Geron Morgan

While those measures are positive, the legislation also includes provisions some believe could damage traditional banking institutions. Its various provisions are intricate and broad and have generated considerable debate.

The Senate-passed version of this bill will join the House version (passed in December 2009) in a House-Senate conference committee lead by Senate Banking Committee Chairman Chris Dodd. There is a push to assemble an overhaul bill and pass it by July 4, 2010.

Highlights of the Senate version of the bill are:

Creation of the Consumer Financial Protection Bureau (CFPB)

• This bureau will consolidate consumer protection duties of the Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Deposit Insurance Corporation (FDIC), Federal Reserve (Fed), National Credit Union Administration and Federal Trade Commission. It makes one office accountable for consumer protections.
• This organization’s broad authority is a concern to many banks as well as nonbanks. This agency would dictate the way products and services are offered in the financial services market. Bankers and others are concerned loose interpretation of deceptive and abusive business practices will give the CFPB undue discretion to limit innovation and growth in the banking industry.
• The CFPB would have examination and enforcement authority over banks and credit unions with more than $10 billion in assets. Banks would still be examined by their respective regulators. However, the CFPB is authorized to write consumer protection-based rules affecting all banks and would be able to send examiners to community banks on a sampling basis at its discretion.

End of “Too Big to Fail”

• Establishes a market-safe method for liquidating failed financial firms and imposes strict new capital and leverage requirements that make the “too big to fail” business model unappealing.
• Shareholders and unsecured creditors would bear all losses; this provision eliminates the government bailout option.
• Through an amendment, the base for FDIC insurance assessments will be the average of consolidated total assets less tangible equity capital.
• The Volcker rule (proposed by former Fed Chairman Paul Volcker) restricts banks from making certain kinds of speculative investments if they are not on behalf of their customers. Volcker is currently chair of President Obama’s economic recovery advisory board.) The rule is included, though modified from its original form.

Creation of the “Financial Stability Oversight Council” (Systemic Risk Council)

• The goal of this council will be to identify systemic market risk related to and generated by large, complex companies and transactions. This council will identify investment products and market activities that threaten the general health of the domestic economy.

This nine-member council (chaired by the Treasury Secretary) will have the authority, with a two-thirds vote, to enforce regulation on nonbank financial companies. It can also recommend to the Fed new and stronger regulatory standards for financial companies as they become larger and more complex.

New Regulatory Burdens

• Increased information provided to account holders related to fees
• Expanded Home Mortgage Disclosure Act reporting to the CFPB
• Additional small business data collection and submission to the CFPB

No New Thrift Charters

• Existing charters will be grandfathered in. However, no additional charters will be granted.
• OTS will be abolished.

Additional Disclosures for Executive Compensation

• The shareholders of public companies would be given a nonbinding vote on executive compensation
• Required disclosure of the relationship between executive compensation and public company performance
• Rules related to prohibiting excessive compensation for bank holding company executives, for public and privately held institutions

Additional Key Amendments

• Durbin amendment provides that interchange fees for debit cards be set by the Fed.
• Collins amendment structures the bank holding company regulatory capital calculation to match the depository institution version, thereby excluding Trust Preferred Securities (TPS) from consideration as Tier 1 capital and putting a heavy burden on small bank holding companies. Currently, there is discussion that the TPS exclusion will be removed from the Collins amendment in the upcoming conference committee. Related proposals include the grandfathering of current TPS or a possible two-year moratorium with a three-year phase in of the TPS disallowance.
• Dodd-Lincoln amendment would require all banks to "push-out" their derivatives’ activities, which would prevent community banks from engaging in loan-level hedging programs.

If you have further questions about how this bill might affect you, please contact your BKD advisor.