	Introduction

In response to problems raised by the 2007-2009 financial crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) was enacted on July 21, 2010. This report provides a brief summary of the major provisions of the Dodd-Frank Act and how they relate to the financial crisis. Legislative History

The 111 th Congress considered several proposals to reorganize financial regulators and to reform the regulation of financial markets and financial institutions. 4173 . The Senate then passed its version of H.R. The legislation was signed into law on July 21, 2010, as P.L. 111-203 . In March 2008, then-Treasury Secretary Hank Paulson issued a "Blueprint for a Modernized Financial Regulatory Structure." Doubts about counterparty exposure were magnified by opacity in derivatives markets. Provisions in the Dodd-Frank Act (Titles I and VIII)

Rather than creating a dedicated systemic risk regulator with broad powers to neutralize sources of systemic risk as they arise, Dodd-Frank instead created a Financial Stability Oversight Council (FSOC), composed of the Treasury Secretary as chair along with eight heads of federal regulatory agencies (including the newly created Consumer Financial Protection Bureau) and a presidential appointee with insurance experience as voting members. The act created an Office of Financial Research to support the council. The council is authorized to identify systemically important financial firms regardless of their legal charter, and the Fed will subject them and all bank holding companies with over $50 billion in assets to stricter prudential oversight and regulation, including counterparty exposure limits set at 25% of total capital, annual stress tests and capital planning requirements, resolution planning ("living wills"), early remediation requirements, and risk management standards. The act prohibited firms regulated by the Fed from participating in the selection of directors of the regional Federal Reserve Banks. Instead, these insured depositories are subject to a special resolution regime, called a conservatorship or receivership (C/R), that typically is administered by the FDIC. The financial turmoil at the end of the last decade that resulted from the Lehman Brothers bankruptcy and the federal government's provision of ad hoc emergency financial assistance to prevent the bankruptcies of AIG, Bear Stearns, and others focused congressional attention on options for resolving large, complex financial companies while maintaining the stability of the U.S. financial system. Provisions in the Dodd-Frank Act (Title II)

Title II of the Dodd-Frank Act establishes a new resolution regime for certain financial companies, called the "Orderly Liquidation Authority" (OLA). Securitization risks were not properly managed leading up to the crisis, contributing in part to the housing bubble and financial turmoil. Securitizers were prohibited from hedging the retained credit risk. Regulatory Consolidation. Commercial banks and similar institutions are subject to regulatory examination for safety and soundness. They could be viewed as posing additional risks that might make banks more likely to fail, but alternatively those risks might better diversify a bank's risks, making it less likely to fail. Regulatory Consolidation. Title III also made changes to federal deposit insurance. Risky Activities. Additionally, both depository institutions and nondepository financial companies were subject to federal consumer financial protection laws. The role that nonperforming mortgages played in the financial crisis led some to suggest actions to protect consumers from risky mortgage products and to protect the U.S. financial system from experiencing major losses due to troubled mortgages in the future. It requires regulators to impose margin requirements on certain swaps that remain uncleared by any clearinghouse. It established the SEC Office of Credit Ratings; imposed new reporting, disclosure, and examination requirements on NRSROs; established new standards of legal liability; and required the removal of references to NRSRO ratings from federal statutes and regulations. The firm was a registered broker-dealer subject to oversight by Financial Industry Regulatory Authority (FINRA, the self-regulatory organization for broker-dealers overseen by the SEC) and was also a registered investment adviser subject to SEC oversight. Nonetheless, the collapse of LTCM and the systemic issues that it revealed led the 111 th Congress to consider the laws that applied or, more accurately, did not apply to hedge funds and their managers. Statutory Changes to the Dodd-Frank Act
Beginning in 2007, U.S. financial conditions deteriorated, leading to the near-collapse of the U.S. financial system in September 2008. Major commercial banks, insurers, government-sponsored enterprises, and investment banks either failed or required hundreds of billions in federal support to continue functioning. Households were hit hard by drops in the prices of real estate and financial assets, and by a sharp rise in unemployment. Congress responded to the crisis by enacting the most comprehensive financial reform legislation since the 1930s.
Then-Treasury Secretary Timothy Geithner issued a reform plan in the summer of 2009 that served as a template for legislation in both the House and Senate. After significant congressional revisions, President Obama signed H.R. 4173, now titled the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203), into law on July 21, 2010.
Perhaps the major issue in the financial reform legislation was how to address the systemic fragility revealed by the crisis. The Dodd-Frank Act created a new regulatory umbrella group chaired by the Treasury Secretary—the Financial Stability Oversight Council (FSOC)—with authority to designate certain financial firms as systemically important and subjecting them and all banks with more than $50 billion in assets to heightened prudential regulation. Financial firms were also subjected to a special resolution process (called "Orderly Liquidation Authority") similar to that used in the past to address failing depository institutions following a finding that their failure would pose systemic risk.
The Dodd-Frank Act made other changes to the regulatory structure. It created the Office of Financial Research to support FSOC. The act consolidated consumer protection responsibilities in a new Bureau of Consumer Financial Protection (CFPB). It consolidated bank regulation by reassigning the Office of Thrift Supervision's (OTS's) responsibilities to the other banking regulators. A federal office was created to monitor insurance. The Federal Reserve's emergency authority was amended, and its activities were subjected to greater public disclosure and oversight by the Government Accountability Office (GAO).
Other aspects of Dodd-Frank addressed particular sectors of the financial system or selected classes of market participants. Dodd-Frank required more derivatives to be cleared and traded through regulated exchanges, reporting for derivatives that remain in the over-the-counter market, and registration with appropriate regulators for certain derivatives dealers and large traders. Hedge funds were subject to new reporting and registration requirements. Credit rating agencies were subject to greater disclosure and legal liability provisions, and references to credit ratings were required to be removed from statute and regulation. Executive compensation and securitization reforms attempted to reduce incentives to take excessive risks. Securitizers were subject to risk retention requirements, popularly called "skin in the game." It made changes to bank regulation to make bank failures less likely in the future, including prohibitions on certain forms of risky trading (known as the "Volcker Rule"). It created new mortgage standards in response to practices that caused problems in the foreclosure crisis.
This report reviews issues related to financial regulation and provides brief descriptions of major provisions of the Dodd-Frank Act, along with links to CRS products going in to greater depth on specific issues. It does not attempt to track the legislative debate in the 115th Congress.