Print
E-MailMargaret E. Tahyar is a partner and member of the New York Financial Institutions Group at Davis Polk & Wardwell LLP. This post relates to a Davis Polk Client Memorandum summarizing the Dodd-Frank Act, which is available here, and accompanying regulatory implementation slides, which are available here. Additional posts on the Dodd-Franks Act are available here.
The Dodd-Frank Wall Street Reform and Consumer Protection Act will soon be the law of the land, assuming Senate passage. With the President’s signature, the bill will mark the greatest legislative change to financial supervision since the 1930s.
This legislation will affect every financial institution that operates in this country, many that operate from outside this country and will also have a significant effect on commercial companies. As a result, both financial institutions and commercial companies must now begin to deal with the historic shift in U.S. banking, securities, derivatives, executive compensation, consumer protection and corporate governance that will grow out of the general framework established by the bill. While the full weight of the bill falls more heavily on large, complex financial institutions, smaller institutions will also face a more complicated and expensive regulatory framework. This memorandum, written by a broad cross-specialty team of derivatives, bank regulatory, broker-dealer, funds, corporate governance and executive compensation teams at Davis Polk, summarizes the major provisions of the bill in bullet point form. For those who would like to dip into only the sections relevant to them, the table of contents contains hyperlinks. The accompanying Davis Polk Regulatory Implementation Slides are designed to show the effectiveness and implementation timeline of these provisions.
Following the bill’s passage, the regulatory implementation phase will begin. By our count, the bill requires 243 rulemakings and 67 studies. While few provisions of the bill are effective immediately and Congress has designed the bill to become effective in stages, regulators and market participants will need to begin responding to the legislation immediately after its passage. U.S. financial regulators will enter an intense period of rulemaking over the next 6 to 18 months, and market participants will need to make strategic decisions in an environment of regulatory uncertainty. The legislation is complicated and contains substantial ambiguities, many of which will not be resolved until regulations are adopted, and even then, many questions are likely to persist that will require consultation with the staffs of the various agencies involved. Agency rulemaking will, however, set the parameters of the new regulatory framework. The new regulatory framework will contain both new elements and elements drawn from the patchwork of current U.S. financial regulation. An understanding of the older layers of regulation will be indispensable for understanding the new law.
In addition, regulatory implementation will be a dynamic process. Market participants will change their behavior in response to the new regulations and to the rules issued by other regulators and by international bodies. The regulators will be challenged to conform the required regulations to a follow-on technical bill, as promised by Chairman Frank. We expect that there will be both severe challenges for financial institutions as well as significant market opportunities, both at home and abroad, and that regulators and market participants will be dealing with the bill’s consequences, both intended and unintended, for many years to come.
7 Comments
Great post. Thanks very much
This is really over-stepping by the government. Let me see if I got this straight. The government, in their infinite wisdom, has come up with the idea that a law can be passed that will tell lenders how they are allowed to pay employees.
Automotive dealerships put people into payments calculated at one rate and sell the note at a lower rate while they pocket the profits.
Hospitals charge $10 for an asprin and pay $.01 for that asprin while they pocket the profits.
Wal-Mart sells products they buy at low prices, sells it at a profit in order to pay employees.
But when a bank that was told by the government in 1999 that they are required to make loans available to low income, bad credit, jobless people because they are entitled to the same luxuries others enjoy, and then the loans go bad, it is the bank’s fault? Now the government comes in and bails the banks out with money that was collected from the people that are working in this country, the banks pay the money back and I guess the interest on the money includes the government coming in and running the banks with new laws. You have got to be kidding me. All this is doing is forcing the banks to come up with a new formula to pay a loan officer the exact same amount of compensation with a new math formula. Let me show you: 1 + 3 = 4 just like 1 + 10 + 100 – .125 + 6 – 56 + 12 – 68.875 = 4. What kind of idiots are Barney Frank and Chris Dodd? All they are doing is challenging one’s math skills.
While we are on the subject, it used to be when you bought a house, your loan officer would give you a piece of paper that showed exactly what your costs would be including your interest rat and your monthly payment. The government to one simple page and consolidated it into 3 confusing pages that do not include your interest rate or your house payment. Real intelligent. The people that designed this Good Faith Estimate should automatically be terminated from their job when the next day they report to work along with anyone that they work under because they should be held responsible as well.
What a cluster this country has become. I wonder if there is anyone in the United States over the age of 30 that can really stand up and say they are proud of the crap that comes out of Washington DC today.
I am over 30 and proud of this!! Four more years for Obama!!!
You dont understand how business, capitalism, or economics work that is why you are proud of this… fortunetly your candidate does, so vote away.
@shane, you have it all wrong. The government is doing what is required to protect the American people. When LTCM threatened to take down the entire economy because of over-leveraging, the Fed was able to force a private bail-out. Back then, Alan Greenspan argued that the market should be left to regulate itself based on his belief that the interests of the individuals running the banks were aligned with those of the institutions. We later saw that this was not and is not the case. Left unregulated, the managers will do anything for a big bonus, even if that means sinking the company. We watched the S&Ls do this. We watched LTCM do this. We watched Enron do this. We watched every major lender in the housing game do this. Attempting to impose capital requirements and attempting to prevent the wild betting of the banks’ money is just something that needs to be done. By the way, the “government incentivized giving loans to poor people caused this mess” argument is bad on the facts.
The banks set up an intricate network of predatory fly-by-night originators to originate as many loans as possible to be assigned to the banks the same day (to be pooled and re-sold as MBSs at a huge profit). The originators were not honest people giving loans to poor people at the request of the government. They were fraudsters doing anything possible to give them to anyone who walked through the door. The banks as assignees then would invoke a “holder in due course” defense to the fraud committed by the originators, shielding themselves from the fraud they knew about from day one. Most of the valuable loans in the pools were $500k+, not loans to poor people. If you just read a little about this, I’m sure you’d understand why we need more financial regulation.
Good summary and thanks for the links to the Davis Polk materials.
” The originators were not honest people giving loans to poor people at the request of the government. They were fraudsters doing anything possible to give them to anyone who walked through the door.”
In many cases, TRUE. However, the whole set-up would have been inoperable if the government had not created the environment in which it could operate. THis is what happens when a lot of this allegedly “well intended” legislation is passed by a bunch of people who basically ignore its consequences and don’t really understand what they are doing. The road to hell is paved with good intentions. You are right in saying those mortgages were packed into MBS and resold. But then, they couldn’t have been sold if AIG had not “insured” them with something they marketed as “insurance” but which they called Credit Default Swaps so that they wouldn’t have to fulfill captial requirements required of insurance. AIG fundamentally was responsible for making America’s banking mess an international crisis, once they lost their AAA credit rating (as a result of mortgage losses that couldn’t be covered due to their undercapitalization fo the risk). They had sold these products internationally and foreign banks were using them to cover capital requirements under Basel I & II.
The problem with “well-meaning” laws (like “give the poor more access to mortgages and don’t ask about their payback capability” is that, since as a nation, we have basically lost the concept of ethics. Criminals then see these laws as another way to steal and profit. Yes, the banksters were crooked.. but the politicians were also stupid… and well-meaning doesn’t compensate for stupidity.
We don’t need more “market regulation”. We need a better definition of the criminal code and people with the “baghgoombahs” to enforce it. The morons (politicians and corresponding bureaucrats in the agencies) who run the show now are as corrupt as the people they claim to want to control. And the “mega-corps” and mega-banks feed off of that and stay afloat. Look at the amount of money sent to allegedly “too big to fail” banks by a corrupt government. Close to (if not really over) a trillion dollars. The banksters got a free ride from the president and his lackeys. In exchange, they support the politicians with money and the bureaucrats with promises of fancy jobs when they leave government.
Like I said, if we had a half-decent criminal code, a lot of this garbage would put a lot of people in jail. The “unregulated market” is not the problem. It’s the lack of an appropriate criminal code and lack of unbiased enforcement that is the problem.
3 Trackbacks
Dodd-Frank regulatory reform bill: Helpful Analysis and Commentary by Deutsch Bank and on a Harvard Law School Blog…
Over the last several weeks, I’vie shared and commented upon numerous summaries of the Dodd-Frank Wall Street Reform & Consumer Protection Act. Last week I discovered two pieces that artfully make sense of the 2,319-page Act, and even offer u…
[…] For Dodd-Frank Posted on March 4, 2011 by jklepach From the Harvard Law Governance blog: This legislation will affect every financial institution that operates in this country, many that […]
[…] of the night clearly belonged to Michele Bachmann. Asked about legislation she sponsored to repeal Dodd-Frank Wall Street reform, the congresswoman instead announced her filing of paperwork making her candidacy official. […]