Published July 20, 2011
WASHINGTON – It's been a year since the government approved the most sweeping overhaul of financial regulatory laws dating back to the Great Depression.
The Federal Reserve, the Securities and Exchange Commission and other regulators have been working to implement 243 rules. Nearly half were supposed to be in final form by now. But on the one-year anniversary, fewer than 50 have been completed.
A new federal agency, the Consumer Financial Protection Bureau, launches this week. The Dodd-Frank law gave it broad powers to oversee mortgages, credit cards and other forms of lending. President Barack Obama has chosen former Ohio Attorney General Richard Cordray to lead the agency.
Below are key rules that have been adopted, proposed or debated, and a brief explanation of why they matter.
Rules that have been adopted:
— Debit-Card Fees:
Starting in October, banks can charge retailers 21 cents per debit-card transaction plus an additional penny for every $20 spent to cover the cost of fraud protection. That compares with an average 44 cents now.
The Federal Reserve opted for a more profitable rule for banks than its initial proposal of 12 cents per transaction.
Why it matters: Stores pay $16 billion a year to banks in debit card fees. They say these fees influence how much they can charge customers for goods and services.
— More Power to Shareholders:
Investors that own at least 3 percent of a company's stock can put their nominees for board seats on the annual proxy ballot sent to all shareholders. Previously, investors had to appeal to shareholders at their own expense.
Business groups that oppose the change, including the U.S. Chamber of Commerce, have challenged the rule in federal court.
Why it matters: Risky corporate behavior, especially by Wall Street, was pinpointed as a leading cause of the financial crisis. Getting candidates on the board gives supporters a better shot at influencing company policy.
— Regulating Hedge Funds:
Hedge funds and private equity funds will be required to register with the SEC by March 30. Their books will be open to periodic inspections and they will have to disclose information about their operations, finances and investors.
Hedge funds are lightly regulated investment pools that collect money from pension funds, endowments and wealthy individuals. They use complex trades to seek big returns. Private equity funds focus on buying and reselling companies.
Why it matters: The hedge fund industry accounts for an estimated 20 percent of all stock trading.
— Bank Insurance Fees:
Banks with $10 billion or more in assets will shoulder a greater share of deposit insurance fees under a new system adopted in February. The Federal Deposit Insurance Corp. changed the basis for assessing a bank's insurance fees from the amount of its deposits to its assets. Insurance fees will also rise for banks labeled as risky.
Why it matters: Since the 2008 financial crisis, 377 U.S. banks have failed, most of them smaller institutions. The failures pushed the deposit insurance fund into deficit, costing it a total of $57 billion from 2009 through 2010.
Rules that are pending:
— "Skin in the Game":
Banks must hold at least 5 percent of securities tied to mortgages and other loans on their books. The rule exempts banks if their securities contain mortgages in which buyers put down 20 percent.
Why it matters: Banks with "skin in the game" will be more careful about properly screening borrowers. .
— Executive Bonuses:
Top executives at the biggest financial firms would have to wait three years to be paid half of their annual bonuses. It targets firms with $50 billion or more in assets, such as Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Goldman Sachs Group Inc. and Wells Fargo & Co.
Why it matters: The rule is designed to limit risky financial transactions by linking bonuses to long-term financial performance.
— Regulating Credit Raters:
Several rules would reduce the influence of agencies that rate the debt of companies and governments — Moody's Investors Service, Standard & Poor's and Fitch Ratings.
One would compel agencies to provide regulators with more details about how they determine each rating. Another would bar their sales people from participating in the ratings process.
Why it matters: The big three credit agencies were blamed for contributing to the financial meltdown by awarding their highest ratings to the riskiest subprime mortgages.
Banks and other firms would have to put up millions of dollars to cover their potential losses on derivatives trades.
Much of the debate has centered on which firms should be subject to new collateral requirements. Regulators are being pressed to exempt companies that trade derivatives solely to guard against volatile price swings, such as airlines, oil companies and farmers.
Derivatives are investments whose value depends on the future price of some other investment.
Why it matters: The collateral requirements would force banks to put up millions to cover potential losses on risky trades.
Rules that are still being crafted:
— Proprietary trading:
The so-called Volcker Rule would restrict banks from trading for their own profit rather than for their clients. The practice is known as proprietary trading.
The rule is named for Paul Volcker, a former Fed chairman and an adviser to the Obama administration.
Why it matters: Economists and market experts say proprietary trading played a big role in the financial crisis and contributed to the failures of Lehman Brothers and Bear Stearns.
— "Too Big To Fail":
Banks, insurance companies and credit unions that regulators label as risky to the broader financial system could face new limitations, including on how much money they can borrow. And if regulators decide a company is endangering the system, they could dismantle it and sell off the pieces.
Why it matters: Large firms took risks ahead of the financial crisis that threatened the entire system and required hundreds of billions of dollars in taxpayer-funded bailouts.