Factbox: Sweeping U.S. Dodd-Frank financial law created new agencies, rules

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By Amanda Becker

<span class="articleLocation”>The Dodd–Frank Wall Street Reform and Consumer
Protection Act, named for former Democratic lawmakers Senator
Chris Dodd and Representative Barney Frank, was signed by former
President Barack Obama in 2010 as a response to the financial
crisis.

Dodd-Frank is the most sweeping financial regulatory statute
enacted since the response to the Great Depression in the 1930s.
It created new regulatory bodies and directed already-existing
agencies to write hundreds of regulations aimed at creating
stability in the financial markets.

Republican lawmakers, including President Donald Trump, have
said that Dodd-Frank is burdensome for financial institutions,
and many seek to repeal it in whole or part. Trump signed an
executive order on Friday that did not mention Dodd-Frank by
name. But White House Press Secretary Sean Spicer told reporters
on Friday, “Dodd-Frank is a disastrous policy that’s hindering
our markets” and the order would be the first step taken to
review the law.

Here are some of the Dodd-Frank law’s main provisions:

The Financial Stability Oversight Council

Dodd-Frank created the FSOC to monitor risk in the financial
system and it was granted the power to deem institutions,
including non-bank firms such as asset managers and insurance
companies “systemically important financial institutions.” These
firms are often called “too-big-to-fail” and subject to
additional capital requirements.

The Office of Financial Research

Dodd-Frank created the independent Office of Financial
Research within the Treasury Department to provide data and
support related to risks in the financial system to relevant
government agencies, including the FSOC. This data is used in
part to assess whether a firm is a systemically important
financial institution.

Consumer Financial Protection Board

Dodd-Frank created the CFPB, a federal agency that oversees
consumer protection in the financial sector, including banks,
payday lenders, credit unions, mortgage servicers and other
companies. A federal appeals court ruled in October that the
bureau’s structure is unconstitutional because its director,
currently Richard Cordray, cannot be removed by the president
without cause. That ruling was stayed and has not taken effect
pending appeal.

Volcker Rule

A portion of Dodd-Frank known named for former Federal
Reserve Chairman Paul Volcker prohibits commercial banks from
also engaging in proprietary trading and restricts them from
investing in hedge and private equity funds. The Volcker Rule
also limits the liabilities that can be taken on by the
country’s largest banks. The rule was delayed several times and
took effect in July 2015. Some large Wall Street banks asked the
Federal Reserve to grant them an additional five-year grace
period to comply with the rule.

Capital Requirements

The law’s so-called capital requirements forced banks to
fund themselves more by raising money from shareholders than by
borrowing. Regulators used a variety of requirements to force
banks to cut their reliance on debt, including by imposing
tougher rules for riskier assets. The most stringent
requirements fell on the biggest banks. Banks say the process
has been costly.

Living Wills

Dodd-Frank required banks with assets of $50 billion or more
to submit living wills to regulators. A bank’s living will is a
kind of prepackaged bankruptcy plan that will guide its
dissolution and liquidation without taxpayer assistance should
it collapse. If these living wills are deemed insufficient by
regulators, institutions get another chance to submit a new
plan. At that point, if regulators again deem a living will
insufficient, a bank can face sanctions.

Swaps Push-Out Rule

The initial swaps proposal prohibited banks active in swaps
markets from receiving federal assistance. The rule was narrowed
to apply to only swaps entities. A swaps entity is a swap dealer
that is registered with the Commodity Futures Trading Commission
or Securities and Exchange Commission. The rule does not apply
to depository banks that have swaps divisions, which remain
eligible to be insured by the federal government.

Regulated Institutions

A number of Dodd-Frank’s provisions were designed to direct
agencies to regulate entities such as private equity funds and
hedge funds for the first time. It also required a brand new
regulatory regime for over-the-counter derivatives, which
imposed capital and margin requirements, central clearing and
trading transparency rules on the marketplace.



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