Wall Street Reform Becomes Law

On Wednesday, July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Here are some of the key measures:

  • No More “Too Big to Fail” Bailouts. The federal government will now have the power to seize and liquidate failing financial firms while limiting taxpayer financial exposure. Large financial institutions also face stricter capital, leverage and liquidity requirements.
  • New Consumer Protection Bureau. The bill establishes a new Consumer Protection Bureau with the task of monitoring mortgages, credit cards and other loan products.
  • New Financial Stability Oversight Council. The Council is designed to serve as an “advanced warning system” to expose risks that might threaten the economy.
  • Oversight of Derivatives. Derivative trades must snow pass through clearing houses or swap repositories to increase market transparency and allow better oversight.
  • The “Volker” Rules. These rules are designed to limit big, insured banks’ activities in speculative derivatives and stock investments. The rules also require big banks to sell off much of their interest in hedge funds and private equity.
  • Reduced Fees on Debit/Credit Cards. The law will curb the fees retailers are required to pay banks and credit unions on debit and credit card transactions.
  • Oversight of Credit Rating Agencies. New rules require more objective review and accountability for ratings from the firms that rate financial products.

Many of these rules will take years to implement, and there is divided opinion over the effectiveness of the bill. It will be years before we will understand the full effect of this historic bill’s passage.