Finance Reform Act

8/8/2019 Finance Reform 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

1000s Of new governmental workers

243 Formal rule makings

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And new oversight

Financial firms

Non-banking financial firms

Executive compensation

Derivatives

Mortgage reform

Credit rating organizations

Hedge funds

Insurance to minority communities

Mortgage relief Foreclosure assistance

Transparency from extraction industries

Consumer spending habits

Orderly resolutions

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Diversity in federal financial agencies


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This presentation will provide an overview of:

What ledto HR4173

Keyelements

of thelaw

What thelaw

means toyou

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What led to HR 4173

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The Financial Mess

Recession in 2000 after dotcom bubble burst

rouble com ounded b Se tember attac s

ed lo ered interest rates to stimulate econom

an s us ed sub rime loans

as credit increased borro ers, dro e u ousin bubble

Wall Street cas ed in on t e sub rime bonan a

ro e in estors to ris ier mo es for i er returns


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What led to HR 4173

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The ub-prime Mess

Dec. 1993, Bob Rubin introduces new Community ReinvestmentAct plan.

4 federal agencies merge efforts to make it easier for banks to lend to lowincome 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

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The ub-prime Mess contd.

Groups like Natl. 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.

CRA distributes pamphlets to community groups encouraging activism.

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

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

2006-7 Housing bubble begins to burst, homeowners default. 20 of allmortgages are now subprime.

2007, subprime lenders H BC and New Century see large losses, cut over3200 jobs.

2007 Feds cut interest rates in the beginning of a series of cuts.

2007 Bear terns, Merrill Lynch, JP Morgan, Citigroup and Goldman achs allin trouble.


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What led to HR 4173

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2008, Pres. Bush signs TroubledAsset Relief Program to purchase assets fromfailing financial institutions.

ubprime loans represented 20 of all mortgages but 49 of allforeclosures.


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What led to HR 4173

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The Political Mess

By the end of 2009 the recession had worsened.

nemployment remained near 10 .

60 of Americans felt the timulus Package had not helped.

According to pollster Frank Luntz, 7 ofAmericans did not want TARP orother corporate bailouts.


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Key Elements of the Law

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

At the signing, President Obama said,B

ecause of this law,the American people will never again be asked to foot the bill

for Wall Streets mistakes.


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HR 4173 is a massive financial regulation bill

It contains 2323 pages

Will require an additional ,000 pages of regulations to enforce

HR 4173 attempts to: Create a sound economic foundation to grow jobs Protect consumers Rein in Wall treet End too big to fail

Prevent another financial crisis


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Dodd-Frank contains 16 titles or separate statutes

Title I - Financial tability

Title II - Orderly LiquidationAuthority

Title III - Transfer of Powers to the Comptroller of the Currency

and Board ofGovernorsTitle IV - Regulation ofAdvisors to Hedge Funds and Others

Title V - Insurance

Title VI - Improvements to Regulation of Bank and avings AssociationHolding Companies and Depository Institutions

Title VII- Wall treet Transparency andAccountability

Title VIII - Payment, Clearing and ettlement upervision


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Dodd-Frank contains 16 titles or separate statutes contd.

Title IX - Investor Protections and Improvements to the Regulation ofecurities

Title X - Bureau of Consumer Financial Protection

Title XI - Federal Reserve ystem Provisions

Title XII - ImprovingAccess to Mainstream Financial Institutions

Title XIII - Pay It BackAct

Title XIV - Mortgage Reform andAnti-Predatory LendingAct

Title XV - Miscellaneous Provisions

Title XVI - ection 12 6 Contracts


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HR 4173 contains many surprises

The Federal Reserve, which colluded with AIG to withhold details from thepublic about payments to banks, (Jan 7, 2010 Bloomberg) is now the chiefregulator of banks.

Title II; ection 342 mandates an Office of Minority and Women Inclusion inevery federal financial agency.

The Treasury may liquidate banks who threaten financial stability,unless those banks are minority owned.

Agencies are required to recruit sufficient staff at black colleges andHispanic-serving institutions.


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Title I Financial tability

Purpose:

Identify systemic risks to stability of . . financial system.

Bring non-bank financial companies deemed a risk understringent regulation.

Impose heightened operating standards for . . financialinstitutions and markets.

Recommend an orderly resolution.


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Title I Financial tability contd.

Creates Financial tability Oversight Council

Identify risks by collecting and sharing data. Implement anti-evasion practices

Identify systemic risks to stability of . . financial system.


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Limited judicial review

Council can decide you will be supervised by the Board ofGovernors.

Bring non-bank financial companies deemed a risk under stringentregulation.


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Board implements stringent financial disclosures,capitalization demands or force to divest of assets.

Impose heightened operating standards for . . financial institutions andmarkets.

Board is authorized to do its own rule making.

Or, the board can authorize a rescue from the Fed. (Orderlyresolution.)

The Board can recommend the firm for an orderlyliquidation.


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Title II The Orderly LiquidationAuthority contd.

To allow the government to deal more effectively with a financialcrisis.

The Corporation (FDIC) shall assume control of all assets of the firmand replace the officers upon appointment as receiver.

No court can take action to restrain the FDIC.


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To place large banking and non-banking financial institutions inreceivership to liquidate the institution.

Non-recouped funds are replenished through assessments oneligible financial firms.

The Corporation establishes an orderly liquidation fund.


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To place large banking and non-banking financial institutions inreceivership to implement an orderly resolution.

Costs are recouped through assessments on eligible financialfirms.

The Corporation may decide to provide an orderlyresolution.

Reframing of the term bailout. (N T 11/13/2010)

FDIC creates a bridge financial company.


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The Orderly Liquidation authority was created to end too big toofail.

10/21/2010, The Federal Housing FinanceAgency projected another$19 billion required to bail out Fannie and Freddie.

21 days after passage, the administration provided $3 billion inbailouts for H D and unemployed homeowners.

Causative factors including Fannie Mae and Freddie Mac notaddressed.

Nothing prevents the FDIC or Congress from bailing out firms.


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Title X Bureau of Consumer Financial Protection

Purpose:

To control numerous financial products including:depositscredit extensionsproperty leases and purchasescheck cashing

online bankingfinancial advisory servicesdebt collection

To set rules and regulations for businesses that providefinancial services to consumers.


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Title X Bureau of Consumer Financial Protection contd.

The Federal Reserve may not interfere with their enforcementactions.

The BCFP is an executive agency within the Federal Reserve.

It operates on an annual budget of 12 of the 2009 Federal Reserveoperating budget or $646 million.

The BCFP Director reports semi-annually to Congress. The Director may listen to Congress suggestions but is not obligated

to follow them.

The BCFP director is appointed by the President with the consent ofCongress.


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Theybelieve theagencycannot protect you if theydont nowwhat

youaredoing.

The BCFP has broadpowers to monitoryourpersonal financialinformationbecause:

These tools arenecessary tocontrol consumers purchasingbehavior therebyprotectingconsumers.


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Section 1071 allows the agency to use the data on branches and[individual and personal] deposit accountsfor any purpose.

The BCFP can monitor consumer financial patterns.

Section 1022 Subsection C provides the bureau authority to "gatherinformation and activities of persons operating in consumer financial

markets.

Customer addresses are to be geocoded for data collection and the

information accumulated for sharing at the agencys discretion.


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The BCFP has broad rule making authority.

Must submit rules changes to Consumer Financial Regulators, but isnot bound to abide by their objections.

For the first time a federal agency has actively sought the authorityto aggregate data on every personal and business financialtransaction in the .S.


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What the Law Means to ou

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While HR 4173 grants some financial protections, it does so at asevere cost to individuals.

Personal rights including due process are abridged.

There are no guarantees the law solves the bailout problem.

The massive bureaucracy the law requires will add to our debt.

Since the law fails to address the underlying causes of the bankfailures, the problem will likely recur.

Increased orderly resolution (bailout) costs are eventually paid by theconsumer.

The right to personal financial privacy is invaded.

Personal financial data is shared with no recourse.


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What the Law Means to ou

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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.

In a Bloomberg poll in March of 2010:

Its up to each of us to stay informed and to find a better way.


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TheAmerican BankersAssociation Website

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

For further information:

Finance Reform Act

Documents

Transcript of Finance Reform Act