The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), named after Senate Banking Committee Chairman Chris Dodd and Chairman of the House Financial Services Committee Barney Frank, was signed into law by President Barack Obama on July 21, 2010.<ref>Obama Signs Sweeping Wall Street Overhaul Into Law. Reuters. Retrieved on July 22, 2010.</ref>
The 848-page document, which is embedded below, aims to ensure financial stability in the United States by improving accountability and transparency in the financial system, ending "too big to fail" bailout policies and increasing consumer protections related to financial services practices, among other goals. For more information, including a summary of the act, its architects, and key provisions, see the Dodd-Frank page on MarketsWiki.
Summary of Dodd-Frank Provisions
The Act consists of 16 Titles. Below is a summary of the provisions of each title, with links to proposed and/or final rulemakings by regulatory authorities.
|Title I: Financial Stability|
|The central element of Title I is the establishment of two entities:
|Title II: Orderly Liquidation Authority|
|Title II is designed to mitigate systemic risk in the case of the bankruptcy of a "covered," or "systemically important" financial company. As such, Title II establishes the Orderly Liquidation Authority (OLA), which required the FDIC to enact rules governing the orderly liquidation or transfer of assets, liabilities, and positions of a defaulting covered entity.<ref>Orderly Liquidation Authority Provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Federal Register. Retrieved on March 16, 2011.</ref>|
|Title III: Transfer of Powers to the Comptroller of the Currency, the Corporation, and the Board of Governors|
|Title III calls for the elimination of the Office of Thrift Supervision and its oversight responsibilities transferred to the FDIC, Federal Reserve, and Office of the Comptroller of the Currency. On July 21, 2011, supervisory responsibility for federal savings associations transferred to the Office of the Comptroller of the Currency (OCC).
Another provision of Title III relates to equal employment opportunity. Each regulatory agency must set up an Office of Women and Minority Inclusion which will be required to develop standards for increased participation in the financial sector by women and minorities.
Finally, Title III requires that the FDIC raise bank reserve ratios and permanently increase the amount of deposits insured to $250,000 per account.
|Title IV: Regulation of Advisers to Hedge Funds and Others|
|Title IV concerns the registration and systemic risk mitigation of hedge funds and other private funds. The SEC is charged with rulemaking authority for Investment Advisers, and exemption thresholds for family offices, accredited investors, and venture capital funds. Private funds with less than $150 million and foreign private advisers are also exempt under Title IV. Information from systemically significant private funds will be shared with regulators, and the Financial Stability Oversight Council (FSOC).|
|Title V: Insurance|
|Title V establishes a new entity withing the U.S. Treasury Department, the Federal Insurance Office (FIO), to "monitor all aspects of the insurance industry, including identifying issues contributing to systemic risk." The FIO also also monitors the availability and affordability of insurance and advises the Treasury Secretary on social issues.<ref>Federal Insurance Office Seeks Comments on How to Modernize, Improve Insurance Regulation. U.S. Department of the Treasury. Retrieved on October 27, 2011.</ref>|
|Title VI: Improvements to the Regulation of Bank and Savings Association Holding Companies and Depository Institutions|
|Title VI contains numerous provisions designed to strengthen banks, bank holding companies, and other financial institutions. Specifically, Title VI mandates that regulators conduct several studies on issues such as concentration of risk and credit risk exposure. More information on these studies can be found HERE.
The core of Title VI, however, is Section 619, Prohibitions on proprietary trading and certain relationships with hedge funds and private equity funds, also known as the Volcker Rule. In January 2011, the Financial Stability Oversight Council released an 81-page study and recommendations on proprietary trading by financial institutions, and on these institutions’ relationships with hedge funds and private equity funds. The study offered 10 recommendations for implementation, including the wind-down of banks' proprietary desks, which types of activities should be exempt, and rules on disclosure and compliance.<ref>Volcker Supports Work on Volcker Rule. Wall Street Journal Online. Retrieved on January 19, 2011.</ref> On October 12, the prudential regulatory agencies issued final recommendations and request for comments in a 298-page document. Final rules were expected by July 2012,<ref>Regulators release plan for Volcker Rule limits on bank trading. Washington Post. Retrieved on October 12, 2011.</ref> but have been subsequently delayed. In the fall of 2012, several trade and lobbying associations, including the American Bankers Association and SIFMA, have called for an outright repeal of the Volcker Rule.<ref>Even After ‘Whale’ Losses, Bankers Hammer Volcker. Wall Street Journal. Retrieved on September 11, 2012.</ref> The joint agencies published final rules on December 10, 2013. For more information, see the MarketsReformWiki Volcker Rule page.
|Title VII: Wall Street Transparency and Accountability|
|Title VII is designed to bring transparency and regulation to swaps and over-the-counter (OTC) derivatives markets. It calls for greater use of electronic trading platforms, standardized data transmission, registration of swap dealers and major swap participants, centralized clearing, and submission of all swap data to a central repository. Title VII also establishes a new type of entity, the swap execution facility (SEF). All swaps "made available for trading" must occur on a SEF or a designated contract market.
The Securities and Exchange Commission (SEC) has jurisdiction over "security-based" swaps; the Commodity Futures Trading Commission (CFTC) has jurisdiction over all other swaps. For a comprehensive overview of the rulemakings at the two agencies, including links to summaries of the proposed and final rules:
In addition to the regulation of swaps, Title VII mandates that the CFTC and SEC review and enhance rules in areas such as:
|Title VIII: Payment, Clearing, and Settlement Supervision|
|Title VIII calls for the Financial Stability Oversight Council to examine the extent to which "financial market utilities," ("FMUs") pose systemic risks, and propose rules to mitigate such risks. Section 803 defines an FMU "as any person that manages or operates a multilateral system for the purpose of transferring, clearing, or settling payments, securities, or
other financial transactions among financial institutions or between financial institutions and that person."<ref>Advance Notice of Proposed Rulemaking Regarding Authority to Designate Financial Market Utilities as Systemically Important. Financial Stability Oversight Council. Retrieved on October 28, 2011.</ref> National exchanges and designated contract markets are not included in the FMU definition.
The Federal Reserve approved a final rule on FMU risk management standards in July 2012.
|Title IX: Investor Protections and Improvements to the Regulation of Securities|
|The ten subsections of Title IX are designed to add layers of protection for investors, shareholders, and whistleblowers. Most of the Title IX provisions fall under SEC jurisdiction. A summary of the major provisions can be found by clicking the links below:
|Title X: Bureau of Consumer Financial Protection|
|Title X calls for the creation of a new agency, the Consumer Financial Protection Bureau (CFPB). The CFPB monitors the financial sector for deceptive, abusive and unfair practices in such areas as mortgages, revolving credit, automobile loans, and student loans. <ref>Learn about the Bureau. Consumer Financial Protection Bureau. Retrieved on October 31, 2011.</ref> The CFPB's "triple mandate" is to
|Title XI: Federal Reserve System Provisions|
|Title XI is intended to add accountability and limits to the power of the Federal Reserve. It creates a new position on the Fed’s Board of Governors - the Vice Chairman for Supervision. It empowers the Government Accountability Office (GAO) to audit the Fed. The GAO released the study in July, 2011.
Additionally, Title XI places limits on the Fed's power to act unilaterally to provide emergency liquidity to financial institutions. Rather, emergency funding shall be done under the approval of the Department of the Treasury, and a report must be submitted to Congress within one week of the emergency action. The report must include the justification for the action, the names of the recipients, financial details of the transaction and the expected cost to taxpayers.<ref>Title XI: Federal Reserve System Revisions. American Bankers Association. Retrieved on October 31, 2011.</ref>
|Title XII: Improving Access to Mainstream Financial Institutions|
|Title XII, also known as “Improving Access to Mainstream Financial Institutions Act of 2010,” is intended to establish fair access to traditional banking services for individuals and small businesses who have been traditionally shut out of such services. Title XII includes provisions to encourage retail checking, savings, small loans, financial services and financial counseling for low- and moderate-income individuals. It seeks to lessen lower-income borrowers' reliance on high-interest rate "payday" loans and other types of predatory lending.<ref>Sutherland Regulatory Reform Task Force. Sutherland Asbill & Brennan LLP. Retrieved on October 31, 2011.</ref>|
|Title XIII: Pay It Back Act|
|Title XIII amends the 2009 Emergency Economic Stabilization Act ("2008 Stimulus Package"), the American Recovery and Reinvestment Act of 2009 ("2009 Stimulus") the Troubled Asset Relief Program (“TARP”) to reduce total funding available through the programs and use the funds for deficit reduction.<ref>Summary of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Cadwalader, Wickersham & Taft LLC. Retrieved on October 31, 2011.</ref> Title XIII also requires the Federal Housing Finance Agency (FHFA) to study and report on how it plans to stimulate a recovery in the housing market without burdening taxpayers.|
|Title XIV: Mortgage Reform And Anti-Predatory Lending Act|
|Title XIV consists of eight subsections addressing mortgage and lending issues such as standards for origination, servicing, appraisals, foreclosure and loan modification. It also establishes the Office of Housing Counseling within the Department of Housing and Urban Development.<ref>Mortgage Reform and Anti-Predatory Lending Act. Association of Corporate Counsel Lexology. Retrieved on October 31, 2011.</ref>
The core of Title XIV is the amendment to the Truth in Lending Act ("TILA," also known as "Regulation Z"), which gives the Consumer Financial Protection Bureau power to monitor lending standards. Lenders must conduct due diligence regarding each borrower's ability to make mortgage payments.
Title XV: Miscellaneous Provisions
Title XV is truly miscellaneous - the provisions cover diverse topics that, in case, are unrelated to Wall Street reform and consumer protection. The major topics addresses in Title XV are:
|Title XVI: Section 1256 Contracts|
|Title XVI specifically prohibits the treatment of swaps as 1256 contracts under the Internal Revenue Code. Section 1256 contracts are futures, options and foreign exchange contracts that are eligible for a 60/40 capital gains split - as they are marked to market at the end of the tax year, 60 percent of gains or losses are declared as long-term, and taxed at the capital gains rate; 40 percent of gains or losses are considered short-term, and taxed as ordinary income. <ref>[http://www.irs.gov/pub/irs-pdf/f6781.pdf Gains and Losses From Section 1256
Contracts and Straddles]. Internal Revenue Service. Retrieved on October 31, 2011.</ref>
The rationale behind Title XVI was that allowing a capital gains split for swap contracts could lead to mismatches or inappropriate market timing.<ref>Summary of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Cadwalader, Wickersham & Taft LLC. Retrieved on October 31, 2011.</ref>