July 15, 2010 – New regulations for Wall Street and banks as well as broad new lending protection for consumers now awaits the President’s signature to become law. On a 60-39 vote, the Senate today passed the Dodd-FrankReform and Consumer Protection Act.
The broad new powers given to regulators by the new bill was in response to the financial crisis of 2008 which nearly toppled the world financial system. Weighing in at 2,300 pages, it may be years before the full impact of the new law is fully recognized since various regulatory agencies will be issuing numerous rule making decisions to interpret and enforce the provisions of the new law.
FDIC Chairman Sheila Bair stated that the new financial regulations establishe a “meaningful framework that addresses many of the weaknesses in our financial system that lead to the financial crisis. The legislation will enforceby making clear that shareholders and creditors bear the losses for the risks they take. It also will protect taxpayers by empowering the government with the means to end Too-Big-to-Fail and providing substantial new protection to consumers and the financial system”.
Ms. Bair noted that the FDIC plans to move swiftly and deliberately to implement the new law.
The new law give the FDIC broad new powers to close and liquidate systemic firms in an orderly manner, identify and address emerging systemic risks and close the gaps in the financial supervision of financial institutions.
The new law will also put new emphasis on establishing and maintaining strong consumer protection rules for both banks and non-financial firms.
Capital requirements will be strengthened for the US banking system, with bank holding companies, for the first time, subject to the same standards as insured banks for Tier 1 capital. Stronger capital requirements and regulations are meant to reduce the excessive leverage and thin capital of financial firms which lead to and deepened the financial crisis.
Ms. Bair noted that the new law will “help limit the incentive and ability for financial institutions to take risks that put our economy at risk, it will bring market discipline back to investing, and it will give regulators the tools to contain the fallout from financial failures so that we will never have to resort to a taxpayer bailout again”
The FDIC is also given new “backup authority” (see FDIC Bids for Expanded Powers) to exam all insured institutions, regardless of their primary regulator, in order to ensure the safety of the FDIC Deposit Insurance Fund.