Drilling Down in Dodd's Reform Bill

WASHINGTON — Senate Banking Committee Chairman Chris Dodd's regulatory reform bill would overhaul the way financial companies are overseen and how troubled companies are unwound. But the 1,300-plus page bill contains many other provisions, including these:

• Preemption: Roll back the Office of the Comptroller of the Currency's 2004 preemption rules and reestablish the so-called Barnett standard. The OCC would have the power to preempt a state consumer protection law that directly or indirectly discriminates against national banks.

• Exam Fees: For the first time, the Federal Reserve Board would assess exam fees on institutions it supervises. Currently, it uses funds from its open-market activities but does not charge for federal supervision of state banks. It must collect enough in fees to cover its supervision costs.

• Fed Jobs: The president of the New York Fed would have to be appointed by the President and confirmed by the Senate. The Fed vice chairman would be explicitly responsible for bank supervision and report to Congress annually on the topic.

Risk Retention: The bill would require the federal banking agencies and the SEC within 270 days to prescribe regulations requiring any lender that sells a mortgage into the secondary market to retain at least 5% of the credit risk.

• Volcker Rule: Regulators would be required to prohibit proprietary trading as well as restrict investment in and relationships with hedge funds and private equity firms. The provision appears designed to get around opposition raised by lawmakers that Congress was not well-equipped to define proprietary trading. The bill also said that certain nonbank firms subject to supervision by the Fed would also face restrictions on proprietary trading and hedge fund and private equity investment.

• The "Hotel California" Rule: Large bank holding companies that received Troubled Asset Relief Program funds - like Goldman Sachs and Morgan Stanley — and converted to bank holding companies would not be able to remove themselves from Fed supervision. The provision is named after the Eagles song, which includes the line: "You can check out any time you like, but you can never leave."

• Systemic Risk: A proposed systemic risk council would have to create an Office of Financial Research within Treasury that would support the council's work by collecting data and conducting economic analysis. The office would collect data to identify and monitor emerging risks to the financial system and make that information public in periodic reports and testimony to Congress.

• Debt Guarantees: The FDIC would be restricted from providing debt guarantees for holding companies unless the systemic risk council determines there is a threat to financial stability, Treasury approves the terms and there is a cap on the total amount of guarantees. The president must also activate an expedited review of the guarantees and ensure fees are set to recoup any losses from the program.

• Hotline: The proposed consumer division, housed within the Fed, would have to create a new Office of Financial Literacy and must create a national consumer compliant hotline. The phone number would be the first single toll-free number to report issues with financial products and services.

• Funeral Plans: Large, complex companies would periodically submit plans for their "rapid and orderly shutdown should the company go under." Companies that don't submit such a plan would face higher capital requirements and restrictions on growth and activity, as well as divestment. If the plan is not "credible," significant other costs would be imposed on the bank to rationalize structures or operations.

• Insurance Regulation: Creates an office within Treasury to monitor the insurance industry and coordinate international insurance issues. It also requires a study on ways to modernize insurance regulation and provide Congress with recommendations.

• Derivatives Regulation: The bill has an entire section devoted to better regulation of derivatives. It would require central clearing and exchange trading for derivatives that can be cleared (a determination made by regulators) and would require margins for un-cleared trades in order to offset their greater risk. It would require data collection and publication through clearing houses to improve transparency.

• Hedge Funds: Any fund that manages over $100 million would be required to register with the Securities and Exchange Commission as investment advisers and to disclose financial data needed to monitor systemic risk.