Over the last two, years millions of Americans have suffered from the effects of the worst financial and economic crises since the Great Depression: 8.4 million Americans have lost their jobs, small businesses have failed, nearly seven million people in the United States have lost their homes to foreclosures, and millions more have seen their savings and retirement accounts lose most of their value – economic pain that tears at the very fiber of the middle class. 

All this was caused by greedy and reckless behavior of Wall Street and the Republican economic policies that encouraged excessive risk-taking and a laissez-faire approach to financial regulation and oversight. The failures that led to this crisis require bold action to help us recover and ensure that it never happens again. 

On March 22, 2010, the Senate Committee on Banking, Housing, and Urban Affairs marked up and ordered to be reported the Restoring American Financial Stability Act of 2010 (RAFSA). RAFSA is a direct and comprehensive response to the financial crisis that nearly crippled the U.S. economy beginning in 2008. The primary purpose of RAFSA is to promote the financial stability of the United States. It seeks to achieve that goal through multiple measures designed to improve accountability, resiliency, and transparency in the financial system by: establishing an early warning system to detect and address emerging threats to financial stability and the economy, enhancing consumer and investor protections, strengthening the supervision of large, complex financial organizations and providing a mechanism to liquidate such companies should they fail without any losses to the taxpayer, and regulating the massive over-the-counter derivatives market.


Major Provisions 

The following summaries are based on an analysis provided by the
Majority Leader’s office and the Senate Banking Committee 

Title I – Financial Stability

Title I establishes a new framework that would prevent a recurrence or mitigate the impact of financial crises that could cripple financial markets and damage the economy. A new Financial Stability Oversight Council, chaired by the Treasury Secretary and comprised of key regulators, would monitor emerging risks to U.S. financial stability, recommend heightened prudential standards for large, interconnected financial companies, and require nonbank financial companies to be supervised by the Federal Reserve if their failure were to pose a risk to U.S. financial stability. 

Expert Members. A 9 member council of federal financial regulators and an independent member would be chaired by the Treasury Secretary and made up of regulators including: the Federal Reserve Board, the Securities and Exchange Commission, Commodity Futures Trading Commission, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, and the new Consumer Financial Protection Bureau. The council would have the sole job to identify and respond to emerging risks throughout the financial system. 

Tough to Get Too Big. The Council would make recommendations to the Federal Reserve for, and the Federal Reserve would be required to adopt, increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity, with significant requirements on companies that posed risks to the financial system. 

Regulates Nonbank Financial Companies. The Council would be authorized to require, with a two-thirds vote, that a nonbank financial company be regulated by the Federal Reserve if its failure were to pose a risk to the financial stability of the United States. 

Break Up Large, Complex Companies. The Council would be able to approve, with a two-thirds vote, a Federal Reserve decision to require a large, complex company, to divest some of its holdings if it posed a grave threat to the financial stability of the United States – but only as a last resort. 

Technical Expertise. This title creates a new Office of Financial Research within Treasury that would be staffed with a highly sophisticated staff of economists, accountants, lawyers, former supervisors, and other specialists to support the Council’s work by collecting financial data and conducting economic analysis. 

Make Risks Transparent. Through the Office of Financial Research and member agencies, the Council would collect and analyze data to identify and monitor emerging risks to the economy and would make this information public in periodic reports and testimony to Congress every year. 

No Evasion. Large bank holding companies that received TARP funds would not be able to avoid Federal Reserve supervision by simply dropping their banks. (the “Hotel California” provision)


Title II – Orderly Liquidation Authority

Title II establishes an orderly liquidation authority that would give the U.S. government a viable alternative to the undesirable choice it faced during the financial crisis between bankruptcy of a large, complex financial company that would disrupt markets and damage the economy, and a bailout of such financial company that would expose taxpayers to losses and undermine market discipline. The new orderly liquidation authority would allow the FDIC, which has extensive experience as receiver for failed banking institutions, including large institutions, to safely unwind a failing nonbank financial company or bank holding company, an option that was not available during the financial crisis. Once a failing financial company is placed under this authority, liquidation would be the only option; the failing financial company may not be kept open or rehabilitated. The financial company‘s business operations and assets would be sold off or liquidated, the culpable management of the company would be discharged, shareholders would have their investments wiped out, and unsecured creditors and counterparties would bear losses. 

Presumption in Favor of Bankruptcy. There is a strong presumption that the bankruptcy process would continue to be used to close and unwind failing financial companies, including large, complex ones. The orderly liquidation authority could be used if and only if the failure of the financial company would threaten U.S. financial stability. Therefore the threshold for triggering the orderly liquidation authority would be very high: 

1)a recommendation by a two thirds vote of the Board of the Governors of the Federal Reserve System;

2)a recommendation by a two thirds vote of the FDIC;

3)a determination and approval by the Secretary of the Treasury after consultation with the President, and

4)a review and determination by a judicial panel. 

No Bailouts by the Taxpayers. In order to protect taxpayers, large financial companies would contribute $50 billion over a period of 5 to 10 years to a fund held at the Treasury. This fund could only be used by the FDIC in the orderly liquidation of a failing financial company with the approval of the Treasury Secretary, and could not be used for any other purpose. The FDIC would be required to rely first on these industry contributions if liquidity support is necessary to safely unwind the failing financial company and prevent a fire saleof assets that could further threaten financial stability. Additional assessments on large financial companies could be imposed if necessary to ensure 100 percent repayment of any funds obtained from the Treasury, and any financial company that received payments greater than what it otherwise would have received in bankruptcy would be assessed at a substantially higher rate. Taxpayers would bear no losses from the use of the orderly liquidation authority.


Title III – Transfer of Powers to the Comptroller of the Currency, the FDIC, and the Board of Governors

Title III rationalizes the fragmented structure of banking supervision in the U.S. by abolishing one of the multiple banking regulators, consolidating supervision of state banks in a single federal regulator, and consolidating supervision of smaller bank holding companies (those with assets of less than $50 billion) so that the regulator for the bank or thrift would also regulate the holding company. 

FDIC. The FDIC would regulate state banks and thrifts of all sizes and holding companies of state banks and thrifts with assets below $50 billion. 

OCC. The Comptroller of the Currency would regulate national banks and federal thrifts of all sizes and the holding companies of national banks and federal thrifts with assets below $50 billion. The Office of Thrift Supervision would be eliminated. Existing thrifts would be grandfathered in, but no new charters would be issued for federal thrifts. 

Federal Reserve. The Federal Reserve Board would regulate bank and thrift holding companies with assets of over $50 billion, where the Fed’s capital market experience would enhance its supervision. As a consolidated supervisor, the Federal Reserve would be able to see risks whether they emerged in the bank holding company or its subsidiaries. They would be responsible for finding risk throughout the system. The Vice Chair of the Federal Reserve would be responsible for supervision and would report semi-annually to Congress. 

The legislation would also preserve the dual banking system, leaving in place the state banking system that governs most of our nation’s community banks.


Title IV – Private Fund Investment Advisers Registration Act of 2010

Oversight of Hedge Funds. Title IV would require hedge funds that manage over $100 million to register with the SEC as investment advisors, in order to close a significant gap in financial regulation. Because hedge funds are currently unregulated, no precise data regarding the size and scope of hedge fund activities are available, but the common estimate is that the funds had at least $2 trillion in capital before the crisis. 

Financial Disclosure. In addition to SEC registration, this title would require hedge funds with more than $100 million in assets under management to disclose information regarding their investment positions and strategies. The required disclosures would include information on fund size, use of leverage, counterparty credit risk exposure, trading and investment positions, valuation policies, types of assets held, and any other information that the SEC, in consultation with the Financial Stability Oversight Council, determined was necessary and appropriate to protect investors or assess systemic risk. The Council would have access to this information to monitor potential systemic risk, while the SEC would use it to protect investors and market integrity. 

Expanded Scope of Supervision by States. The legislation would also raise the assets threshold for federal regulation of investment advisers from $25 million to $100 million, a move expected to increase the number of advisors under state supervision by 28 percent. States have proven to be strong regulators in this area and subjecting more entities to state supervision would allow the SEC to focus its resources on newly registered hedge funds.


Title V – Insurance

Title V establishes the Office of National Insurance within the Department of the Treasury. The Office, which would be headed by a career Senior Executive Service Director appointed by the Secretary of the Treasury, would have the authority to: 

1)monitor all aspects of the insurance industry;

2)recommend to the Financial Stability Oversight Council that the Council designate an insurer, including its affiliates, as an entity subject to regulation by the Board of Governors as a nonbank financial company as defined in Title I of the Restoring American Financial Stability Act;

3)assist the Secretary in administering the Terrorism Risk Insurance Program;

4)coordinate Federal efforts and establish Federal policy on prudential aspects of international insurance matters;

5)determine whether state insurance measures are preempted by International Insurance Agreements on Prudential Measures; and

6)consult with the states regarding insurance matters of national importance and prudential insurance matters of international importance. 

The authority of the Office would extend to all lines of insurance except health insurance and crop insurance. 

Title V also incorporates provisions from S. 1363, the Nonadmitted and Reinsurance Reform Act.


Title VI – Bank and Savings Association Holding Company and Depository Institution Regulatory Improvements Act of 2009

This title includes various provisions intended to improve the regulation of bank and savings association holding companies and depository institutions. Among these is a provision that prohibits or restricts certain types of financial activity – in banks, bank holding companies, other companies that control an insured depository institution, their subsidiaries, or nonbank financial companies supervised by the Board of Governors – that are high-risk or which create significant conflicts of interest between these institutions and their customers. 

“Volcker Rule.” Banks, bank holding companies, other companies that control an insured depository institution, their subsidiaries, or nonbank financial companies supervised by the Board of Governors would be prohibited from proprietary trading, sponsoring and investing in hedge funds and private equity funds, and from having certain financial relationships with those hedge funds or private equity funds for which they serve as investment manager or investment adviser. A nonbank financial institution supervised by the Board of Governors that engages in proprietary trading, or sponsoring or investing in hedge funds and private equity funds would be subject to Board rules imposing capital requirements related to, or quantitative limits on, these activities.


Title VII – Transparency and Accountability in the Derivatives Market

NOTE: This description reflects an agreement between Senator Dodd and Senator Lincoln, reflecting the strongest provisions from the Agriculture Committee and Banking Committee texts.

This title is designed to protect taxpayers against the need for future bailouts and buffer the financial system from excessive risk-taking. Over-the-counter derivatives would be regulated by the CFTC and the SEC, more would be cleared through centralized clearing houses and traded on exchanges, swap dealers and major swap participants would be subject to additional capital requirements and capital requirements, and all trades would be reported so that regulators could monitor risks in this large, complex market. 

Brings 100 Percent Transparency to Market with Real-Time Price Reporting. Wall Street will no longer be able to make excessive profits by operating in the dark. Exposing these markets to the light of day will put this money where it belongs – on Main Street. The public will see what is being traded, who is doing the trading and, most importantly, regulators can go after fraud, manipulation and excessive speculation. 

Central Clearing and Exchange Trading. The legislation would require central clearing and exchange trading for derivatives that could be cleared and would provide a role for both regulators and clearing houses to determine which contracts should be cleared. The legislation would require the SEC and the CFTC to pre-approve contracts before clearing houses could clear them. 

Closes Loopholes.Loopholes have allowed far too many to avoid the law of the land or set up shell companies to claim exemptions. This bill gives regulators the authority to close any loophole they find, protecting the markets, taxpayers and the economy. 

Protects Jobs on Main Street. The interests of Main Street will be protected. Commercial businesses and manufacturers who use these markets and customized contracts to manage risk will still be permitted to do so without imposing additional margin costs. This will protect American jobs and keep consumer costs low.


Pushes Out Derivatives Activities From Big Banks. Banks need to be kept in the business of banking.All swap dealer activities would be pushed out of banking companies by prohibiting any access to the federal safety net, that being access to the Federal Reserve discount window, deposit insurance, and emergency liquidity.Other entities, including major swap participants, clearinghouses, exchanges and swap dealers, would also be prohibited from accessing this federal safety net."


Protects Municipalities and Pensions. Swaps dealers will have a “fiduciary duty,” just like investment advisers, that will require the interests of municipalities and pension retirement funds be put first; ensuring Wall Street doesn’t take advantage of Main Street and taxpayers.


Title VIII – Payment, Clearing and Settlement Supervision Act of 2009

This title provides the Financial Stability Oversight Council a role in identifying systemically important financial market utilities and the Board of Governors of the Federal Reserve System with an enhanced role in supervising risk management standards for systemically important financial market utilities and for systemically important payment, clearing, and settlement activities conducted by financial institutions. 

Evaluating Systemic Importance. In particular, the Financial Stability Oversight Council would be authorized to designate financial market utilities or payment, clearing, or settlement activities as systemically important, and establish procedures and criteria for making and rescinding such a designation. Criteria for designation and rescission of designation would include the aggregate monetary value of transactions processed and the effect that a failure of a financial market utility or payment, clearing, or settlement activity would have on counterparties and the financial system. 

Risk Management Standards. This title would also authorize the Federal Reserve Board, in consultation with the Financial Stability Oversight Council and the appropriate supervisory agencies, to prescribe risk management standards governing the operations of designated financial market utilities and the conduct of designated payment, clearing, and settlement activities by financial institutions. This section would establish the objectives, principles, and scope of such standards.


Title IX – Investor Protections

This title addresses a number of securities issues, including provisions that responds to significant aspects of the financial crisis caused by poor securitization practices; erroneous credit ratings; ineffective SEC regulation of Madoff Securities, Lehman Brothers and other firms, and executive compensation practices that promoted excessive risk-taking. 

Improved Regulation and Oversight of Credit Rating Agencies. The bill would create an Office of Credit Ratings at the SEC with its own compliance staff and the authority to fine agencies. The SEC would be required to examine Nationally Recognized Statistical Ratings Organizations at least once a year and make key findings public. Nationally Recognized Statistical Ratings Organizations would be required to disclose their methodologies, their use of third parties for due diligence efforts, and their ratings track record. Agencies would be required to consider information in their ratings that comes to their attention from a source other than the organizations being rated if they find it credible. Additionally compliance officers would be prohibited from working on ratings, methodologies, or sales. 

The bill would also empower investors to bring private rights of action against ratings agencies for a knowing or reckless failure to conduct a reasonable investigation of the facts or to obtain analysis from an independent source. And the SEC would be given the authority to deregister an agency for providing bad ratings over time. 

Reduction in Risks Posed by Securities. The bill would require companies that sell products like mortgage-backed securities to retain at least five percent of the credit risk, unless the underlying loans meet standards that reduce riskiness. Further, issuers would be required to disclose more information about the underlying assets and to analyze the quality of the underlying assets. 

Shareholder Empowerment. The bill would give shareholders a say on pay with the right to a non-binding vote on executive pay. This would provide shareholders with a powerful opportunity to hold accountable executives of the companies they own, and a chance to disapprove where they see the kind of misguided incentive schemes that threatened individual companies and in turn the broader economy. The SEC would be given the authority to grant shareholders proxy access to nominate directors. It would also require directors to win by a majority vote in uncontested elections. 

Standards for listing on an exchange would include the requirement that compensation committees include only independent directors and have authority to hire compensation consultants in order to strengthen their independence from the executives they are rewarding or punishing. Public companies would be required to set policies to take back executive compensation if it was based on inaccurate financial statements that do not comply with accounting standards. The bill also would direct the SEC to clarify disclosures relating to compensation, including requiring companies to provide charts that compare their executive compensation with stock performance over a five-year period. 

Beefed Up Investor Protections. The bill would create a program within the SEC to encourage people to report securities violations, creating rewards of up to 30 percent of funds recovered for information provided. It would mandate an annual assessment of the SEC’s internal supervisory controls and a GAO study of SEC management. The bill also would create the Investment Advisory Committee, a committee of investors to advise the SEC on its regulatory priorities and practices as well as the Office of Investor Advocate in the SEC, to identify areas where investors have significant problems dealing with the SEC and provide them assistance. Additionally, the self-funded SEC would no longer be subject to the annual appropriations process. 

Better Oversight of Municipal Securities. The bill would require SEC registration for municipal financial advisers, swap advisers, and investment brokers – unregulated intermediaries who play key roles in the municipal bond market. The bill would also subject financial advisers, swap advisers, and investment brokers to rules issued by the Municipal Securities Rulemaking Board and enforced by the SEC or a designee. Investor and public representatives would be given a majority of seats on the Municipal Securities Rulemaking Board (MSRB).


Title X – Bureau of Consumer Financial Protection

This title creates the Consumer Financial Protection Bureau (CFPB), a new streamlined independent consumer entity housed within the Federal Reserve System. The CFPB would be focused on ensuring that consumers get clear and effective disclosures in plain English and in a timely fashion so that they will be empowered to shop for and choose the best consumer financial products and services for them. 

The new CFPB would establish a basic, minimum federal level playing field for all banks and, for the first time, nondepositoryfinancial companies that sell consumer financial products and services to American families. It would do so without creating an undue burden on banks, credits unions, or nondepository providers of these products and services. 

The Consumer Financial Protection Bureau would include the following features: 


Title XI – Federal Reserve System Provisions

Title XI eliminates the ability of either the Federal Reserve or the Federal Deposit Insurance Corporation to rescue an individual financial firm that is failing, while preserving the ability of both regulators to provide needed liquidity and confidence in financial markets during times of severe distress. 

Short-term debt during financial crises. The legislation would allow the FDIC to guarantee short-term debt during financial crises, but would limit the guarantees to solvent banks and bank holding companies, restrict the conditions under which such support could be offered, increase accountability of the guarantee program, and eliminate the possibility that taxpayers would have to pay for any losses from the program. 

No guarantee could be offered unless the Board of Governors of the Federal Reserve and the FDIC jointly agreed that a liquidity event –essentially a breakdown in the ability of borrowers to access credit markets in a normal fashion – existed. The FDIC could then set up a facility to guarantee debt, following policies and procedures determined by regulation. The regulation would be written in consultation with the Treasury. The terms and conditions of the guarantees would have to be approved by the Secretary of the Treasury. 

The Secretary would determine a maximum amount of guarantees, and the President would request Congress to allow that amount. If the President did not submit the request, the guarantees would not be made. Congress would have five days under an expedited procedure to disapprove the request. Fees for the guarantees would be set to cover all expected costs. If there were to be losses, they would be recouped from those firms that received guarantees. Firms that defaulted on guarantees would be put into receivership, resolution or bankruptcy. 

Changes to Federal Reserve governance. The bill would establish the position of Vice Chairman for Supervision on the Federal Reserve Board of Governors. The Vice Chairman would have the responsibility to develop policy recommendations on supervision and regulation for the Board, and would report twice each year to Congress. The Federal Reserve would also be given formal responsibility to identify, measure, monitor, and mitigate risks to U.S. financial stability. In addition, the Federal Reserve would be formally prohibited from delegating its functions for establishing regulatory or supervisory policy to Federal Reserve banks. 

Eliminating potential conflicts of interest at Federal Reserve banks. The Federal Reserve Act would be amended to state that no company, or subsidiary or affiliate of a company that is supervised by the Board of Governors could vote for Federal Reserve Bank directors; and the officers, directors and employees of such companies and their affiliates could not serve as directors. In addition, to increase the accountability of the Federal Reserve Bank of New York president, who plays a key role in formulating and executing monetary policy, this reserve bank officer would be appointed by the President, by and with the advice and consent of the Senate, rather than by the bank’s board of directors.


Title XII – Improving Access to Mainstream Financial Institutions

This title encourages initiatives for financial products and services that are appropriate and accessible for millions of Americans who are not fully incorporated into the financial mainstream. 

Expanding Access.The bill would authorize the Treasury Secretary to establish a multiyear program of grants, cooperative agreements, financial agency agreements, and similar contracts or undertakings to promote initiatives designed to expand access to mainstream financial institutions by low and moderate income individuals. 

Alternatives to Payday Loans.The bill would authorize the Treasury Secretary to establish multiyear demonstration programs by means of grants, cooperative agreements, financial agency agreements, and similar contracts or undertakings with eligible entities to provide low-cost, small loans to consumers that provide alternatives to payday loans. Loans under this section would be required to be made on terms and conditions and pursuant to lending practices that are reasonable for consumers. Entities awarded a grant under this section would be required to promote financial literacy and education opportunities, such as relevant counseling services, educational courses, or wealth building programs, to each consumer provided with a loan pursuant to this section. 

Grants to Community Development Financial Institutions.The bill would direct the Community Development Financial Institutions (CDFI) Fund to make grants to CDFIs to establish loan-loss reserve funds to help CDFIs defray the costs of operating small dollar loan programs in order to help provide consumers access to mainstream financial institutions and provide payday loan alternatives. A CDFI receiving grants under this program would be required to provide matching funds equal to 50 percent of the amount of any grant received under this section. Grants received by a CDFI under this section could not be used to provide direct loans to consumers, and could be used to help recapture a portion or all of a defaulted loan made under the small dollar loan program.



Legislative History 

On December 2, 2009, H.R. 4173, the Wall Street Reform and Consumer Protection Act of 2009, was introduced into the House by Representative Frank. The legislation passed the House on December 11, 2009 by a vote of 223-202 and on January 20, 2010, was referred to the Senate Committee on Banking, Housing, and Urban Affairs. 

On April 15, 2010, S. 3217 was introduced in the Senate by Senator Dodd and placed on the Senate Calendar. 

On Monday April 26, 2010, cloture on the motion to proceed to S. 3217 failed by a vote of 57-41.


Expected Amendments 

The DPC will distribute information on amendments as it becomes available to staff listservs.


Administration Position 

On April 26, the While House releases its Statement of Administration Policy in support of S. 3217

“The Administration strongly supports Senate passage of S. 3217. The President has called on the Congress to enact far-reaching Wall Street reform legislation to overhaul the Nation’s financial system in the wake of the recent financial crisis, setting forth clear objectives and principles that were endorsed by congressional leaders. Wall Street reform is critical to put in place rules that will allow the Nation’s markets to promote innovation while discouraging abuse, to create a framework in which markets can function freely and fairly without the fragility in which normal business cycles bring the risk of financial collapse, and to provide a system that works for businesses and consumers. 

“The Administration commends the Senate Banking, Housing, and Urban Affairs Committee for its efforts in developing comprehensive Wall Street reform legislation. The Administration also commends the Senate Agriculture Committee for additional leadership on provisions related to derivatives. Senate passage of S. 3217 – including derivatives provisions from the Agriculture and Banking Committees – will move the Nation another important step towards necessary, comprehensive Wall Street reform that will create clear rules of the road and can be consistently and systematically enforced, thus creating a more stable financial system with better protection for consumers and investors. 

“The Administration looks forward to working with the Congress to achieve successful comprehensive reform as S. 3217 continues to move through the legislative process. The Administration will oppose efforts to add loopholes to the bill that undermine consumer and investor protection or that allow institutions to avoid oversight. The Administration urges the Senate to resist pressure from those who would preserve the status quo and to stand up for long overdue reform that will protect American families and the long-term health of the Nation’s economy.”




Senate Democratic Policy Committee, “Senate Democrats Are On Your Side: Reforming Wall Street While Protecting Main Street” (March 24, 2010), available here

Congressional Budget Office, “Cost estimate for S. 3217,Restoring American Financial Stability Act of 2010,” as ordered reported by the Senate Committee on Banking, Housing, and Urban Affairs (March 22, 2010), available here

Congressional Research Service, “Financial Regulatory Reform and the 111th Congress” (March 16, 2010), available here

Congressional Research Service, “Financial Regulatory Reform: Systemic Risk and the Federal Reserve” (March 26, 2010), available here

Congressional Research Service, “Financial Regulatory Reform: Analysis of the Consumer Financial Protection Agency (CFPA) as Proposed by the Obama Administration and H.R. 4173 (Formerly H.R. 3126)” (January 29, 2010), available here.