Sweeping Changes

President Obama signed the sweeping 2,300 page Dodd-Frank Wall Street Reform and Consumer Protection Act into law on Wednesday, July 21, 2010. This is the biggest overhaul of the banking industry since the Great Depression. We as consumers, entrepreneurs and business people will not fully feel its impact for years to come as many of the "rules" must still be written. This bill set in motion 243 new formal rule-makings by 11 different agencies. Regulators will take months to study dozens of issues in the newly passed law before drafting rules. Some of the issues they will deal with are: Should the government limit the size of banks? How should financial advisors be held accountable for advice they give their clients? How can credit ratings be made more reliable?

What it means in reality is that the real-world impact of the law will depend on how it is interpreted by regulators…..the same regulators who were blamed for failing to head off the financial crisis we are experiencing. Nevertheless, regulators must write the rules consistent with Congress’ blueprint. Here is some of what we can expect:

Consumer Watchdog: One of the biggest changes is the creation of a Consumer Financial Protection Bureau (CGPB) within the Federal Reserve. This bureau will have an estimated $500 million budget and is armed with sweeping authority. It will regulate mortgages and credit cards. It will have the authority to write and enforce policies impacting virtually every area of consumer lending (except for car dealers, who won an exemption).

A Financial Literacy Office will be implemented through CFPB to teach all Americans about saving money, credit and loans, liens and fees. Two other offices will be set up to help older Americans aged 62 and older and members of the military and their families

Bank Cushions: Banks will have to increase their capital reserves to ride out tough times. They will have several years to comply. Their cost of doing business will increase and more than likely passed on to us as consumers.

Debit Cards: Fees charged for debit card transactions will be decreased – a victory for retailers. Merchants will be allowed to offer a discount if purchases are made using cash, check or debit cards. Merchants are allowed to implement a $10 minimum purchase on credit card purchases.

Volker Rule: Proprietary trading by banks for their own account will be barred. This rule will limit the growth of the biggest banks and curb banks’ involvement in private equity and hedge funds.

Your Investments: The Securities and Exchange Commission (SEC) will ramp up its efforts. It has announced plans to hire 800 new staffers and create three new offices. One office will oversee large financial institutions, another will better monitor asset-backed securities and the third will review newly-created Wall Street securities. The SEC will have the power to mandate that your "stockbroker" serve as a fiduciary, acting solely in your best interest, just as financial advisers do.

Hedge Funds

Private equity and hedge funds will be required to register with regulators and open their books to scrutiny. (Not so for venture capital funds, which are exempt)

DerivativeWall Street firms that dominate the $615 trillion OTC derivatives’ market will have to spin off dealing operations in some swaps, but can keep many swaps in-house. Much of the Over the counter (OTC) derivatives trading will be redirected through exchanges and clearinghouses.

These are just a few of the many new rules and regulation that we will have to wade through. We will not feel the full force of its impact for quite some time.

Pat Grenier is a General Partner with BRP/Grenier Financial Services in Springfield, MA. Securities offered through Cadaret, Grant and Co., Inc., Member FINRA/SIPC. BRP/Grenier and Cadaret, Grant and Co., Inc. are separate entities.

Pat can be contacted by phone at (413) 736-6712, or email her at This e-mail address is being protected from spambots. You need JavaScript enabled to view it