Financial Regulations; CFPB; Dodd-Frank

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Recent Developments
Background Reports and Resources
History of Major Actions in Financial Regulation


Recent Developments:

  • May 24, 2018:  Signed by President; became PL 115-174, Economic Growth, Regulatory Relief, and Consumer Protection Act.  CRS Summary | NYU Summary.  
    • (excerpted from CRS Summary:
    • Title I relaxes or provides exemptions to certain mortgage lending rules. For example, it creates a new compliance option for mortgages originated and held by banks and
      credit unions with less than $10 billion in assets to be considered qualified mortgages for the purposes of the Ability-to-Repay Rule. In addition, P.L. 115-174 exempts certain insured
      depositories and credit unions that originate few mortgages from certain Home Mortgage Disclosure Act reporting requirements.
    • Title II provides regulatory relief to community banks. For example, banks with under $10 billion in assets are exempt from the Volcker Rule, and certain banks that meet a
      new Community Bank Leverage Ratio are exempt from other risk-based capital ratio and leverage ratio requirements.
    • Title III enhances consumer protections in targeted areas. For example, it subjects credit reporting agencies (CRAs) to additional requirements, including requirements to generally provide fraud alerts for consumer files for at least a year and to allow consumers to place security freezes on their credit reports. In addition, it requires CRAs to exclude certain medical debt from veterans’ credit reports.
    • Title IV alters the criteria used to determine which banks are subject to enhanced prudential regulation from the original $50 billion asset threshold originally set by Dodd-Frank. Banks designated as global systemically important banks and banks with more than $250 billion in assets are still automatically subjected to enhanced regulation. However, under P.L. 115-174 banks with between $100 billion and $250 billion in assets are automatically subject only to supervisory stress tests, while the Federal Reserve (Fed) has discretion to apply other individual enhanced prudential provisions to these banks. Banks with assets between $50 billion and $100 billion will no longer be subject to enhanced regulation, except for the risk committee requirement. In addition, P.L. 115-174 relaxes leverage requirements for large custody banks, and allows certain municipal bonds to be counted toward large banks’ liquidity requirements.
    • Title V provides regulatory relief to certain securities regulations to encourage capital formation. For example, it exempts more securities exchanges from state securities regulation and subjects certain investment pools to fewer registration and disclosure requirements.
    • Title VI provides enhanced consumer protection for borrowers of student loans. For example, it requires CRA to exclude certain defaulted private student loan debt from credit reports.
  • May 22, 2018:  House passes S. 2155, 258-159.
  • March 14, 2018:  Senate passed S. 2155, loosening regulations imposed by the Dodd-Frank Act.  The bill would: relax certain mortgage lending rules; provide regulatory relief to community banks, for example exempting banks with under $10 billion from the Volcker Rule (that restricts banks from making certain kinds of speculative investments that do not benefit their customers); impose additional requirements on credit reporting agencies; and loosen regulations on most banks.  The nonpartisan CBO estimates that the probability of a systemically important financial institution failing is “small under current law and would be slightly greater under the legislation.”  CRS Summary of the Bill   Bill Text   CBO cost estimate
  • June 8, 2017:  House passes Financial CHOICE Act, H.R. 10.  CRS Summary
  • Jan 31, 2017:  Appeals court rules consumer bureau’s structure is constitutional
  • Dec. 5 2017:  Senate Banking Committee passed the bipartisan “Economic Growth, Regulatory Relief and Consumer Protection Act,” S. 2155, with 16 committee members supporting the measure, but Committee Democrats split. Ranking Democrat Sherrod Brown opposed the bill.
    • GOP release on the bill
    • Ranking Democrat Sherrod Brown: Statement opposing the bill
    • Bill Text
    • Section-by-Section Explanation
    • Republican Co-Sponsors: Mike Crapo (R-Idaho), Bob Corker (R-Tennessee), Tim Scott (R-South Carolina), Tom Cotton (R-Arkansas), Mike Rounds (R-South Dakota), David Perdue (R-Georgia), Thom Tillis (R-North Carolina), John Kennedy (R-Louisiana), Jerry Moran (R-Kansas) and Jim Risch (R-Idaho).
    • Democrat Co-Sponsors: Joe Donnelly (D-Indiana), Heidi Heitkamp (D-North Dakota), Jon Tester (D-Montana), Mark Warner (D-Virginia), Tim Kaine (D-Virginia), Angus King (I-Maine), Joe Manchin (D-West Virginia), Claire McCaskill (D-Missouri), Gary Peters (D-Michigan) and Michael Bennet (D-Colorado).
  • June 15, 2017: Treasury releases the the first of several reports critically reviewing Dodd-Frank regulations.  The report: calls for loosening restrictions on bank traders; easing annual stress tests of banks’ ability to withstand financial shocks; advising regulators to rethink capital requirements; and reducing independence of the Consumer Financial Protection Bureau.
  • June 8, 2017:  House voted 233-118, largely along party lines, to pass HR 10, a bill to repeal much of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.  Dodd-Frank is aimed at preventing the types of practices that led to the 2008 financial crisis and the recession it triggered.
    • CBO Cost Estimate for the Manager’s Amendment, HR 10:  “H.R. 10 would amend the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and other laws governing regulation of the financial industry. The bill also would repeal the Federal Deposit Insurance Corporation’s (FDIC) authority to use the Orderly Liquidation Fund (OLF) and would allow financial institutions, under certain circumstances, to be exempt from a variety of regulations. H.R. 10 would make numerous other changes to the authorities of the agencies that regulate the financial industry, and it would change how the operations of the National Credit Union Administration (NCUA) and Consumer Financial Protection Bureau (CFPB) are funded. CBO estimates that enacting the legislation would reduce federal deficits by $24.1 billion over the 2017-2027 period. Direct spending would be reduced by $30.1 billion, and revenues would be reduced by $5.9 billion. Most of the budgetary savings would come from eliminating the OLF and changing how the CFPB is funded. CBO also estimates that, over the 2017-2027 period, and assuming appropriation of the necessary amounts, implementing the bill would cost $1.8 billion.”
  • June 6, 2017:  As reported by Congressional Quarterly, the House Rules Committee — in adopting a Rule for consideration of H.R. 10 — voted to allow only five amendments plus a manager’s amendment and declined to allow a hearing for a proposal to reinstate the Depression-era Glass-Steagall Act which separated commercial and investment banks.  Also on June 6, the Administration released a statement endorsing the legislation, highlighting provisions that “affirm the President’s authority to remove the Director of the Consumer Financial Protection Bureau (CFPB) at will.”
  • May 4, 2017:  House Financial Services Committee on Thursday, May 4, voted on party lines to report H.R. 10 (“The Financial CHOICE Act”) to repeal parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Proponents of the legislation argue that implementing regulations have stifled economic growth, while opponents argue that repealing Dodd-Frank would unleash the same behavior on Wall Street that led to the 2008 financial crisis. Key provisions of the legislation would: repeal the authority of the Financial Stability Oversight Council (FSOC) to designate firms as systemically important financial institutions (SIFIs); prohibit the use of the Exchange Stabilization Fund to bailout financial firms; replace regulation with enhanced penalties for fraud and deception; make all regulatory agencies including the Consumer Financial Protection Bureau (CFPB) subject to annual appropriations decisions; limit the independence of the CFPB; repeal the “Volcker Rule” which prohibits banks from engaging in proprietary trading; increase congressional oversight of the Federal Reserve; and provide regulatory waiver for banks that elect to be strongly capitalized.  Outlook: If the legislation passes the House, it will advance to the Senate where 60 votes and bipartisan agreement are required for passage.


Background Reports and Resources


History of Major Actions in Financial Regulation

1860s

  • 1863 – National Bank Act, designed to resolve the financial crisis that emerged during the early days of the Civil War, created a national banking system and established a national currency.

1910s

  • 1913 – Federal Reserve Act established the Federal Reserve System, the central banking system of the U.S.

1920s

  • 1927 – McFadden Act was intended to allow national banks to compete with state banks by permitting them to open branches within state limitations.

1930s

  • 1933 – Glass-Steagall Act, passed as an emergency measure to counter the failure of almost 5000 banks during the Depression, prohibited commercial banks from participating in the investment banking business.
  • 1935 – Banking Act formalized federal deposit insurance including naking the FDIC a permanent government agency.

1950s

  • 1956 – Bank Holding Company Act brought bank holding companies under federal supervision.

1960s

  • 1966 – Bank Merger Act set uniform standards for banking agencies, the Justice Department, and the courts to assess a merger’s legality.

1970s

1980s

  • 1980 – Depository Institutions Deregulation and Monetary Control Act phased out interest rate ceilings on deposits, expanded thrift powers, and raised deposit insurance coverage to $100,000.
  • 1982 – Garn-St. Germain Act further deregulated thrifts.
  • 1987 – Competitive Equality Banking Act made initial attempt to bolster FSLIC, put time limits on clearing checks, and closed a loophole that let non-banks charter limited purpose banks.
  • 1989 – Financial Institutions Reform, Recovery, and Enforcement Act created a new, recapitalized thrift insurance fund and the Resolution Trust Corp. to sell assets of failed thrifts.

1990s

  • 1991 – FDIC Improvement Act passed during the savings and loan crisis, strengthened the power of the Federal Deposit Insurance Corporation by allowing it to borrow directly from the Treasury and mandated that the FDIC resolve failed banks using the least costly method available. It also ordered the FDIC to assess insurance premiums according to risk and created new capital requirements.
  • 1994 – Riegle-Neal Interstate Banking and Branching Efficiency Act permitted interstate expansion.
  • 1999 – Gramm-Leach-Bliley Act repealed part of the Glass–Steagall Act of 1933, removing barriers in the market among banking companies, securities companies and insurance companies, allowed financial holding companies to offer banking, securities, and insurance products under one corporate roof.

2000s

  • 2001 – USA PATRIOT ACT contains strong measures to prevent, detect, and prosecute terrorism and international money laundering.
  • 2002 – Sarbanes-Oxley Act set new or expanded requirements for all U.S. public company boards, management and public accounting firms.

2010s

  • 2010 – Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203), signed by President Obama on July 21, 2010 as a response to the Great Recession of  2007–2008, brought the most significant changes to financial regulation since the reforms that followed the Great Depression, including:
    • The interagency Financial Stability Oversight Council, chaired by the Treasury Secretary and including the Federal Reserve, the Securities and Exchange Commission, and the Consumer Financial Protection Bureau, to monitor systemic risk, and granted the Federal Reserve oversight authority and the Federal Deposit Insurance Corporation (FDIC) resolution authority over the largest financial firms;
    • Volcker Rule is designed to prohibit “banking entities” from engaging in all forms of “proprietary trading” (i.e., making investments for their own “trading accounts”)—activities that former Federal Reserve Chairman Paul A. Volcker often condemned as contrary to conventional banking practices and a potential risk to financial stability;
    • Regulation of Derivatives: required more disclosures in the over-the-counter derivatives market than prior to the financial crisis and granted the CFTC and SEC authority over large derivatives traders [Dodd Frank and Derivatives];
    • Federal Insurance Office (FIO) created under the Treasury Department, to identify insurance companies, e.g. AIG, that create risk to the entire system;
    • Office of Credit Ratings at the Securities and Exchange Commission (SEC) to regulate credit ratings agencies like Moody’s and Standard & Poor’s; and
    • Consumer Financial Protection Bureau (CFPB) to protect consumers from “unscrupulous business practices” by banks, consolidating a number of existing consumer protection responsibilities in other government agencies; works with regulators in large banks to stop transactions that hurt consumers, such as risky lending; and provides consumers with access to “plain English” information about mortgages and credit scores along with a consumer hotline to report issues with financial services.
  • 2018: Economic Growth, Regulatory Relief, and Consumer Protection Act (PL 115-174)