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Dodd-Frank Wall Street Reform and Consumer Protection Act nacted on July 21, 2010, the Dodd- the Federal Reserve System (Federal Reserve) EFrank Wall Street Reform and Consumer and to make recommendations for heightened Protection Act (“the Dodd-Frank Act” prudential supervision of those nonbank financial or “the Act”) provides the most comprehensive companies and bank holding companies with total legislative reform of the U.S. financial sector consolidated assets of $50 billion or more. The since the 1930s. Aimed at addressing the causes FSOC also may designate systemically important of the financial crisis of the last few years, the financial market utilities or payment, clearing Act, among other things, provides for a more or settlement activities. The FDIC is one of ten comprehensive, macro perspective for identifying voting members of the FSOC. and taking action in response to emerging risks in financial sectors and closing regulatory gaps; The FSOC’s recommendations may include, heightened prudential supervision of systemically for example, leverage limits, risk-based capital important nonbank financial companies and large, requirements, liquidity requirements, and interconnected bank holding companies; orderly concentration limits. The Federal Reserve will liquidation of systemically important nonbank be responsible for implementing heightened financial companies and bank holding companies; prudential standards and supervising such firms. elimination of open assistance to preserve a These firms also may be subject to orderly failing insured depository institution; improved liquidation under Title II of the Act, in which consumer financial protections and mortgage the FDIC will act as receiver to resolve the firm lending practices; and enhanced transparency through a process similar to that used to resolve and supervision of over-the-counter derivatives, failed insured depository institutions. The Act swaps, and securities activities; and other investor requires the FDIC and the Federal Reserve to issue protections. The Act significantly impacts the joint regulations implementing the requirement FDIC in its roles as supervisor, receiver, and that these systemically important financial deposit insurer, as well as making changes to the companies develop plans for their rapid and FDIC’s corporate structure. orderly resolution in the event of material financial distress or failure. It also gives the FDIC backup Supervision examination authority over these systemically The Dodd-Frank Act creates a new risk oversight important financial companies. umbrella group, the Financial Stability Oversight The Dodd-Frank Act abolishes the Office Council (FSOC). In an effort to mitigate potential of Thrift Supervision (OTS) and transfers systemic risks, the FSOC is empowered to responsibility for thrift supervision to the Office designate certain nonbank financial companies of the Comptroller of the Currency (OCC) and for supervision by the Board of Governors of FDIC 2010 ANNUAL REPORT 13 the FDIC, as of the statutory “transfer date” (i.e., initially by borrowing against the assets of the July 21, 2011). The FDIC will be responsible for failed financial company, with the borrowings to the supervision of state chartered thrifts, while the be repaid from asset sales and, if necessary, from OCC will supervise federal thrifts. The Federal “clawbacks” of certain additional payments and Reserve will supervise thrift holding companies from additional risk-based assessments against and their non-depository institution subsidiaries. large financial companies. The Act expressly prohibits the use of taxpayer funds to prevent the The Dodd-Frank Act also creates a new Consumer liquidation of any financial company under Title Financial Protection Bureau (CFPB) within the II, and taxpayers shall bear no losses from the Federal Reserve System. The CFPB will have exercise of any authority under Title II. exclusive rulemaking authority for specified federal consumer protection laws and will also have Deposit Insurance examination and primary enforcement authority The Dodd-Frank Act permanently increases for many nonbank financial service providers and the standard maximum deposit insurance insured depository institutions (IDIs) and credit amount to $250,000, and made the increase unions with total assets of over $10 billion (and retroactive to January 1, 2008. The Act also any affiliated IDIs). With regard to IDIs over $10 provides temporary unlimited deposit insurance billion otherwise in its jurisdiction, the FDIC coverage for noninterest-bearing transaction will have backup enforcement authority for laws accounts for two years from December 31, 2010, over which the CFPB has primary authority. The through December 31, 2012. During this time, FDIC retains its current authority and programs all noninterest-bearing transaction accounts under the Community Reinvestment Act and are fully insured, regardless of the balance in other consumer related laws not specified for the account and the ownership capacity of the all IDIs within its jurisdiction. It also retains all funds. This coverage is available to all depositors, examination and enforcement authorities over including consumers, businesses, and government IDIs with total assets of $10 billion or less within entities. The unlimited coverage is separate its jurisdiction. Examination coordination and from, and in addition to, the standard insurance information sharing with the new CFPB coverage provided for a depositor’s other accounts is required. held at an FDIC-insured bank. Receivership The Act directs the FDIC to amend its regulations As noted, the FDIC may be appointed as receiver to define “assessment base” as average consolidated for a failed systemically significant nonbank total assets minus average tangible equity. For financial company or large, interconnected custodial banks and banker’s banks, the FDIC bank holding company. The orderly liquidation may subtract an additional amount as necessary to authority is similar to the resolution authority for ensure that the assessment appropriately reflects IDIs under the Federal Deposit Insurance Act. the risk posed by such institutions. However, no monies from the DIF may be used in connection with an orderly liquidation under Title The Act eliminates the maximum limitation II of the Act. Those resolutions will be funded on the designated reserve ratio (DRR) and raises the minimum DRR from 1.15 percent to 14 FDIC 2010 ANNUAL REPORT 1.35 percent of estimated insured deposits. It Other Financial requires the FDIC to take such steps as may be Regulatory Reforms necessary for the reserve ratio of the DIF to reach The Act also makes a number of other 1.35 percent of estimated insured deposits by reforms, including: September 30, 2020. The FDIC must offset the effect on IDIs with total consolidated assets of Q Requiring that minimum leverage and less than $10 billion of this one-time requirement risk-based capital requirements for IDIs, to reach 1.35 percent by that date rather than depository institution holding companies and 1.15 percent by the end of 2016. The Act also nonbank financial companies supervised by eliminates the payment of dividends from the DIF the Federal Reserve can be no lower than the when the reserve ratio is between 1.35 percent generally applicable requirements in effect on and 1.50 percent and provides the FDIC sole July 21, 2010 (the “Collins Amendment”); discretion to limit or suspend dividends when the Q Prohibiting bank holding companies and reserve ratio exceeds 1.50 percent. their affiliates from engaging in proprietary FDIC Corporate Structure trading or sponsoring or investing in a hedge The Dodd-Frank Act places the Director of the fund or private equity fund (the so-called CFPB on the FDIC Board in lieu of the Director “Volcker Rule”); of the OTS. In addition, the Act requires the Q Requiring greater transparency and regulation FDIC to establish by January 21, 2011, an Office of over-the-counter derivatives, asset- of Minority and Women Inclusion (OMWI) backed securities (including risk retention to develop standards for equal employment requirements), hedge funds, mortgage brokers opportunity and the racial, ethnic, and gender and payday lenders; diversity of the agency’s workforce and senior management; increase participation of minority- Q Requiring the financial regulators to and women-owned businesses in agency programs prohibit incentive compensation at financial and contracts; and assess the diversity policies and institutions that encourages excessive practices of entities regulated by the agency. The risk taking; OMWI is also to advise the agency on the impact Q Providing new rules for transparency and of policies and regulations on minority- and accountability for credit rating agencies and women-owned businesses. The FDIC transferred requiring regulators to eliminate regulatory the responsibilities of the Office of Diversity and reliance on credit ratings; and Economic Opportunity to OMWI, effective January 21, 2011. Q Establishing a Federal Insurance Office to, among other things, participate in the FSOC and monitor issues in the insurance industry. FDIC 2010 ANNUAL REPORT 15
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