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Summary of Dodd Bill

Quick Summary of Dodd Bill:

1.    Consumer Financial Protection Bureau is established within the Federal Reserve. 
a.    It has its own budget paid for by the Federal Reserve System, it's own presidentially appointed Director, and does not report to the Federal Reserve's Board of Governors.
b.    The Bureau writes the rules governing financial products and services for all consumer financial institution transactions, including banks and non-banks. 
                                         i.    It has broad authority to include Uniform Deceptive Act Practice standards in doing so. 
                                        ii.    It includes authority to determine proper standards for both sales and compensation practices. 
                                       iii.    Its rules are subject to review by the Financial Stability Oversight Council, but can only be blocked by a 2/3 vote.
c.    Community banks less than $10 Billion in total assets would be examined for purposes of compliance with the CFPB rules by their prudential regulator. CFPB retains back-up authority to examine small banks and credit unions.
d.   Entities regulated by state insurance departments and securities regulators, the Securities and Exchange Commission and the Commodities Futures Trading Commission are exempt from its oversight and rules. 
e.    CFPB has specific authority over all mortgage-related businesses, including lenders, servicers and brokers. Merchants, retailers and others are exempt.
2.    OTS. Abolishes the Office of Thrift Supervision; prohibits granting of new thrift charters; and current OTS functions will be divided among existing regulatory agencies. Larger entities are to be regulated by the Federal Reserve.
3.    Interstate Branching. Removes restrictions on de novo interstate branching.
4.    Supervision Changes: The Fed retains supervision of banks and bank holding companies greater than $50 Billion. Supervision of bank holding companies with less than $50 Billion is transferred to the OCC (if the majority of assets are held by national banks and federal thrifts) and the FDIC. Rule-making authority remains with the Fed in consultation with the OCC.
5.    Financial Stability Oversight Council. A nine-member “Financial Stability Oversight Council” is created to identify institutions and practices that pose a systemic risk and make recommendations to the members of the Council for standards to address such risks. The Council Is not required to review and comment on accounting practices and standards as in the House version.
6.    Ends “too-big-to-fail”. Creates a mechanism within the FDIC to act as receiver for failing institutions that would have formerly fallen into that category. Management will be removed and shareholders and unsecured creditors will be wiped out.
a.    FDIC, Treasury and the Federal Reserve would have to reach agreement on placing a formerly “TBTF” company into the process. A three-judge bankruptcy panel must be convened and agree that liquidation is the appropriate process to be followed.
b.    TBTF firms (greater than $50 Billion) are to be assessed to create a liquidation fund of $50 Billion to cover the costs of resolving a TBTF firm.
c.    The FDIC assessment base would be changed to total consolidated assets minus tangible equity and less long-term unsecured debt, but with a caveat: in the event the FDIC finds that this change reduces the effectiveness of its risk-based assessment system, or increases the risk of loss to the FDIC, it may revert to the existing assessment base or establish a new one.
7.    Preemption. Current law is weakened, but is based on the Barnett Bank standard. While it's not the current standard, it's closer to the law as it exists today and is better than the language contained in the House version of the bill.
a.    There is still a very long way to go to make this provision acceptable to banks. For example, the language authorizes state Attorneys General to enforce federal and state consumer laws and to bring actions for monetary damages on behalf of a state's citizens. This is much broader authority than the current standard. 
b.    There are numerous other provisions that are not workable as a practical matter. This language is of critical importance to both state and national banks.
8.    Compensation. Shareholders of public companies are given a nonbinding vote on executive compensation and can nominate potential Board members.  Mechanism to establish claw-back provisions and independent compensation committees put in place. Importantly the Fed must develop rules prohibiting as unsafe and unsound programs that provide “excessive” compensation paid to bank holding company executives, regardless of whether the company is publicly traded.
9.     Volcker Rule. Includes a restriction on bank proprietary trading with affiliates and sponsored hedge funds and private equity funds. 

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