You asked for a summary of the Dodd-Frank Wall Street Reform and Consumer Protection Act, focusing on the act's impact on states.

The Wall Street Reform and Consumer Protection Act (Dodd-Frank Act or act) (P.L. 111-203, 124 Stat. 1376 (2010)), signed into law by President Obama on July 21, 2010, institutes sweeping changes to several aspects of financial regulation. Among numerous provisions, the act:

1. takes steps to address systemic risks to the nation's financial system, including establishing the Financial Stability Oversight Council to identify these risks;

2. establishes an independent Bureau of Consumer Financial Protection within the Federal Reserve;

3. makes numerous changes to the regulation of banks and other financial institutions, including changes to capital requirements and lending limits;

4. modifies the Federal Reserve's authority, including limiting its emergency lending authority;

5. makes numerous changes to securities and corporate governance laws, such as providing for the regulation of over-the-counter derivatives and expanding registration requirements for certain hedge fund advisers;

6. establishes a Federal Insurance Office and makes changes regarding state regulation of insurance and preemption of state laws;

7. makes changes regarding residential mortgages, including expanding state authority to enforce federal mortgage laws; and

8. eliminates the Office of Thrift Supervision and transfers its responsibilities to other agencies.

The provisions most affecting state authority include those concerning insurance, preemption, enforcement of federal consumer financial law, mortgages, and hedge funds. As the act requires several federal agencies to engage in rulemaking to implement its provisions, the act's full impact will not be known until the agencies enact those regulations.

This report is organized by title of the Dodd-Frank Act, with those titles most affecting states discussed first. Because of the act's size and complexity, we have not summarized all of its provisions. Those affecting states are described in more detail than other provisions. If you would like more details about any particular provisions, please let us know.

The default effective date for the act is one day after enactment, although there are numerous exceptions. This report only includes effective dates for those provisions affecting state responsibility or authority.

Other organizations and law firms have prepared more comprehensive summaries of the act. For example, the law firm Dechert LLP, with the American Bankers Association, prepared a comprehensive analysis of the act's impact on the banking industry (see http://www.aba.com/RegReform/RR_TitleMenu.htm). The law firm Davis Polk & Wardwell LLP also prepared a comprehensive summary (see http://www.davispolk.com/publications/, search by date: July 21, 2010).

Title X creates the Bureau of Consumer Financial Protection as an independent executive agency within the Federal Reserve to “regulate the offering and provision of consumer financial products or services under the federal consumer financial laws” (§ 1011). Several consumer financial protection responsibilities from other agencies (including the Federal Reserve, Office of the Comptroller of the Currency (OCC), Office of Thrift Supervision (OTS), and Federal Deposit Insurance Corporation (FDIC), among others) will be transferred to the Bureau (§ 1061).

The act provides that state laws that afford consumers greater protection than Title X are not inconsistent with Title X and thus are not preempted. If a majority of states pass a resolution in support of the establishment or modification of a consumer protection regulation by the bureau, it must issue a notice of proposed rulemaking (§ 1041).

Title X provides that a state consumer financial law is preempted only if:

1. the state law would have a discriminatory effect on national banks or federal savings associations, in comparison with the law's effect on a state-chartered bank;

2. a court or the OCC on a case-by-case basis, determines in accordance with a U.S. Supreme Court decision (see Barnett Bank of Marion County, N. A. v. Nelson, Florida Insurance Commissioner, et al., 517 U.S. 25 (1996)) that the state law prevents or significantly interferes with the exercise by the powers of a national bank or federal savings association; or

3. the state law is preempted by another federal law (§ 1044).

Title X further provides that it must not be construed as altering or affecting existing law (12 U.S.C. § 85) on allowable interest rates by national banks (§ 1044).

Title X provides that state consumer finance laws apply to national bank subsidiaries, affiliates, or agents unless they are chartered as national banks (§§ 1044-1045).

Title X also provides, in accordance with a U.S. Supreme Court decision, that no provision of the National Bank Act relating to or restricting the visitorial authority to which national banks are subject limits or restricts the authority of state attorneys general or chief law enforcement officers to bring an action against a national bank to enforce an applicable law (Cuomo v. Clearing House Assn., L.L.C., 129 S. Ct. 2710 (2009)) (§ 1047). Visitorial powers are the rights of a government to oversee corporate affairs (see discussion in Cuomo, 129 S. Ct. at 2715-2722).

These provisions take effect one year to 18 months after enactment, depending on the transfer of powers from the OTS as outlined in Title III (§§ 311, 1048).

The bureau (1) may conduct investigations and bring enforcement proceedings for violations of federal consumer financial law and (2) must make referrals to the U.S. attorney general for criminal prosecution when appropriate (§§ 1051-1058).

In addition, Title X permits state attorneys general (or their equivalents) to bring civil enforcement actions in federal or state court to enforce Title X and any regulations issued under it. However, state actions against national banks or federal savings associations may be brought to enforce the bureau's regulations issued under Title X but not to enforce provisions of Title X itself. Title X also permits state regulators to bring civil actions or other appropriate proceedings to enforce Title X or its regulations against entities chartered, incorporated, licensed, or otherwise authorized to do business under state law (§ 1042).

Before states or state regulators may bring one of these actions or proceedings, they must provide the bureau and other appropriate federal regulators with a copy of the complaint and a written notice describing the action. If prior notice is not practicable, the complaint and notice must be provided immediately upon instituting the proceeding. The bureau can intervene as a party and, upon intervening, may (1) remove the action to federal court, (2) be heard on all matters in the action, and (3) appeal the order or judgment.

These provisions must not be construed to alter, limit, or affect (1) a state or state regulator's authority to bring a proceeding arising solely under state law and (2) a state securities commission's, insurance commission's, or insurance regulator's authority under state law to adopt rules, initiate enforcement proceedings, or take other actions with respect to regulated persons.

Title X and the bureau's regulations, guidance, and similar directives issued under Title X must not be construed to alter or affect any regulations, guidance, or similar directives issued by the OCC or the OTS regarding the applicability of state law under federal banking law to contracts entered into on or before the act's enactment by national banks, federal savings associations, or their subsidiaries that are regulated and supervised by OCC or OTS (§ 1043).

These provisions take effect one year to 18 months after enactment, depending on the transfer of powers from the OTS as outlined in Title III (§§ 311, 1048).

The bureau's supervisory authority extends to banks, credit unions, and several types of non-depository institutions, such as providers of residential mortgages. Its authority is subject to various conditions and limits (§§ 1024-1026). For example, the bureau's authority regarding banks or credit unions with assets of less than $10 billion is much more limited than its authority over those with assets over $10 billion (§§ 1025-1026). The bureau has primary enforcement authority over such larger entities. Other agencies have enforcement authority for banks and credit unions with assets under $10 billion, although the bureau can recommend that other agencies take enforcement action.

With certain exceptions, the bureau's authority does not extend to various persons or activities, including the following:

1. anyone regulated by the Securities and Exchange Commission (SEC) or Commodity Futures Trading Commission (CFTC);

2. sellers of non-financial goods or servicers, except to the extent they offer or provide consumer financial products;

3. real estate brokers or agents;

4. persons regulated by state insurance regulators;

5. anyone regulated by states securities commissions, to the extent they act in the regulated capacity;

6. attorneys engaged in the practice of law;

7. accountants and tax preparers;

8. manufactured home retailers and modular home retailers; and

9. activities relating to charitable contributions (§ 1027).

The bureau's primary functions include (1) conducting financial education programs; (2) handling consumer complaints; (3) studying the

markets for consumer financial products and services to identify risks to consumers and the markets' proper functioning; and (4) issuing regulations and guidance implementing federal consumer financial law, supervising specified persons for compliance with that law, and taking appropriate enforcement action (§ 1021).

The bureau can also (1) act to prevent unfair, deceptive, or abusive acts or practices under federal law regarding a consumer financial product (§ 1031); (2) require disclosures and consumer access to information (§§ 1032-1033); and (3) respond to consumer complaints (§ 1034).

The Financial Stability Oversight Council (described below in Title I) has the authority to overrule a regulation enacted by the bureau if the regulation “would put the safety and soundness of the United States banking system or the stability of the financial system of the United States at risk” (§ 1023).

The bureau must coordinate its supervisory activities over various entities with the supervisory activities of other federal and state agencies (§ 1024).

Title X requires the bureau's director to establish a system for “the centralized collection of, monitoring of, and response to consumer complaints regarding consumer financial products or services.” To the extent practicable and subject to various conditions, complaint calls or electronic reports may be routed to state agencies (§ 1013).

These provisions took effect upon enactment (§§ 1018, 1029A).

Title X contains several other provisions. These include:

1. authorizing the Federal Reserve to issue regulations regarding the interchange transaction fee that an issuer may receive or charge with respect to an electronic debit transaction (§ 1075);

2. increasing data collection requirements for financial institutions “to facilitate enforcement of fair lending laws and enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses” (§ 1071); and

3. requiring financial institutions to provide a consumer with a written or electronic disclosure of a credit score used in taking an adverse action based in whole or part on information in a consumer report (§ 1100F).

Title V establishes within the Treasury Department the Federal Insurance Office and makes several changes regarding preemption and state insurance laws.

Under Title V, the office may preempt state insurance measures if, and only to the extent that, the office director determines the measure (1) is inconsistent with a covered agreement and (2) “results in less favorable treatment of a non-United States insurer domiciled in a foreign jurisdiction that is subject to a covered agreement than a United States insurer domiciled, licensed, or otherwise admitted in that State.” A covered agreement is a written insurance agreement between the United States and one or more foreign countries or regulatory entities that relates to prudential insurance measures that achieve a level of consumer protection that is substantially equivalent to that achieved under state law (§ 502).

To make a preemption determination, the director must provide notice to several entities, including the affected state. The director must also allow an opportunity to comment.

Title V specifies that it does not preempt state insurance measures regarding:

1. insurer rates, premiums, underwriting, or sales practices;

2. coverage requirements;

3. application of state antitrust law to insurance; and

4. insurer capital or solvency, except to the extent such measures result in less favorable treatment of a non-U.S. insurer.

The act does not affect the preemption of state insurance measures that are otherwise inconsistent with and preempted by federal law.

The act also must not be construed to:

1. change or limit the Consumer Financial Protection Agency Act of 2010;

2. provide the office or Treasury Department with general supervisory or regulatory authority over insurance;

3. limit the authority of federal financial regulators, including the authority to preempt state law to affect uniformity with international regulatory agreements; and

4. affect the authority of the United States Trade Representative.

The act provides that the Treasury secretary and U.S. trade representative are jointly authorized to enter into covered agreements on behalf of the United States and sets related procedural requirements.

These provisions were effective one day after enactment.

Title V includes the following changes to state regulation of insurance regarding (1) nonadmitted insurance and (2) reinsurance. It provides that the changes must not be construed to modify, impair, or supersede the application of the antitrust laws and any conflict must be resolved in favor of the antitrust laws (§ 541). It also provides that any unconstitutional provision is severable from the rest (§ 542).

Among others, the act defines:

1. an “admitted insurer” as an insurer licensed to engage in the business of insurance in the state;

2. “nonadmitted insurance” as property and casualty insurance permitted to be placed directly or through a surplus lines broker with a nonadmitted insurer eligible to accept such insurance;

3. a “nonadmitted insurer” as an insurer not licensed to engage in the business of insurance in the state, but excluding a risk retention group; and

4. a “surplus lines broker” as an individual or entity licensed in a state to sell, solicit, or negotiate insurance on properties, risks, or exposures located or to be performed in a state with nonadmitted insurers (§ 527).

Title V provides that no state other than the insured's home state may require premium tax payments for nonadmitted insurance. States may enter into a compact or establish procedures to allocate the premium taxes paid to an insured's home state. An insured's home state may require surplus lines brokers and insured persons acting without a broker to annually file tax allocation reports with the home state (§ 521).

Except as provided below for workers' compensation, the placement of nonadmitted insurance is subject only to the statutory and regulatory requirements of the insured's home state. Other states may not require a surplus lines broker to be licensed to sell, solicit, or negotiate nonadmitted insurance with respect to the insured (§ 522).

With respect to the above requirements for nonadmitted insurance, a state's action will be preempted if it applies or purports to apply to nonadmitted insurance sold to, solicited by, or negotiated with an insured whose home state is another state. These provisions do not preempt state laws restricting the placement of workers' compensation insurance or excess insurance for self-funded workers' compensation plans with a nonadmitted insurer.

Beginning two years after enactment, the act prohibits a state from collecting surplus lines broker licensing fees unless its laws or regulations provide for participation in the national insurance producer database of the National Association of Insurance Commissioners (NAIC) or an equivalent database for the licensure (including renewals) of surplus lines brokers (§ 523).

Under the act, a state may not (1) impose eligibility requirements on nonadmitted insurers domiciled in a U.S. jurisdiction, except in conformance with the Non-Admitted Insurance Model Act, unless the state has adopted nationwide uniform requirements, forms, and procedures developed in accordance with the model act or (2) prohibit a surplus lines broker from placing nonadmitted insurance with, or procuring nonadmitted insurance from, a nonadmitted insurer domiciled outside the U.S. that is on the appropriate listing of the NAIC (§ 524).

If certain conditions are met, surplus lines brokers seeking to procure or place nonadmitted insurance in a state for an exempt commercial purchaser are not required to satisfy state due diligence requirements (§ 525).

The provisions on nonadmitted insurance are effective 12 months after enactment. The effective date of a state compact for the allocation of nonadmitted premium taxes, unless otherwise provided in the compact, depends on when the compact is adopted (§ 512).

Under Title V, if the state of domicile of a ceding insurer (an insurer that purchases reinsurance) (1) is an NAIC-accredited state or has financial solvency requirements substantially similar to those required by the NAIC and (2) recognizes credit for reinsurance for the insurer's ceded risk, then other states may not deny such credit for reinsurance. In addition, all laws or actions of a state that is not the domiciliary state of the ceding insurer, except for taxes and assessments on insurance companies or insurance income, are preempted to the extent they:

1. restrict or eliminate the ceding insurer's or assuming insurer's rights to resolve disputes pursuant to a contractual arbitration provision that is valid under federal law;

2. require that a certain state's law must govern the reinsurance contract, including any contract requirements or disputes arising from it;

3. attempt to enforce a reinsurance contract on different terms than those in the contract, to the extent that the terms are not inconsistent with the act; or

4. otherwise apply the state's laws to reinsurance agreements of ceding insurers not domiciled in that state (§§ 531, 533).

Title V also provides that if a reinsurer's state of domicile is NAIC-accredited or has substantially similar financial solvency requirements, (1) that state is solely responsible for regulating the reinsurer's financial solvency and (2) no other state may require the reinsurer to provide additional financial information other than that required by the domiciliary state. This does not prohibit another state from receiving a copy of any financial statement filed by the reinsurer with its domiciliary state (§ 532).

These reinsurance provisions take effect 12 months after enactment (§ 512).

The office's authority extends to all types of insurance except (1) health insurance, (2) long-term care insurance (except that which is included with life or annuity insurance components), and (3) crop insurance. Among other functions, the office is authorized to:

1. monitor the insurance industry for (a) regulatory gaps that could contribute to a crisis in the industry or the nation's financial system and (b) the extent to which traditionally underserved communities, minorities, and low- and moderate-income people have access to affordable insurance, except health insurance;

2. coordinate federal efforts and develop policy on prudential aspects of international insurance matters;

3. determine whether state insurance measures are preempted by international insurance agreements; and

4. consult with states, including state insurance regulators, regarding insurance matters of national importance and prudential insurance matters of international importance (§ 502).

In meeting its responsibilities regarding data collection, the office must coordinate with relevant federal and state agencies and any publicly available sources and obtain the date from those sources if it may be obtained in a timely manner. The act authorizes relevant federal and state agencies to provide various types of data or information to the office. Providing nonpublic data and information to the office does not waive or otherwise affect any applicable privilege under federal or state law. Prior confidentiality agreements continue to apply after the data has been transferred to the office. Data or information obtained by the office may be made available to state insurance regulators through an information-sharing agreement. Such an agreement (1) must comply with applicable federal law and (2) does not waive or otherwise affect any applicable privilege under federal or state law.

The office must submit various reports to Congress, including (1) annual reports on (a) the insurance industry and (b) preemption and (2) within 18 months of enactment, a report on how to modernize and improve the nation's system of insurance regulation, including consideration of the potential federal regulation of insurance (except health insurance).

These provisions take effect one day after enactment.

Title XIV makes several changes affecting mortgages and related topics, as discussed below.

Title XIV expands the enforcement authority of state attorneys general regarding the Truth in Lending Act, allowing them to bring actions to enforce provisions concerning:

1. residential mortgage loan origination;

2. minimum standards for residential mortgage loans;

3. escrow or impound accounts relating to certain consumer credit transactions;

4. appraisal independence and other property appraisal requirements;

5. requirements for prompt crediting of home loan payments; and

6. requests for payoff amounts of home loans (§ 1422).

Title XIV:

1. creates the Office of Housing Counseling (OHC) in the Department of Housing and Urban Development (HUD) to, among other programs, provide grant assistance to states, local governments, and nonprofit organizations, with appropriations of $45 million to the OHC for each of the fiscal years from 2009 through 2012 (§§ 1441-1452);

2. effective October 1, 2010, makes available to HUD $1 billion to assist states and local governments for the redevelopment of abandoned and foreclosed homes, in accordance with the American Recovery and Reinvestment Act of 2009 (§ 1497); and

3. requires the HUD Secretary to establish a grant program for foreclosure legal assistance to low- and moderate-income homeowners and tenants, with grants allocated to state and local legal organizations, and authorizes $35 million per year for fiscal years 2011 and 2012 for the program (effective from enactment) (§ 1498).

Title XIV makes changes regarding appraisal regulation, including establishing new appraisal requirements for higher-risk mortgages and imposing new requirements for appraiser independence (§§ 1471-1476).

The act requires the Appraisal Subcommittee of the Federal Financial Institutions Examination Council (FFIEC) to set the threshold appraisal level in order to provide “reasonable protection” for residential consumers in concurrence with the bureau. The FFIEC must also audit state appraiser regulatory agencies and report its findings to Congress (§ 1473).

The act requires the Federal Reserve and other federal agencies to establish minimum requirements for states regarding the registration of appraisal management companies. Among other requirements, the act prohibits registering an appraisal management company in a state or on the national registry if the company is in any way owned by someone whose appraiser license or certificate was refused, denied, cancelled, surrendered in lieu of revocation, or revoked in any state. The act requires states to transmit reports on appraisal management licensing, disciplinary actions, and related matters to the FFIEC's Appraisal Subcommittee. States must also collect an annual registry free from appraisal management companies that seek to perform appraisals in federally related transactions and transmit the fees to the FFIEC. The act authorizes grants to states for complying with these requirements. The act sets a deadline of 36 months after the issuance of final regulations (subject to a 12 month extension) for appraisal management companies to register with a state, or become subject to federal oversight, in order to perform services for a federally related transaction.

FFIEC's Appraisal Subcommittee must monitor state appraiser certifying and licensing agencies, including their compliance with the act's requirements and whether their laws maintain appraiser independence. The act authorizes the Appraisal Subcommittee to impose sanctions against a state agency that fails to have an effective appraiser regulatory program, including imposing interim actions and suspensions as an alternative to, or in advance of, derecognizing a state agency.

The act requires the Federal Reserve and other agencies to promulgate regulations to set quality control standards for automated valuation models used to estimate collateral value for mortgage lending purposes. Federal agencies will enforce these standards for the financial institutions they regulate. State attorneys general, along with the Federal Trade Commission and the bureau, will enforce compliance regarding other participants in the appraisal market for 1-to-4 unit single family residential real estate.

Unless noted above, these provisions of Title XIV take effect (1) when the final regulations implementing the provisions take effect or (2) 18 months after the designated transfer date of OTS powers as outlined in Title III if regulations have not been issued by that time (§ 1400).

Title XIV amends the Truth in Lending Act “to assure that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loans and that are understandable and not unfair, deceptive, or abusive.” The amendments require mortgage loan originators to be qualified, and registered and licensed as applicable under state or federal law (§ 1402).

Title XIV prohibits mortgage loan originators for residential loans from receiving compensation that varies based on the loan's terms (other than the principal). In addition to other changes, the act directs the Federal Reserve to enact regulations prohibiting various activities related to residential mortgage loan origination, such as steering a consumer to a loan (1) which the consumer “lacks a reasonable ability to repay” or (2) that “has predatory characteristics or effects (such as equity stripping, excessive fees, or abusive terms)” (§§ 1401-1406).

Title XIV sets various requirements for mortgages to be implemented by Federal Reserve regulations. For example, Title XIV (with exceptions for certain federal refinancing loans) prohibits creditors from making residential mortgage loans “unless the creditor makes a reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan,” taking into account various factors including the consumer's credit history, verified income, other obligations, debt-to-income ratio or remaining income after debt payments, employment status, and other financial resources. If the loan is nonstandard, additional requirements apply (§ 1411).

The act creates a rebuttable presumption that a consumer has the ability to repay a “qualified mortgage.” A residential mortgage is “qualified” if, among other requirements and with exceptions:

1. regular payments do not result in an increase in principal or allow the consumer to defer repayment of principal;

2. its terms do not result in a balloon payment;

3. the obligors' income and financial resources are verified and documented;

4. the payment schedule fully amortizes the loan;

5. it complies with the Federal Reserve's ability to pay guidelines;

6. total points and fees do not exceed three percent; and

7. its terms do not exceed 30 years (§ 1412).

With exceptions, loans that do not meet these requirements cannot have prepayment penalties (§ 1414).

Someone facing foreclosure may assert as a defense by recoupment or set-off that the creditor violated the provisions outlined above on (1) ability to repay and (2) steering a consumer to a loan that he or she lacks a reasonable ability to repay or that has predatory characteristics (§ 1413).

There are other new requirements for residential mortgages, including (1) requirements for high-cost mortgages (generally a first mortgage is high cost if its annual percentage rate exceeds the average prime offer rate by more than 6.5%) (§§ 1431-1433); (2) requiring creditors to provide disclosures to consumers with negative amortization loans (§ 1414); and (3) requiring creditors to provide a six-month notice before a hybrid adjustable rate mortgage resets (§ 1418).

Among other provisions, Title XIV also:

1. makes changes to mortgage servicing, including (a) requiring creditors in certain circumstances to establish escrow accounts for any periodic payment associated with the loan (§§ 1461-1465) and (b) restricting when a servicer may obtain force-placed hazard insurance (defined as insurance obtained by a servicer of a federally related mortgage when the borrower has failed to maintain or renew hazard insurance on the property as required under the mortgage) (§ 1463); and

2. extends the Protecting Tenants at Foreclosure Act (which provides notice and other requirements before tenants of foreclosed homes may be evicted) for two years, to December 31, 2014 (§ 1484).

Title IV eliminates the prior exemption from federal registration under the Investment Advisers Act for private investment advisers with fewer than 15 clients. It also establishes new exemptions and changes existing exemptions and definitions. The act increases the recordkeeping and disclosure requirements for registered advisers to private funds (§§ 402-404, 407-408).

Title IV raises the threshold for federal regulation of investment advisers. Only those with at least $100 million, instead of $25 million, of assets under management are subject to federal regulation (§ 410). This change leads to a potentially larger role for state regulation.

Among other changes, Title IV also (1) increases the net worth requirement for natural persons to qualify as accredited investors (§ 413) and (2) requires the SEC to study short selling (§ 417).

These and most provisions of Title IV take effect one year after enactment (§ 419).

Another amendment to the Commodity Exchange Act potentially affecting states concerns additional business conduct requirements. These apply to swaps dealers that acts as advisors or swaps dealers or major swaps participants acting as counterparties to (1) a federal, state, or local government; (2) an employee benefit or governmental plan; or (3) an endowment. For example, when acting as an advisor to such entities, swaps dealers (1) have a duty to act in the best interests of the entity and (2) must make “reasonable efforts to obtain such information as is necessary to make a reasonable determination that any swap recommended by the swap dealer is in the best interests” of the entity, including information regarding the entity's financial status, tax status, investment or financing objectives, and other information prescribed by rule or regulation (§ 731).

Swaps dealers or major swap participants that offer to enter or enter a swap with such entities must comply with SEC regulations, including that the dealer or participant has a reasonable basis to believe that the entity has an independent representative who:

1. has sufficient knowledge to evaluate the transaction and risks;

2. is not statutorily disqualified;

3. is independent of the swap dealer or major swap participant;

4. has a duty to act in the best interests of the party it represents;

5. makes appropriate disclosures;

6. provides the entity written representations regarding fair pricing and the appropriateness of the transaction; and

7. in the case of employee benefit plans under the Employee Retirement Income Security Act of 1974, is a fiduciary (§ 731).

These provisions take effect on the later of 360 days after enactment, or to the extent a provision requires a rulemaking, not less than 60 days after publication of the final rule or regulation (§ 754).

Among other changes, Title VII:

1. requires the SEC and CFTC to regulate swaps dealers and major swaps participants, including setting capital standards, margin requirements, recordkeeping and disclosure requirements, and business conduct standards (§§ 721, 731);

2. prohibits federal bailouts and certain other types of federal assistance to registered swaps entities (§ 716); and

3. requires clearing and exchange trading for certain derivatives contracts and creates requirements for registration as a derivatives clearing organization (§§ 723, 725).

Title IX makes numerous changes related to securities and other investments, corporate governance, and related matters. The provisions potentially impacting states include the following:

1. requiring the bureau's Office of Financial Literacy to establish a program to make grants to states to protect seniors from misleading or fraudulent marketing in connection with financial products or misleading designations (§ 989A);

2. providing that the SEC does not waive any applicable privilege by transferring information to, or permitting information to be used by, various entities including states; and the states and entities will similarly not be deemed to waive privileges by transferring information to the SEC (§ 929K); and

3. creating an exemption under the federal securities laws for insurance or endowment policies or annuity or optional annuity contracts that are subject to state regulation and meet other conditions, including that the contract values do not vary according to the performance of a separate account (§ 989J).

These provisions were effective one day after enactment.

Among other changes related to securities, Title IX:

1. expands the SEC's ability to enforce federal securities law (various provisions throughout §§ 921-929Z);

2. authorizes the SEC to promulgate rules to impose a fiduciary duty on securities brokers or dealers when providing personalized investment advice to retail customers (§ 913);

3. makes changes intended to streamline the SEC's rulemaking process, examinations, inspections, and enforcement actions (§§ 916, 929U);

4. increases financial incentives and employee protections for whistleblowers in SEC actions (§ 922);

5. requires registration of “municipal advisors” and makes changes regarding the regulation of municipal securities (§§ 975-979);

6. makes numerous changes regarding executive compensation, including, with exceptions, (a) giving shareholders the right to a non-binding vote on executive pay and golden parachutes; (b) prohibiting national securities exchanges from listing securities if the issuer's compensation committee members are not independent board members; (c) allowing an issuer to recover incentive-based compensation if the issuer is required to prepare an accounting restatement due to the issuer's material noncompliance with required reporting; and (d) requiring disclosures (§§ 951-957);

7. increases regulation of credit rating agencies (§§ 931-939H); and

8. modifies the asset-backed securitization process, including requiring issuers or sponsors of asset-backed securities to retain an economic interest of at least 5% of the credit risk for securitized assets (with several exemptions, including qualified residential mortgages and assets issued or guaranteed by the United States, a state, a political subdivision of a state, or certain other government entities) (§§ 941-946).

Title VI makes several changes to the regulation of banks and other financial entities. It increases Federal Reserve oversight of nondepository institution subsidiaries of a depository institution holding company, with exceptions. If the subsidiary is supervised by a state regulator, the Federal Reserve must consult and coordinate with the state regulator. The required federal examinations may be joint or alternating with any state examinations, if the Federal Reserve determines that the state's examination carries out specific purposes (§ 605). This provision takes effect one year to 18 months after enactment, depending on the transfer of powers from the OTS as outlined in Title III (§§ 311, 605).

Title VI also makes the following changes, among others (subject to various exceptions and conditions):

1. institutes the “Volcker Rule,” which prohibits banks and certain other entities from engaging in proprietary trading or investing or sponsoring hedge funds and private equity funds (§ 619);

2. imposes a three-year moratorium on the FDIC approving applications for deposit insurance by industrial banks, credit card banks, or trust banks that are directly or indirectly owned or controlled by a commercial firm (§§ 602-603);

3. requires bank holding companies to be well capitalized and well managed to engage in the expanded financial activities of a financial holding company (§ 606);

4. permits savings and loan holding companies to conduct the same activities as financial holding companies, if they meet the requirements to qualify as such;

5. places new requirements on the approval of interstate banking acquisitions by bank holding companies, including that the bank holding company is well capitalized and well managed (§ 607);

6. makes various amendments to the Federal Reserve Act regarding bank transactions with affiliates (§ 608);

7. modifies lending limits for national banks by including within the limits “any credit exposure to a person arising from a derivative transaction, repurchase agreement, reverse repurchase agreement, securities lending transaction, or securities borrowing transaction between the national banking association and the person” (§ 610);

8. provides that insured state banks may engage in derivative transactions only if that state's lending limit laws take into consideration credit exposure to derivative transactions (§ 611);

9. modifies approval requirements for de novo (newly chartered) interstate branching, by permitting branch applications when the state law where the branch is to be located would permit the application if made by a state-chartered bank (§ 613);

10. modifies (a) lending limits to insiders (executive officers, directors, principal shareholders, or related interests of such persons) and (b) purchase and sale of assets to or from an insider (§§ 614-615);

11. modifies capital requirements for bank holding companies, savings and loan holding companies, and insured depository institutions (§ 616);

12. modifies the regulation of securities holding companies (§§ 617-618);

13. subject to recommendations by the Financial Stability Oversight Council, prohibits financial companies from merging or consolidating with, acquiring all or substantially all of the assets of, or otherwise acquiring control of another company if the total consolidated liabilities of the acquiring financial company after acquisition or merger would exceed 10% of the aggregate consolidated liabilities of all financial companies at the end of the calendar year preceding the transaction (§ 622); and

14. prohibits federal banking regulators from approving an interstate merger transaction if the resulting insured depository institution (including affiliates) would control more than 10% of the total deposits of insured depository institutions in the country (§ 623).

Title I establishes the Financial Stability Oversight Council. The council must (1) identify systemic risks to the country's financial stability, including those arising (a) from the activities or failure of large bank holding companies or nonbank financial companies and (b) outside the financial services marketplace and (2) promote market discipline. The council is chaired by the Treasury secretary and its 10 voting members include several federal financial regulators. Its five non-voting members include state regulators in banking, insurance, and securities (§§ 111-112).

Among the council's most significant duties and powers are to:

1. upon a 2/3 vote including the vote of the chair, require a nonbank financial company to be regulated by the Federal Reserve, if the council determines that the company's distress, size, interconnectedness, or other factors could threaten the country's financial stability (§ 113);

2. monitor the financial services marketplace to identify threats to the nation's financial stability (§ 112);

3. identify regulatory gaps that could pose risks to that stability; and

4. if several conditions are satisfied, direct a regulated company with an insufficient resolution plan to divest assets to facilitate an orderly resolution of the company under bankruptcy law in the event of the company's failure (§ 165).

In order to prevent or mitigate risks to the financial stability of the United States from the material financial distress, failure, or activities of large, interconnected financial institutions, Title I requires the Federal Reserve “to establish prudential standards for nonbank financial companies supervised by the [Federal Reserve] and bank holding companies with total consolidated assets equal to or greater than” $50 billion. The standards must be more stringent than those required for such companies that do not present similar risks to the country's financial stability and must vary depending on several factors, including any risk-related factor deemed appropriate by the Federal Reserve (§165).

The required standards concern:

1. risk-based capital requirements and leverage limits (unless the Federal Reserve, in consultation with the council, determines that such requirements are not appropriate for a company, in which case the Federal Reserve must apply “other standards that result in similarly stringent risk controls”);

2. liquidity requirements;

3. overall risk management requirements;

4. resolution plan and credit exposure report requirements; and

5. concentration limits (§§ 165, 171).

The appropriate federal regulators must also establish minimum leverage and risk-based capital requirements for insured depository institutions, depository institution holding companies, and nonbank financial companies supervised by the Federal Reserve (§ 171).

If the Federal Reserve determines that a bank holding company with assets of $50 billion or more, or a nonbank financial company supervised by the Federal Reserve, poses a “grave threat” to the country's financial stability, the Federal Reserve (with a 2/3 vote of the council) must take various actions, such as:

1. limiting the company's ability to merge with, acquire, consolidate with, or otherwise become affiliated with another company;

2. restricting the company's ability to offer financial products;

3. requiring the company to terminate one or more activities;

4. imposing conditions on the manner in which the company conducts one or more activities; or

5. if the Federal Reserve determines that (1) through (4) are inadequate to mitigate a threat to the country's financial stability, requiring the company to sell or transfer assets or off-balance-sheet items.

The act sets procedural requirements for such actions, including the opportunity for a hearing (§ 121).

Among other changes, Title I also expands the circumstances under which companies must provide prior notice to the Federal Reserve before acquiring another company (§ 163).

Title II allows federal regulators to place large bank holding companies, significant nonbanks, and certain other companies in receivership to liquidate the institutions. The stated purpose of Title II is “to provide the necessary authority to liquidate failing financial companies that pose a significant risk to the financial stability of the United States in a manner that mitigates such risk and minimizes moral hazard” (§ 204). The FDIC acts as the receiver.

The Treasury, Federal Reserve, and FDIC determine whether to place a company in receivership. To place an eligible company in receivership, they must make several determinations, including that (1) the company is in default or in danger of default; (2) its failure would seriously impact the nation's financial stability; (3) there is no viable private sector alternative to prevent default; (4) any effect of the proposed government action on shareholders or various other parties is appropriate; and (5) the government action would avoid or mitigate serious adverse effects on the nation's financial stability, considering various factors (§ 203).

Title II contains extensive requirements for the receivership process. It provides that “[n]o taxpayer funds shall be used to prevent the liquidation of any financial company under this title” and “[t]axpayers shall bear no losses from the exercise of any authority under this title” (§ 214).

Title III eliminates the OTS and shifts its responsibilities to other agencies, including the Federal Reserve, FDIC, OCC, and the bureau (§§ 311-313). The OTS supervises federal savings associations and their holding companies, as well as federally insured state savings associations.

Among other changes, Title III:

1. makes permanent the increase in FDIC deposit insurance per depositor from $100,000 to $250,000 (§ 335);

2. revises the assessment base for FDIC insurance for insured depository institutions (§ 331); and

3. requires federal banking and securities regulatory agencies to each establish an Office of Minority and Women Inclusion “responsible for all matters of the agency relating to diversity in management, employment, and business activities” (§ 342).

Title VIII provides a framework for the enhanced regulation and risk management of designated (1) payment, clearing, or settlement activities conducted by financial institutions and (2) financial market utilities. Among other provisions, it subjects utilities and activities designated as systemically important to risk-management standards and regulation by the Federal Reserve and other agencies (§§ 802-805).

Title XI limits the Federal's Reserve emergency lending authority by, among other changes, (1) requiring the prior approval of the Treasury secretary, (2) prohibiting lending to programs that do not have broad-based eligibility (programs structured to assist one company will not qualify), and (3) prohibiting lending to insolvent firms (§ 1101).

Among other provisions, Title XI (1) requires the Government Accountability Office to audit Federal Reserve loans and financial assistance provided from December 1, 2007 until the act's enactment (§ 1109) and (2) requires the FDIC, upon the determination by the FDIC

and Federal Reserve that a serious liquidity event exists, to create a widely available program to guarantee obligations of solvent insured banks, holding companies, and their affiliates (§§ 1104-1105).

Title XII authorizes the Treasury secretary to establish three programs to “encourage initiatives for financial products and services that are appropriate and accessible for millions of Americans who are not fully incorporated into the financial mainstream” (§ 1202). The programs concern:

1. increasing the access of low- and moderate-income people to appropriate bank accounts (§ 1204),

2. creating low-cost alternatives to payday lenders and other costly small loans (§ 1205), and

3. providing funding and encouragement to community development financial institutions to establish and maintain small dollar loan programs (§ 1206).

Among other changes, Title XIII:

1. reduces Troubled Asset Relief Program (TARP) funding from $700 billion to $475 billion (§ 1302);

2. provides that no TARP funding may be used for programs not begun before June 25, 2010 (id.); and

3. provides that (a) amounts received by the Treasury from the sale of Fannie Mae, Freddie Mac, and Federal Home Loan Bank Act obligations and (b) stimulus funds not accepted or obligated by states, must be deposited in the Treasury's general fund for the sole purpose of deficit reduction (§§ 1304, 1306).

Title XV includes various provisions concerning International Monetary Fund loans to financially troubled countries, conflict minerals in the Congo, coal and mine safety, and other topics (§§ 1501-1506).

Title XVI amends section 1256 of the Internal Revenue Code to

exclude certain securities futures and option contracts, including interest rate swaps and several others, from preferential tax treatment (§ 1601).

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