulate municipal advisors, and be permitted to charge fees regarding trade information. Also, it is mandated that the Comptroller General makes several recommendations, which must be submitted to Congress within at most 24 months of enactment of the Act.[161][162]
Subtitle I is concerned with the establishment of a Public Company Accounting Oversight Board (or PCAOB). The PCAOB has the authority to establish oversight of certified public accounting firms. The Subtitle I provision allows the SEC to authorize necessary rules with respect to securities for borrowing. The SEC shall, as deemed appropriate, exercise transparency within this sector of the financial industry.[163] A council of Inspectors General On Financial Oversight, consisting of several members of federal agencies (such as the United States Department of the Treasury, the FDIC, and the Federal Housing Finance Agency) will be established.[164] The council will more easily allow the sharing of data with inspectors general (which includes members by proxy or in person from the SEC and CFTC) with a focus on dealings which may be applicable to the general financial sector at large with focus on the improvement of financial oversight.[165]
Title X establishes the Bureau of Consumer Financial Protection,[166] within the Federal Reserve. The new Bureau regulates consumer financial products and services in compliance with federal law.[36] The Bureau is headed by a director who is appointed by the President, with the advice and consent of the Senate, for a term of five years.[36] The Bureau is subject to financial audit by the GAO, and must report to the Senate Banking Committee and the House Financial Services Committee bi-annually. The Financial Stability Oversight Council may issue a "stay" to the Bureau with an appealable 2/3 vote. Even though the Bureau is placed within the Fed, it operates independently.[167] The Fed is prohibited from interfering with matters before the Director, directing any employee of the Bureau, modifying the functions and responsibilities of the Bureau or impeding an order of the Bureau.[36] The Bureau is separated into six divisions:[36]
Within the Bureau, a new Consumer Advisory Board assists the Bureau and informs it of emerging market trends.[36] This Board is appointed by the Director of the Bureau, with at least six members recommended by regional Fed Presidents.[36] Elizabeth Warren was the first appointee of the President as an adviser to get the Bureau running. The Consumer Financial Protection Bureau can be found on the web.
The Bureau was formally established when Dodd–Frank was enacted, on July 21, 2010. After a one year "stand up" period, the Bureau obtained enforcement authority and began most activities on July 21, 2011.[169]
A new position is created on the Board of Governors, the "Vice Chairman for Supervision", to advise the Board in several areas and:[170]
Additionally, the GAO is now required to perform several different audits of the Fed:[170]
The Fed is required to establish prudent standards for the institutions they supervise that include:[171]
The Fed may establish additional standards that include, but are not limited to:
The Fed may require supervised companies to "maintain a minimum amount of contingent capital that is convertible to equity in times of financial stress."[172]
Title XI requires companies supervised by the Fed to periodically provide additional plans and reports, including:"[173]
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:"[175]
Title XII, known as the "Improving Access to Mainstream Financial Institutions Act of 2010",[176] provides incentives that encourage low- and medium-income people to participate in the financial systems. Organizations that are eligible to provide these incentives are 501(c)(3) and IRC § 501(a) tax exempt organizations, federally insured depository institutions, community development financial institution, State, local or tribal governments.[177] Multi-year programs for grants, cooperative agreements, etc. are also available.[178]
This title amends the Emergency Economic Stabilization Act of 2008 to limit the Troubled Asset Relief Program, by reducing the funds available by $225 billion (from $700 billion to $475 billion) and further mandating that unused funds can not be used for any new programs.[179]
Amendments to the Housing and Economic Recovery Act of 2008 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:[180]
The same conditions apply for any funds not used by the state under the American Recovery and Reinvestment Act of 2009 by December 31, 2012, provided that the President may waive these requirements if it is determined to be in the best interest of the nation.[181]
Title XIV is called the Mortgage Reform and Anti-Predatory Lending Act, whose subtitles A, B, C, and E are designated as Enumerated Consumer Law, which will be administered by the new Bureau of Consumer Financial Protection.[182] The section focuses on standardizing data collection for underwriting and imposes obligations on mortgage originators to only lend to borrowers who are likely to repay their loans.[7]
A "Residential Mortgage Originator" is defined as any person who either receives compensation for or represents to the public that they will take a residential loan application, assist a consumer in obtaining a loan, or negotiate terms for a loan. A residential Mortgage Originator is not a person who provides financing to an individual for the purchase of 3 or more properties in a year, or a licensed real estate broker/associate.[183] All Mortgage Originators are to include on all loan documents any unique identifier of the mortgage originator provided by the Registry described in the Secure and Fair Enforcement for Mortgage Licensing Act of 2008[184]
For any residential mortgage loan, no mortgage originator may receive compensation that varies based on the term of the loan, other than the principal amount. In general, the mortgage originator can only receive payment from the consumer, except as provided in rules that may be established by the Board. Additionally, the mortgage originator must verify the consumers ability to pay. A violation of the “ability to repay” standard, or a mortgage that has excessive fees or abusive terms, may be raised as a foreclosure defense by a borrower against a lender without regard to any statute of limitations. The Act bans the payment of yield spread premiums or other originator compensation that is based on the interest rate or other terms of the loans.[185]
In effect, this section of the Act establishes national underwriting standards for residential loans. It is not the intent of this section to establish rules or regulations that would require a loan to be made that would not be regarded as acceptable or prudential by the appropriate regulator of the financial institution. However, the loan originator shall make a reasonable and good faith effort based on verified and documented information that “at the time the loan is consummated, the consumer has a reasonable ability to repay the loan, according to the terms, and all applicable taxes, insurance (including mortgage guarantee insurance), and other assessments.” Also included in these calculations should be any payments for a second mortgage or other subordinate loans. Income verification is mandated for residential mortgages.[186] Certain loan provisions, including prepayment penalties on some loans, and mandatory arbitration on all residential loans, are prohibited.[187]
This section also defined a “Qualified Mortgage” as any residential mortgage loan that the regular periodic payments for the loan does not increase the principal balance or allow the consumer to defer repayment of principal (with some exceptions), and has points and fees being less than 3% of the loan amount. The Qualified Mortgage terms are important to the extent that the loan terms plus an “Ability to Pay” presumption create a safe harbor situation concerning certain technical provisions related to foreclosure.[188]
A “High-Cost Mortgage” as well as a reverse mortgage are sometimes referred to as “certain home mortgage transactions” in the Fed’s Regulation Z (the regulation used to implement various sections of the Truth in Lending Act) High-Cost Mortgage is redefined as a “consumer credit transaction that is secured by the consumer’s principal dwelling” (excluding reverse mortgages which are covered in a separate sections), which include:[189]
New provisions for calculating adjustable rates as well as definitions for points and fees are also included.
When receiving a High-Cost mortgage, the consumer must obtain pre-loan counseling from a certified counselor.[190] The Act also stipulates there are additional "Requirements to Existing Residential Mortgages". The changes to existing contracts are:
Subtitle D, known as the Expand and Preserve Home Ownership Through Counseling Act,[194] creates a new Office of Housing Counseling, within the department of Housing and Urban Development. The director reports to the Secretary of Housing and Urban Development. The Director shall have primary responsibility within the Department for consumer oriented homeownership and rental housing counseling. To advise the Director, the Secretary shall appoint an advisory committee of not more than 12 individuals, equally representing mortgage and real estate industries, and including consumers and housing counseling agencies. Council members are appointed to 3 year terms. This department will coordinate media efforts to educate the general public in home ownership and home finance topics.[195]
The Secretary of Housing and Urban Development is authorized to provide grants to HUD-approved housing counseling agencies and State Housing Finance Agencies to provide education assistance to various groups in home ownership.[196] The Secretary is also instructed, in consultation with other Federal agencies responsible for financial and banking regulation, to establish a database to track foreclosures and defaults on mortgage loans for 1 through 4 unit residential properties.[197]
Subtitle E concerns rules concerning escrow and settlement procedures for people who are in trouble repaying their mortgages, and also makes amendments to the Real Estate Settlement Procedures Act of 1974. In general, in connection with a residential mortgage there should be established an escrow or impound account for the payment of taxes, hazard insurance, and (if applicable) flood insurance, mortgage insurance, ground rents, and any other required periodic payments. Lender shall disclose to borrower at least three business days before closing the specifics of the amount required to be in the escrow account and the subsequent uses of the funds.[198] If an escrow, impound, or trust account is not established, or the consumer chooses to close the account, the servicer shall provide a timely and clearly written disclosure to the consumer that advises the consumer of the responsibilities of the consumer and implications for the consumer in the absence of any such account.[199] The amendments to the Real Estate Settlement Procedures Act of 1974 (or RESPA) change how a Mortgage servicer (those who administer loans held by Fannie Mae, Freddie Mac, etc.) should interact with consumers.[200]
A creditor may not extend credit for a higher-risk mortgage to a consumer without first obtaining a written appraisal of the property with the following components:[201]
A "certified or licensed appraiser" is defined as someone who:
The Fed, Comptroller of the Currency, FDIC, National Credit Union Administration Board, Federal Housing Agency and Bureau of Consumer Financial Protection (created in this law) shall jointly prescribe regulations.
The use of Automated Valuation Models to be used to estimate collateral value for mortgage lending purposes.[202]
Automated valuation models shall adhere to quality control standards designed to,
The Fed, the Comptroller of the Currency, the FDIC, the National Credit Union Administration Board, the Federal Housing Finance Agency, and the Bureau of Consumer Financial Protection, in consultation with the staff of the Appraisal Subcommittee and the Appraisal Standards Board of The Appraisal Foundation, shall promulgate regulations to implement the quality control standards required under this section that devises Automated Valuation Models.
Residential and 1-to-4 unit single family residential real estate are enforced by: Federal Trade Commission, the Bureau of Consumer Financial Protection, and a State attorney general. Commercial enforcement is by the Financial regulatory agency that supervised the financial institution originating the loan.
Broker Price Opinions may not be used as the primary basis to determine the value of a consumer's principal dwelling; but valuation generated by an automated valuation model is not considered a Broker Price Opinion.
The standard settlement form (commonly known as the HUD 1) may include, in the case of an appraisal coordinated by an appraisal management company, a clear disclosure of:[203]
Within one year, the Government Accountability Office shall conduct a study on the effectiveness and impact of various appraisal methods, valuation models and distribution channels, and on the home valuation code of conduct and the appraisal subcommittee.[204]
The Secretary of Housing and Urban Development is charged with developing a program to ensure protection of current and future tenants and at-risk multifamily (5 or more units) properties. The Secretary may coordinate the program development with the Secretary of the Treasury, the FDIC, the Fed, the Federal Housing Finance Agency, and any other Federal Government agency deemed appropriate. The criteria may include:[205]
Previously the Treasury Department has created the Home Affordable Modification Program, set up to help eligible home owners with loan modifications on their home mortgage debt. This section requires every mortgage servicer participating in the program and denies a re-modification request to provide the borrower with any data used in a net present value (NPV) analysis. The Secretary of the Treasury is also directed to establish a Web-based site that explains NPV calculations.[206]
The secretary of the Treasury is instructed to develop a Web-based site to explain the Home Affordable Modification Program and associated programs, that also provides an evaluation of the impact of the program on home loan modifications.[207]
The following sections have been added to the Act:
The US Executive Director at the International Monetary Fund is instructed to evaluate any loan to a country if
Requires the SEC to report on mine safety by gathering information on violations of health or safety standards, citations and orders issued to mine operators, number of flagrant violations, value of fines, number of mining-related fatalities, etc., to determine whether there is a pattern of violations.[218]
The Securities Exchange Act of 1934 is amended to require disclosure of payments relating to the acquisition of licenses for exploration, production, etc., where "payment" includes fees, production entitlements, bonuses, and other material benefits.[219]
Comptroller General is commissioned to assess the relative independence, effectiveness, and expertise of presidentially appointed inspectors general and inspectors general of Federal entities.[220]
The FDIC is instructed to conduct a study to evaluate:[221]
A Section 1256 Contract refers to a section of the IRC § 1256 that described tax treatment for any regulated futures contract, foreign currency contract or non-equity option. To calculate capital gains or losses, these trades have traditionally been marked to market on the last business day of the year. A "section 1256 contract" shall not include:[222]
Senator Chris Dodd, who co-proposed the legislation, has classified the legislation as "sweeping, bold, comprehensive, [and] long overdue". In regards to the Fed and what he regarded as their failure to protect consumers, Dodd voiced his opinion that "[…] I really want the Federal Reserve to get back to its core enterprises […] We saw over the last number of years when they took on consumer protection responsibilities and the regulation of bank holding companies, it was an abysmal failure. So the idea that we're going to go back and expand those roles and functions at the expense of the vitality of the core functions that they're designed to perform is going in the wrong way." However, Dodd pointed out that the transfer of powers from the Fed to other agencies should not be construed as criticism of Fed Chairman Ben Bernanke, but rather that "[i]t's about putting together an architecture that works."[223]
With regards to the lack of bipartisan input on the legislation, Dodd alleged that had he put together a "[…] bipartisan compromise, I think you make a huge mistake by doing that. You're given very few moments in history to make this kind of a difference, and we're trying to do that." Put another way, Dodd construed the lack of Republican amendments as a sign "[…] that the bill is a strong one."[223][224]
Richard Shelby, the top-ranking Republican on the Senate Banking Committee and the one who proposed the changes to the Fed governance, voiced his reasons for why he felt the changes needed to be made: "It's an obvious conflict of interest […] It's basically a case where the banks are choosing or having a big voice in choosing their regulator. It's unheard of." Democratic Senator Jack Reed agreed, saying "The whole governance and operation of the Federal Reserve has to be reviewed and should be reviewed. I don't think we can just assume, you know, business as usual."[225]
Barney Frank, who has proposed his own legislative package of financial reforms in the House, did not comment on the Stability Act directly, but rather indicated that he was pleased that reform efforts were happening at all – "Obviously the bills aren't going to be identical, but it confirms that we are moving in the same direction and reaffirms my confidence that we are going to be able to get an appropriate, effective reform package passed very soon."[224]
During a Senate Republican press conference on April 21, 2010, Richard Shelby reported that he and Dodd were meeting "every day", and were attempting to forge a bipartisan bill. Shelby also expressed his optimism that a "good bill" will be reached, and that "we're closer than ever." Saxby Chambliss echoed Shelby's sentiments, saying "I feel exactly as Senator Shelby does about the Banking Committee negotiations.", but voiced his concern about maintaining an active derivatives market and not drive financial firms overseas. Kay Bailey Hutchison indicated her desire to see State banks have access to the Fed, while Orrin Hatch had concerns over transparency, and the lack of Fannie and Freddy reform.[226]
Ed Yingling, president of the American Bankers Association, regarded the reforms as haphazard and dangerous, saying "To some degree, it looks like they're just blowing up everything for the sake of change […] [i]f this were to happen, the regulatory system would be in chaos for years. You have to look at the real-world impact of this."[224]
Some experts have argued that the Dodd–Frank Act isn’t strong enough, arguing that it fails to protect consumers adequately, and, more importantly, does not end too big to fail.[227]
The Securities Industry and Financial Markets Association (SIFMA) — the "top Wall Street lobby" — has expressed support for the law, and has urged Congress not to change or repeal it in order to prevent a stronger law from passing.[228]
Law professor and bankruptcy expert David Skeel concluded that the law has two major themes which are "government partnership with the largest Wall Street banks and financial institutions" and "a system of ad hoc interventions by regulators that are divorced from basic rule-of-law constraints". While he states that "the overall pattern of the legislation is disturbing", he also concludes that some are clearly helpful, such as the derivatives exchanges and the Consumer Financial Protection Bureau.[229]
On April 21, 2010, the CBO released a cost-estimate of enacting the legislation. In its introduction, the CBO briefly discussed the legislation and then went on to generally state that it is unable to assess the cost of financial crises under current law, and added that estimating the cost of similar crises under this legislation (or other proposed ideas) is equally (and inherently) difficult: "[…] CBO has not determined whether the estimated costs under the Act would be smaller or larger than the costs of alternative approaches to addressing future financial crises and the risks they pose to the economy as a whole."[230]
In terms of the impact on the Federal budget, the CBO estimates that deficits would reduce between 2011–2020, but largely in part due to the risk-based assessment fees levied to initially capitalize the Orderly Liquidation Fund; after which, the majority of revenue for the Fund would be drawn primarily from interest payments. Due to this, the CBO projects that eventually the money being paid into the Fund (in the form of fees) would be exceeded by the expenses of the Fund itself. Additionally, the CBO points out that the reclassification of collected fees by various government agencies has the effect of boosting revenue.[230]
The cost estimate also raises questions about the time-frame of capitalizing the Fund – their estimate took the projected value of fees collected for the Fund (and interest collected on the Fund) weighed against the expected expense of having to deal with corporate default(s) until 2020. Their conclusion was it would take longer than 10 years to fully capitalize the Fund (at which point they estimated it would be approximately 45 billion), although no specifics beyond that were expressed.[230]
The projection was a $5 billion or more deficit increase in at least one of the ten-year periods starting in 2021.[230]
An editorial in the Wall Street Journal speculated that the law would make it more expensive for startups to raise capital and create new jobs;[231] other opinion pieces suggest that such an impact would be due to a reduction in fraud or other misconduct.[3] Complying with the statute seems to have resulted in job shifting or job creation in the business of fulfilling reporting requirements,[232] while making it more difficult to fire employees who report criminal violations.[4]
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