Financial Regulation; Dodd-Frank

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Financial Regulation Timeline and Background Reports

Click here for Update-Outlook on Legislation to Repeal or Reform Parts of Dodd-Frank

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.  LINKS: Legislative Language (4/29)   Majority – Executive Summary  Comprehensive Summary  Minority Views  

CRS Background Report: An Overview of U.S. Financial Regulatory Policy for Banking and Securities Markets

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.