Dodd-Frank: So, Where Are We With That?

By     February 3, 2013

In the summer of 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. The law was designed to put new limits on the banking sector and reduce the odds of another financial crisis.

Two and a half years later, most of the new financial rules the act mandates haven’t been issued. (As of December, fewer than half its 236 provisions had been approved by regulators.) Regulators say the delays stem from the sheer volume and complexity of the issues.

The Government Accountability Office issued a report last week on the challenges regulators face in making in these new rules and raised concerns over some that have already been issued.

Here is an update on some of the Dodd-Frank rules and where regulators stand with them:

  • The Federal Deposit Insurance Corporation has issued several rules governing the emergency liquidation of systemically important financial institutions on the verge of bankruptcy. Critics say the FDIC remains unprepared to handle multiple bank failures at once. Others say the FDIC’s decision to impose losses on creditors of failed banks could threaten other important financial institutions.
  • In 2011, the FDIC approved a rule mandating that big banks file so-called living wills with the FDIC to guide regulators in their liquidation in the event of a collapse. Some say the living will requirement could urge banks to simplify and improve their transparency. Others say such plans could become outdated.
  • The Commodities Futures Trading Commission has finalized approximately 80 percent of the Dodd-Frank swap rules designed to reduce the risk of credit defaults swaps and other over-the-counter derivatives by ensuring that swap trades are centrally cleared. However, the rules that specify the margins clearinghouses must hold and the amount of capital swap dealers must maintain to absorb losses remain incomplete.
  • The Federal Reserve, the Securities Exchange Commission and the FDIC said last April that banks with federally insured deposits would be prohibited from engaging in proprietary trading as of July 21, 2014. The rule is designed to keep banks from taking excessive risks with what is effectively government money. Some congressmen have called for a repeal of the ban on proprietary trading or a delay in its implementation. Others are requesting a revised proposal. Regulators are unsure when they will take the next action.
  • The Consumer Finance Protection Bureau established by the Dodd-Frank act has enacted several rules to shield consumers from foul play, including two in January that set new standards for mortgage servicing companies. The CFPB also raised the standards for qualified mortgages, which protect the lender from suits brought by the borrower. The new standards, which go into effect in January 2014, restrict the lender’s ability to offer high-risk mortgages. Critics say the rule could make it more difficult for low-income borrowers to get a loan.
  • The SEC has made several rules to improve investor protection. For example, agencies securitizing assets like home mortgages must now retain at least five percent of the credit risk involved. There are concerns that borrowers might be forced to pay higher mortgage interest rates and fees as a result of these rules. The FDIC disagrees with these claims.

Read the full report here.
Read the Dodd-Frank Act here.

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