K&L Gates on Dodd-Frank Wall Street Reform: Future Rulemaking and Congressional Activity

Excerpt:

On June 30, 2010, the House adopted the conference report on H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Bill" or "Bill"). The Senate is expected to follow suit when it returns from recess later in July. This alert provides a high-level summary and analysis of the significant aspects of the Bill. In the days ahead, K&L Gates will be issuing alerts addressing in detail the various provisions of the Bill.

Background

The conference committee proceedings began on June 10. The conferees worked arduously over a two-week period and, after working through the night, approved the conference report early in the morning of June 24. However, early last week, it became clear that the Senate did not have the 60 votes necessary to adopt the conference report. Senator Robert Byrd's (D-WV) death resulted in the loss of a vote. Additionally, Senator Scott Brown (R-MA), who had previously voted for the measure, came out in opposition due to the financial crisis assessment that was added toward the end of the conference in order to comply with statutory pay-as-you-go requirements. The conference committee reconvened on June 29 in order to substitute that provision by raising the deposit insurance fund's minimum reserve ratio from 1.15 percent to 1.35 percent and by ending the Troubled Asset Relief Program early in an effort to address Senator Brown's concerns and garner his vote. Additionally, memorial services for Senator Byrd resulted in a truncated work week, deferring further action by the Senate until after the July 4th Recess.

Please see Emerging Issues alerts Approaching the Home Stretch: Senate Passes "Restoring American Financial Stability Act of 2010" and House Passes Financial Regulatory Reform Legislation for additional information.

Systemic Risk

The Bill establishes a regulatory framework for monitoring the nation's financial stability and managing systemic risks. The Bill creates a Financial Stability Oversight Council ("FSOC"), consisting of ten voting members who will be the heads of the federal financial regulators, charged with identifying and monitoring systemic risks to financial markets. The FSOC has the authority to require, by a 2/3 vote, that nonbank financial companies (including foreign nonbank financial companies) whose failure would pose systemic risk be placed under the supervision of the Board of Governors of the Federal Reserve System ("Federal Reserve"). Among the factors the FSOC must consider in making this determination are: the company's leverage; the extent and nature of off-balance sheet exposures; relationships with other significant nonbank financial companies and significant bank holding companies; the nature, scope, size, and scale; concentration, interconnectedness and mix of the company's activities; and any other risk-related factors the FSOC deems appropriate. The FSOC's authority to subject nonbank financial companies to heightened regulation by the Federal Reserve is limited to nonbank financial companies that are "predominantly engaged in financial activities." A company is "predominantly engaged in financial activities" if at least 85 percent of its consolidated annual gross revenues or 85 percent of its consolidated assets are related to activities that are financial in nature.

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