“Dodd-Frank Wall Street Reform

and
Consumer Protection Act”

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 On July 21, 2010, President Barack H. Obama signed
H.R. 4173 into law.

This was the most sweeping reform

of financial regulation since
the Great Depression.

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 With the new law came a new bureaucracy

 13 New governmental agencies

 1000’s Of new governmental workers
 243 Formal rule makings

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 And new oversight

 Financial firms
 Non-banking financial firms
 Executive compensation
 Consumer spending habits
 Derivatives
 Mortgage reform
 Orderly resolutions
 Credit rating organizations
 Hedge funds
 Insurance to minority communities
 Mortgage relief
 Foreclosure assistance
 Transparency from extraction industries
 Diversity in federal financial agencies

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 This presentation will provide an overview of:

What led Key What the

to HR elements law means
4173 of the law to you

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 What led to HR 4173

The Financial Mess

 Recession in 2000 after dotcom bubble burst
 Trouble compounded by September 11 attacks
 Fed lowered interest rates to stimulate economy
 Drove investors to riskier moves for higher returns
 Banks pushed subprime loans
 Wall Street cashed in on the subprime bonanza
 Easy credit increased borrowers, drove up housing bubble

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 What led to HR 4173

The Sub-prime Mess

 Dec. 1993, Bob Rubin introduces new Community Reinvestment Act plan.

 4 federal agencies merge efforts to make it “easier” for banks to lend

to “low income and distressed communities.”
 CRA alters loan rating system forcing banks to make risky loans.
 Bank Mergers depend on positive CRA ratings.
 1993, Comptroller of the Currency, Eugene Ludwig warns banks to up
low income loans or face the “full panoply of our enforcement
armorarium.”

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 What led to HR 4173

The Sub-prime Mess – cont’d.

 CRA distributes pamphlets to community groups encouraging activism.
 Groups like “Nat’l. Community Reinvestment Coalition” sue banks
under eased guidelines for “redlining.” (Buycks-Roberson v CitiBank
1994)
 Radical groups threaten to intervene in the CRA review process.
 Banks settle quickly to avoid bad press.
 To improve CRA ratings banks increase subprime loans to people who
would otherwise not have qualified.

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 What led to HR 4173

The Sub-prime Mess – cont’d.

 1999 bank deregulation leads to mega-mergers; BOA by NationsBank;
Bank Boston by Fleet, etc.
 Banks, under CRA pressure, further step-up subprime loans.

 1993 – 98 Hispanic mortgages jump 87.2%; African Americans 71.9%;

Non-Hispanic whites by 31.2%
 1999 Fannie Mae pushed by HUD to increase minority portfolio to 50% of
holdings. (NYT 9/30/1999)
 1999 HUD alleges Fannie Mae’s automated underwriting systems
racially discriminate.
 Banks and Wall Street cash in on subprime boom.

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 What led to HR 4173

The Sub-prime Mess – cont’d.

 Lenders reinvest in hedge funds for safety and to extend gains.

 2006-7 Housing bubble begins to burst, homeowners default. 20% of

all mortgages are now subprime.
 2007, subprime lenders HSBC and New Century see large losses, cut
over 3200 jobs.
 2007 Bear Sterns, Merrill Lynch, JP Morgan, Citigroup and Goldman
Sachs all in trouble.
 2007 Feds cut interest rates in the beginning of a series of cuts.

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 What led to HR 4173

The Sub-prime Mess – cont’d.

 2008, Pres. Bush signs Troubled Asset Relief Program to purchase assets
from failing financial institutions.
 Subprime loans represented 20% of all mortgages but 49% of all
foreclosures.

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 What led to HR 4173

The Political Mess

 By the end of 2009 the recession had worsened.

 Unemployment remained near 10%.

 60% of Americans felt the Stimulus Package had not helped.

 According to pollster Frank Luntz, 75% of Americans did not want
TARP or other corporate bailouts.

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 Key Elements of the Law

Congress responded by passing the Dodd-Frank Finance Act. (HR 4173)

At the signing, President Obama said, “Because of this

law, the American people will never again be asked to
foot the bill for Wall Street’s mistakes.”

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 Key Elements of the Law

HR 4173 is a massive financial regulation bill

It contains 2323 pages

Will require an additional 5,000 pages of regulations to enforce
HR 4173 attempts to:
 Create a sound economic foundation to grow jobs
 Protect consumers
 Rein in Wall Street
 End too big to fail
 Prevent another financial crisis

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 Key Elements of the Law

Dodd-Frank contains 16 titles or separate statutes

Title I - Financial Stability

Title II - Orderly Liquidation Authority
Title III - Transfer of Powers to the Comptroller of the Currency
and Board of Governors
Title IV - Regulation of Advisors to Hedge Funds and Others
Title V - Insurance
Title VI - Improvements to Regulation of Bank and Savings
Association Holding Companies and Depository Institutions
Title VII- Wall Street Transparency and Accountability
Title VIII - Payment, Clearing and Settlement Supervision

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 Key Elements of the Law

Dodd-Frank contains 16 titles or separate statutes – cont’d.

Title IX - Investor Protections and Improvements to the Regulation of

Securities
Title X - Bureau of Consumer Financial Protection
Title XI - Federal Reserve System Provisions
Title XII - Improving Access to Mainstream Financial Institutions
Title XIII - Pay It Back Act
Title XIV - Mortgage Reform and Anti-Predatory Lending Act
Title XV - Miscellaneous Provisions
Title XVI - Section 1256 Contracts

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 Key Elements of the Law

HR 4173 contains many surprises

The Federal Reserve, which colluded with AIG to withhold details from
the public about payments to banks, (Jan 7, 2010 Bloomberg) is now
the chief regulator of banks.
Title II; Section 342 mandates an Office of Minority and Women
Inclusion in every federal financial agency.

The Treasury may liquidate banks who threaten US financial stability,

unless those banks are minority owned.

Agencies are required to recruit sufficient staff at “black colleges and

Hispanic-serving institutions.”

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 Key Elements of the Law

Title I – Financial Stability

Purpose:
 Identify systemic risks to stability of U.S. financial
system.
 Bring non-bank financial companies deemed a risk
under stringent regulation.
 Impose heightened operating standards for U.S.
financial institutions and markets.
 Recommend an ‘orderly resolution.’

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 Key Elements of the Law

Title I – Financial Stability – cont’d.

Identify systemic risks to stability of U.S. financial system.

 Creates Financial Stability Oversight Council
 Identify risks by collecting and sharing data.
 Implement anti-evasion practices

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 Key Elements of the Law

Title I – Financial Stability – cont’d.

Bring non-bank financial companies deemed a risk under

stringent regulation.
 Council can decide you will be supervised by the Board
of Governors.
 Limited judicial review

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 Key Elements of the Law

Title I – Financial Stability – cont’d.

Impose heightened operating standards for U.S. financial

institutions and markets.
 Board is authorized to do its own rule making.
 Board implements stringent financial disclosures,
capitalization demands or force to divest of assets.
 The Board can recommend the firm for an ‘orderly
liquidation.’
 Or, the board can authorize a rescue from the Fed.
(‘Orderly resolution’.)

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 Key Elements of the Law

Title II – The Orderly Liquidation Authority

Purpose:
 To allow the government to deal more effectively with
a financial crisis. End bailouts and ‘too big to fail.’
 To place large banking and non-banking financial institutions
in receivership to liquidate the institution.
 To place large banking and non-banking financial institutions
in receivership to implement an ‘orderly resolution.’

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 Key Elements of the Law

Title II – The Orderly Liquidation Authority – cont’d.

To allow the government to deal more effectively with a

financial crisis.

 No court can take action to restrain the FDIC.

 The Corporation (FDIC) shall assume control of all assets of

the firm and replace the officers upon appointment as
receiver.

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 Key Elements of the Law

Title II – The Orderly Liquidation Authority – cont’d.

To place large banking and non-banking financial institutions

in receivership to liquidate the institution.

 The Corporation establishes an orderly liquidation

fund.
 Non-recouped funds are replenished through “assessments”
on eligible financial firms.

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 Key Elements of the Law

Title II – The Orderly Liquidation Authority – cont’d.

To place large banking and non-banking financial institutions

in receivership to implement an ‘orderly resolution.’

 The Corporation may decide to provide an ‘orderly

resolution’.
 FDIC creates a bridge financial company.

 Costs are recouped through “assessments” on eligible

financial firms.
 Reframing of the term bailout. (NYT 11/13/2010)

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 Key Elements of the Law

Title II – The Orderly Liquidation Authority – cont’d.

The Orderly Liquidation authority was created to end ‘too big

too fail’.
 Nothing prevents the FDIC or Congress from bailing out firms.
 Causative factors including Fannie Mae and Freddie Mac not
addressed.
 21 days after passage, the administration provided $3 billion
in bailouts for HUD and unemployed homeowners.
 10/21/2010, The Federal Housing Finance Agency projected
another $19 billion required to bail out Fannie and Freddie.

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 Key Elements of the Law

Title X – Bureau of Consumer Financial Protection

Purpose:
 To set rules and regulations for businesses that
provide financial services to consumers.

 To control numerous financial products including:

deposits
credit extensions
property leases and purchases
check cashing
online banking
financial advisory services
debt collection

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 Key Elements of the Law

Title X – Bureau of Consumer Financial Protection – cont’d.

 The BCFP is an executive agency within the Federal Reserve.

 It operates on an annual budget of 12% of the 2009 Federal

Reserve operating budget or $646 million.
 The Federal Reserve may not interfere with their enforcement
actions.
 The BCFP director is appointed by the President with the
consent of Congress.

 The BCFP Director reports semi-annually to Congress.

 The Director may listen to Congress’ suggestions but is not
obligated to follow them.

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 Key Elements of the Law

Title X – Bureau of Consumer Financial Protection – cont’d.

The BCFP has broad powers to monitor your personal financial

information because:

 They believe the agency cannot protect you if they don’t know
what you are doing.
 These tools are necessary to control consumers’ purchasing
behavior thereby protecting consumers.

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 Key Elements of the Law

Title X – Bureau of Consumer Financial Protection – cont’d.

 The BCFP can monitor consumer financial patterns.

 Section 1022 Subsection C provides the bureau authority to

"gather information and activities of persons operating in
consumer financial markets.”
 Section 1071 allows the agency to “use the data on branches
and [individual and personal] deposit accounts…for any
purpose.”
 Customer addresses are to be geocoded for data collection
and the information accumulated for sharing at the agency’s
discretion.

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 Key Elements of the Law

Title X – Bureau of Consumer Financial Protection – cont’d.

 The BCFP has broad rule making authority.

 Must submit rules changes to Consumer Financial Regulators,

but is not bound to abide by their objections.
 For the first time a federal agency has actively sought the
authority to aggregate data on every personal and business
financial transaction in the U.S.

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 What the Law Means to You

While HR 4173 grants some financial protections, it does so at a

severe cost to individuals.
 The right to personal financial privacy is invaded.
 Personal financial data is shared with no recourse.
 Personal rights including ‘due process’ are abridged.
 There are no guarantees the law solves the bailout problem.
 Increased orderly resolution (bailout) costs are eventually paid
by the consumer.
 The massive bureaucracy the law requires will add to our debt.

 Since the law fails to address the underlying causes of the

bank failures, the problem will likely recur.

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 What the Law Means to You

In a Bloomberg poll in March of 2010:

 58% agreed that banks have not taken sufficient action.

 In spite of this, 69% did not want the government to create a

new agency to oversee banks and financial institutions.
 Americans are clear. They do not believe that government
holds the solutions they seek.
It’s up to each of us to stay informed and to find a better way.

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 For further information:

The American Bankers’ Association Website

http://www.aba.com/regreform/default.htm

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