Dodd-Frank Wall Street Reform and Consumer
Protection Act Overview
Florida Government Finance
Officers Association – 2012 Annual Conference
Presented by:
James Reilly
Director Dodd-Frank Act Implementation
Ravi Subbaraya
Head, Business Banking Products
Financial Crisis
Accommodative
monetary policy
Transfer of assets from
banks’ balance sheet to
global markets
Excess leverage at
financial firms, primarily
investment banks
Unrealistic consumer
expectations
Lowered underwriting
standards
A confluence of events
contributed to the
financial crisis
Creation of complex,
opaque financial
assets
Failure of rating
agencies to adequately
assess the inherent risk
of these assets
Failure of regulators to
identify and correct
emerging weaknesses
Fair value accounting
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Financial Industry Change Then…

The Banking Act of 1933
• Created the FDIC
• Glass-Steagall Act separated
commercial/investment banking
• FOMC elevated independent
monetary policy
Legislative response to the Great
Depression brought a decade of
broad structural change to the U.S.
financial industry:

Securities Act of 1933

Securities Exchange Act of 1934

Trust Indenture Act of 1939

Investor Advisors Act of 1940

Investment Company Act of 1940
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And Now… Dodd-Frank Overview
 In contrast to previous legislation, the Dodd-Frank Act was largely a partisan bill
that was debated for less than a year in Congress.
 The Act, together with the rigorous capital and liquidity standards proposed by
Basel III, will create a significant challenge in the coming months and years.
 Over 240 rulemakings and 96 agency studies are necessary to fully implement
the legislation. While most of this regulatory action has started less than 30
percent of the rules have been finalized to date.
 Complexity of implementation is significant; it will be costly and time
consuming.
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Key Themes of the Act
Theme
Description
Consumer and Investor Protection






Bureau of Consumer Protection
Preemption
Interchange Fees
SEC Investor Protection authority
Mortgage Reform / Increased Disclosures
Durbin Amendment
Market Stability, Enhanced Prudential Standards and
Systemic Risk

Enhanced prudential standards
Prudential Regulation and Supervision
Restrictions on Bank Activity
Transparency and Disclosure
•
•
•
•
Capital, leverage, liquidity, credit concentration limits
Living Wills
Stress Testing
Early Remediation



Financial Stability Oversight Council Office of Financial Research
Collins Amendment
“Basel III”

Regulatory Restructuring
•
•
•
•
•

Enhanced FDIC supervision
Enhanced rules on acquisitions
Enhanced Fed role
OTS Eliminated
CFTC / SEC oversight of derivatives
Volcker Rule
•
•
Proprietary Trading
Hedge Funds/Private Equity Funds

Swap Push-out

OTC Derivatives
•
•
•
Clearing/Exchange Trading
Position Reporting
SEC/CFTC Oversight
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Regulatory Environment Has Also Changed
 In the U.S. there exists a regime of functional regulation whereby specific entities are
regulated according to the activities in which they are principally engaged (e.g.,
commercial/retail lending, investment banking, insurance).
 Accordingly, there are multiple regulators that supervise the various activities of banks
and their holding companies, sometimes at cross purposes and with somewhat
conflicting concerns
• Federal Reserve
•
Office of the Comptroller of the Currency
• Federal Deposit Insurance Corporation
•
Commodity Futures Trading Commission
• Securities and Exchange Commission
• National Credit Union Administration
• Consumer Financial Protection Bureau
• State Banking/Insurance/Securities Authorities
• State Attorneys General
• SROs
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Regulatory Environment Has Also Changed
 Through statutes and implementing regulations very specific policies exist
regarding capital, leverage, liquidity, executive compensation, safety and
soundness, financial reporting, credit, commercial and retail lending and
affiliate transactions, among others.
 Mandates are enforced through general and targeted examinations which are
ongoing throughout the year.
 In large financial institutions a sizeable number of examiners are in residence
and engage in continuous discussions with management.
 The DFA will expand the scope and tenor of the supervisory process through
extensive data collection and peer group analysis.
 “Macroprudential” regulation, systemic risk and TBTF will become key themes
going forward.
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Caught in the Web
Who can do what to whom
Financial Agencies:
Old
Lines of Reporting:
New
Old with new powers
Affected parties
CFTC
Office of the
Comptroller
of the
Currency
Has authority to examine
State
Regulatory
Authorities
and AG’s
FSOC
OFAC /
FinCEN
SEC
Can request information
FEDERAL
RESERVE
FDIC
OFR
CFPB
FINRA
Investment
Advisory
Derivatives
Source: JPMorgan Chase
Consumer
Lending
Commercial
Lending
Brokerdealer
Retail
Banking
Alternative
investments
Investment
Banking
Payment
and
Clearing
Systems
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Key Takeaways
 The Dodd-Frank Act (“DFA”) is over 2300 pages long and requires over 240 rulemakings and
close to an additional 100 studies and reports for full implementation.
 The DFA creates new offices and agencies (e.g., the Consumer Financial Protection Bureau,
the Financial Stability Oversight Council) that have a broad scope and mandate.
 Loss of pre-emption of federal consumer financial laws will require compliance by banks with
national charters with the laws of each state in which they do business. This will become an
ongoing compliance burden .
 Volcker Rule, as currently proposed, has a broad extraterritorial impact and many unintended
consequences.
 The Durbin Amendment (debit card swipe fees) resulted in a very meaningful transfer of
revenues from banks to retailers with no discernable benefit for consumers.
 Enhanced Prudential Standards (capital, leverage, liquidity, stress tests and resolution
planning) will be difficult to implement an will require ongoing reporting and updating.
 Agencies have admitted they will not meet statutory deadlines in many areas. This will add to
implementation risk.
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Business Impacts and Implications
 Implementation of DFA = Significant investment in resources to understand
and implement new rules = Higher Cost
 Creation of new offices and agencies (e.g., the CFPB) = New regulators,
Stricter do’s and don’ts = redesign disclosures, enhanced reporting
 Durbin (and prior to that Reg. E)= Lost fee revenue = end of free checking
 FDIC Assessment Based Change = based on assets not deposits = adjusts
of bank quality
 FDIC Protection on Non Interest Bearing = Collateral Costs
 Reg. Q = Beginning of the End of Non Interest Bearing Checking = lower
interest income
 Loss of pre-emption: Product & pricing vary by state = collateral, training,
compliance becomes state specific = higher costs e.g., Gift Cards
Results
 Higher banking
costs for
Consumers and
Businesses
 Higher costs for
Banks
 Redirected
investments
 Fewer Banks
 Enhanced Prudential Standards (capital, leverage, liquidity) = Rethink asset
mix
 Delays in implementation = Uncertainty and change = moving targets
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