Dodd-Frank Act: Synopsis for Ventura County Residents

The official name of the Dodd-Frank Act is the Dodd-Frank Wall Street Reform and Consumer Protection Act.  It was signed into law in 2010 and was one of the biggest changes to financial regulation that the United States has ever seen.  Initially conceived as a response to the housing bubble crash and the Great Recession of the late 2000s, the purpose of Dodd-Frank 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.”  As with every piece of legislation, there will be people on both sides who criticize the act.  Some people say that Dodd-Frank does not do enough to protect the country from another financial crisis while others say that the government is over regulating and that Dodd-Frank will do more harm than good.  Only time will tell what lasting effect Dodd-Frank will have on the health of the US economy.

Overview of the Dodd-Frank Act

Below we give a very brief overview of the sixteen Titles within the Dodd-Frank Act.  This overview will be very high level and is only meant to be used as general reference.  For more information about the Dodd-Frank Act, you can check out the American Bankers Association website.

Title I – Financial Stability

Also known as the Financial Stability Act of 2010, this title created the Financial Stability Oversight Council and the Office of Financial Research to track the state of the economy and identify any potential risk to the financial system.  The Financial Stability Oversight Council’s three main responsibilities are to identify the risks to the financial stability of the country, promote market discipline, and to respond to any emerging threats that may arise to the financial system.  The Office of Financial Research is mainly tasked with handling the administrative, technical, and support services of the Financial Stability Oversight Council.

Title II – Orderly Liquidation Authority

This title within the Dodd-Frank Act adds insurance companies and non-bank financial companies as entities that can be liquidated in addition to the supervised banks, insured depository institutions, and securities companies that are already covered by the Federal Deposit Insurance Corporation FDIC or Securities Investor Protection Corporation (SIPC).

Title III – Transfer of Powers to the Controller, the FDIC, and the Fed

Also known as the Enhancing Financial Institution Safety and Soundness Act of 2010, this title is intended to improve the efficiency of banking regulations.  It also increases the amount of deposits insured by the FDIC from $100,000 to $250,000 and requires certain financial regulatory agencies to establish an Office of Minority and Women Inclusion.

Title IV – Regulation of Advisers to Hedge Funds and Others

Also known as the “Private Fund Investment Advisers Registration Act of 2010,” this title requires that certain investment advisors register under the Investment Advisers Act of 1940.

Title V – Insurance

This title includes two different subtitles.  Subtitle A is the “Federal Insurance Office Act of 2010” which created the Federal Insurance Office under the Department of Treasury.  Subtitle B is the “Nonadmitted and Reinsurance Reform Act of 2010” which regulated how states can place requirements on nonadmitted insurance.

Title VI – Improvements to Regulation

Also known as the “Bank and Savings Association Holding Company and Depository Institution Regulatory Improvements Act of 2010.” This title attempts to limit large firms from taking big risks with speculative investments, also known as the “Volcker Rule,” named after the former Chairman of the Federal Reserve, Paul Volcker.

Title VII – Wall Street Transparency and Accountability

This act regulates the “swaps” market by requiring that these transactions be cleared through clearinghouses or exchanges.  Some experts state that these swaps were the reason for some of the bank failures during the Great Recession.

Title VIII – Payment, Clearing and Settlement Supervision

Title VIII tasks the Federal Reserve to create standards for “important” financial institutions to implement to help mitigate risk and promote stability within the financial system.

Title IX – Investor Protections and Improvements to the Regulation of Securities

This title restructures and edits the powers of the Securities and Exchange Commission (SEC) and credit rating organizations.  It also tries to better define the relationship between investment advisors and customers.

Title X – Bureau of Consumer Financial Protection

Also known as the “Consumer Financial Protection Act of 2010”, this act established the Bureau of Consumer Financial Protection to regulate consumer services and financial products, independently from the Federal Reserve.

Title XI – Federal Reserve System Provisions

Title XI slightly restructured and levied new requirements on the Federal Reserve.

Title XII – Improving Access to Mainstream Financial Institutions

This title seeks to improve the amount of low- and medium-income people that have access to the United States financial system.  In particular, it aims to enable low- and moderate-income people to open and hold accounts in federally insured banks and to encourage these banks to make micro loans to consumers and provide financial education and/or counseling.

Title XIII – Pay It Back Act

The Pay it Back Act reduces the amount of funds from $700 billion to $475 billion available to the Troubles Asset Relief Program.  It also states that any unused portion of money cannot be used to create or enhance any new programs.

Title XIV – Mortgage Reform and Anti-Predatory Lending Act

This title aims to prevent the damage that was caused by the Housing Crisis from occurring in the future.  Comprised of 8 different subtitles, the main goal of this title is to standardize the mortgage process so that loans are only given to borrowers with a high likelihood of repaying their loans.  The scope of each individual subtitle is too detailed to get into in this blog post, but we may revisit title XIV in a future post.

Title XV – Miscellaneous Provisions

This title contains provisions that do not fit under any other title and have likely been added since the original drafting of the Dodd-Frank Act.

Title XVI – Section 1256 Contracts

Title XVI prevents certain kinds of transactions from benefiting from the tax treatment of section 1256 of the Internal Revenue Code.

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