F:\MWB\MWB 066.

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47 1 (b) MARKET STABILITY

AND

LIQUIDITY.Sub-

2 section (a) shall not be construed as a limitation on the 3 authority or responsibility of the Board 4 5 6 7 8 9 10 11 (1) to provide liquidity to markets in the event of a disruption that threatens the smooth functioning and stability of the financial sector; or (2) to serve as a lender of last resort under this Act when the Board determines such action is necessary..
SEC. 403. REFORMS OF SECTION 13 EMERGENCY POWERS.

(a) RESTRICTIONS

ON

EMERGENCY POWERS.The

12 third undesignated paragraph of section 13 of the Federal 13 Reserve Act is amended 14 15 16 17 18 19 20 21 22 23 24 25 (1) by striking In unusual and exigent and inserting the following: (3) EMERGENCY (A) IN gent; and (2) by adding at the end the following new subparagraph: (B) REQUIREMENT
FOR BROAD AVAILAUTHORITY.

GENERAL.In

unusual and exi-

ABILITY OF DISCOUNTS.Subject

to the limita-

tions provided under subparagraph (A), any authorization made pursuant to the authority provided under subparagraph (A) shall require dis-

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48 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 counts to be made broadly available to individuals, partnerships, and corporations within the market sector for which such authorization is being made. (C) TRANSPARENCY (i) SECRETARY
APPROVAL REQUIRED; AND OVERSIGHT. OF THE TREASURY NOTICE TO THE

CONGRESS.No

authorization

may

be

made pursuant to the authority provided under subparagraph (A) unless (I) such authorization is first approved by the Secretary of the Treasury; and (II) the Secretary of the Treasury issues a notice to the Congress detailing what authorization the Secretary has approved. (ii) PROGRAMS
AFTER 90 DAYS.On MOVED ON-BUDGET

and after the date

that is 90 days after the date on which any authorization is made pursuant to the authority provided under subparagraph (A), all receipts and disbursements resulting from such authorization shall be counted

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49 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (D) and (III) the Balanced Budget and Emergency Deficit Control Act of 1985. JOINT
RESOLUTION OF DIS-

as new budget authority, outlays, receipts, or deficit or surplus for purposes of (I) the budget of the United States Government as submitted by the President; (II) the congressional budget;

APPROVAL.

(i) IN

GENERAL.With

respect to an

authorization made pursuant to the authority provided under subparagraph (A), if, during the 90-day period beginning on the date the Congress receives a notice described under subparagraph (C)(i)(II) with respect to such authorization, there is enacted into law a joint resolution disapproving such authorization, any action taken under such authorization must be discontinued and unwound not later than the end of the 180-day period beginning on the date that such authorization was made.

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50 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (ii) CONTENTS
TION.For OF JOINT RESOLU-

the purpose of this paragraph,

the term joint resolution means only a joint resolution (I) that is introduced not later than 3 calendar days after the date on which the notice referred to in clause (i) is received by the Congress; (II) which does not have a preamble; (III) the title of which is as follows: Joint resolution relating to the disapproval of authorization under the emergency powers of the Federal Reserve Act; and (IV) the matter after the resolving clause of which is as follows: That Congress disapproves the authorization contained in the notice submitted to the Congress by the Secretary of the Treasury on the date of relating to

. (The blank spaces being appropriately filled in.).

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51 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (E) FAST
TRACK CONSIDERATION IN

HOUSE OF REPRESENTATIVES.

(i) RECONVENING.Upon receipt of a notice referred to in subparagraph (D)(i), the Speaker, if the House would otherwise be adjourned, shall notify the Members of the House that, pursuant to this section, the House shall convene not later than the second calendar day after receipt of such report; (ii) REPORTING
AND DISCHARGE.

Any committee of the House of Representatives to which a joint resolution is referred shall report it to the House not later than 5 calendar days after the date of receipt of the notice referred to in subparagraph (D)(i). If a committee fails to report the joint resolution within that period, the committee shall be discharged from further consideration of the joint resolution and the joint resolution shall be referred to the appropriate calendar. (iii) PROCEEDING
TO CONSIDER-

ATION.After

each committee authorized

to consider a joint resolution reports it to

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52 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the House or has been discharged from its consideration, it shall be in order, not later than the sixth day after Congress receives the notice referred to in subparagraph (D)(i), to move to proceed to consider the joint resolution in the House. All points of order against the motion are waived. Such a motion shall not be in order after the House has disposed of a motion to proceed on the joint resolution. The previous question shall be considered as ordered on the motion to its adoption without intervening motion. The motion shall not be debatable. A motion to reconsider the vote by which the motion is disposed of shall not be in order. (iv) CONSIDERATION.The joint resolution shall be considered as read. All points of order against the joint resolution and against its consideration are waived. The previous question shall be considered as ordered on the joint resolution to its passage without intervening motion except two hours of debate equally divided and controlled by the proponent and an oppo-

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53 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 nent. A motion to reconsider the vote on passage of the joint resolution shall not be in order. (F) FAST
ATE. TRACK CONSIDERATION IN SEN-

(i) RECONVENING.Upon receipt of a notice referred to in subparagraph (D)(i), if the Senate has adjourned or recessed for more than 2 days, the majority leader of the Senate, after consultation with the minority leader of the Senate, shall notify the Members of the Senate that, pursuant to this section, the Senate shall convene not later than the second calendar day after receipt of such message. (ii) PLACEMENT
ON CALENDAR.

Upon introduction in the Senate, the joint resolution shall be placed immediately on the calendar. (iii) FLOOR (I)
CONSIDERATION. GENERAL.Notwith-

IN

standing Rule XXII of the Standing Rules of the Senate, it is in order at any time during the period beginning on the 4th day after the date on

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54 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 which Congress receives a notice referred to in subparagraph (D)(i) and ending on the 6th day after the date on which Congress receives a notice referred to in subparagraph (D)(i) (even though a previous motion to the same effect has been disagreed to) to move to proceed to the consideration of the joint resolution, and all points of order against the joint resolution (and against consideration of the joint resolution) are waived. The motion to proceed is not debatable. The motion is not subject to a motion to postpone. A motion to reconsider the vote by which the motion is agreed to or disagreed to shall not be in order. If a motion to proceed to the consideration of the resolution is agreed to, the joint resolution shall remain the unfinished business until disposed of. (II) DEBATE.Debate on the joint resolution, and on all debatable motions and appeals in connection therewith, shall be limited to not more

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55 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 than 10 hours, which shall be divided equally between the majority and minority leaders or their designees. A motion further to limit debate is in order and not debatable. An amendment to, or a motion to postpone, or a motion to proceed to the consideration of other business, or a motion to recommit the joint resolution is not in order. (III) VOTE
ON PASSAGE.The

vote on passage shall occur immediately following the conclusion of the debate on a joint resolution, and a single quorum call at the conclusion of the debate if requested in accordance with the rules of the Senate. (IV) RULINGS
OF THE CHAIR

ON PROCEDURE.Appeals

from the

decisions of the Chair relating to the application of the rules of the Senate, as the case may be, to the procedure relating to a joint resolution shall be decided without debate.

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56 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (G) RULES
RELATING TO SENATE AND

HOUSE OF REPRESENTATIVES.

(i) COORDINATION
OTHER HOUSE.If,

WITH ACTION BY

before the passage by

one House of a joint resolution of that House, that House receives from the other House a joint resolution, then the following procedures shall apply: (I) The joint resolution of the other House shall not be referred to a committee. (II) With respect to a joint resolution of the House receiving the resolution (aa) the procedure in that House shall be the same as if no joint resolution had been received from the other House; but (bb) the vote on passage shall be on the joint resolution of the other House. (ii) TREATMENT
OF JOINT RESOLU-

TION OF OTHER HOUSE.If

one House

fails to introduce or consider a joint resolution under this section, the joint resolution

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57 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of the other House shall be entitled to expedited floor procedures under this section. (iii) TREATMENT
MEASURES.If, OF COMPANION

following passage of the

joint resolution in the Senate, the Senate then receives the companion measure from the House of Representatives, the companion measure shall not be debatable. (iv) VETOES.If the President vetoes the joint resolution, debate on a veto message in the Senate under this section shall be 1 hour equally divided between the majority and minority leaders or their designees. (v) RULES
OF HOUSE OF REP-

RESENTATIVES AND SENATE.This

sub-

paragraph and subparagraphs (D), (E), and (F) are enacted by Congress (I) as an exercise of the rulemaking power of the Senate and House of Representatives, respec-

tively, and as such it is deemed a part of the rules of each House, respectively, but applicable only with respect to the procedure to be followed in that

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58 1 2 3 4 5 6 7 8 9 10 11 12 House in the case of a joint resolution, and it supersedes other rules only to the extent that it is inconsistent with such rules; and (II) with full recognition of the constitutional right of either House to change the rules (so far as relating to the procedure of that House) at any time, in the same manner, and to the same extent as in the case of any other rule of that House.. (b) CURRENT PROGRAMS MOVED ON-BUDGET.Not

13 later than 90 days after the date of the enactment of this 14 Act, all receipts and disbursements resulting from any au15 thorization made before the date of the enactment of this 16 Act pursuant to the authority granted by the third undes17 ignated paragraph of section 13 of the Federal Reserve 18 Act shall be counted as new budget authority, outlays, re19 ceipts, or deficit or surplus for purposes of 20 21 22 23 24 (1) the budget of the United States Government as submitted by the President; (2) the congressional budget; and (3) the Balanced Budget and Emergency Deficit Control Act of 1985.

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59 1 2 3 4 5

TITLE VGOVERNMENT-SPONSORED ENTERPRISES REFORM

SEC. 501. SHORT TITLE.

This title may be cited as the Government-Spon-

6 sored Enterprises Free Market Reform Act of 2009. 7 8

SEC. 502. DEFINITIONS.

For purposes of this title, the following definitions

9 shall apply: 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) CHARTER.The term charter means (A) with respect to the Federal National Mortgage Association, the Federal National Mortgage Association Charter Act (12 U.S.C. 1716 et seq.); and (B) with respect to the Federal Home Loan Mortgage Corporation, the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1451 et seq.). (2) DIRECTOR.The term Director means the Director of the Federal Housing Finance Agency (3) means (A) the Federal National Mortgage Association; and ENTERPRISE.The term enterprise

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60 1 2 3 4 5 6 7 8 9 (B) the Federal Home Loan Mortgage Corporation. (4) GUARANTEE.The term guarantee

means, with respect to an enterprise, the credit support of the enterprise that is provided by the Federal Government through its charter as a government-sponsored enterprise.
SEC. 503. TERMINATION OF CURRENT CONSERVATORSHIP.

(a) IN GENERAL.Upon the expiration of the period

10 referred to in subsection (b), the Director of the Federal 11 Housing Finance Agency shall determine, with respect to 12 each enterprise, if the enterprise is financially viable at 13 that time and 14 15 16 17 18 19 20 21 22 23 24 (1) if the Director determines that the enterprise is financially viable, immediately take all actions necessary to terminate the conservatorship for each of the enterprises; or (2) if the Director determines that the enterprise is not financially viable, immediately appoint the Federal Housing Finance Agency as receiver under section 1367 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 and carry out such receivership under the authority of such section.

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61 1 (b) TIMING.The period referred to in this sub-

2 section is, with respect to an enterprise 3 4 5 6 7 8 9 10 11 12 13 (1) except as provided in paragraph (2), the 24month period beginning upon the date of the enactment of this Act; or (2) if the Director determines before the expiration of the period referred to in paragraph (1) that the financial markets would be adversely affected without the extension of such period under this paragraph with respect to that enterprise, the 30month period beginning upon the date of the enactment of this Act. (c) FINANCIAL VIABILITY.The Director may not

14 determine that an enterprise is financially viable for pur15 poses of subsection (a) if the Director determines that any 16 of the conditions for receivership set forth in paragraph 17 (3) or (4) of section 1367(a) of the Federal Housing En18 terprises Financial Safety and Soundness Act of 1992 (12 19 U.S.C. 4617(a)) exists at the time with respect to the en20 terprise. 21 22 23
SEC. 504. LIMITATION OF ENTERPRISE AUTHORITY UPON EMERGENCE FROM CONSERVATORSHIP.

(a) REVISED AUTHORITY.Upon the expiration of

24 the period referred to in section 503(b), if the Director

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62 1 makes the determination under section 503(a)(1), the fol2 lowing provisions shall take effect: 3 4 5 6 7 8 9 10 (1) PORTFOLIO
LIMITATIONS.Subtitle

B of

title XIII of the Housing and Community Development Act of 1992 (12 U.S.C. 4611 et seq.) is amended by adding at the end the following new section:
SEC. 1369E. RESTRICTION ON MORTGAGE ASSETS OF ENTERPRISES.

(a) RESTRICTION.No enterprise shall own, as of

11 any applicable date in this subsection or thereafter, mort12 gage assets in excess of 13 14 15 16 17 18 19 20 (1) upon the expiration of the period referred to in section 503(b) of the Government-Sponsored Enterprises Free Market Reform Act of 2009, $850,000,000,000; or (2) on December 31 of each year thereafter, 80.0 percent of the aggregate amount of mortgage assets of the enterprise as of December 31 of the immediately preceding calendar year;

21 except that in no event shall an enterprise be required 22 under this section to own less than $250,000,000,000 in 23 mortgage assets. 24 (b) DEFINITION
OF

MORTGAGE ASSETS.For pur-

25 poses of this section, the term mortgage assets means,

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63 1 with respect to an enterprise, assets of such enterprise 2 consisting of mortgages, mortgage loans, mortgage-related 3 securities, participation certificates, mortgage-backed 4 commercial paper, obligations of real estate mortgage in5 vestment conduits and similar assets, in each case to the 6 extent such assets would appear on the balance sheet of 7 such enterprise in accordance with generally accepted ac8 counting principles in effect in the United States as of 9 September 7, 2008 (as set forth in the opinions and pro10 nouncements of the Accounting Principles Board and the 11 American Institute of Certified Public Accountants and 12 statements and pronouncements of the Financial Account13 ing Standards Board from time to time; and without giv14 ing any effect to any change that may be made after Sep15 tember 7, 2008, in respect of Statement of Financial Ac16 counting Standards No. 140 or any similar accounting 17 standard).. 18 19 20 21 22 23 24 25 (2) INCREASE
MENT.Section IN MINIMUM CAPITAL REQUIRE-

1362 of the Federal Housing En-

terprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4612), as amended by section 1111 of the Housing and Economic Recovery Act of 2008 (Public Law 110289), is amended (A) in subsection (a), by striking For purposes of this subtitle, the minimum capital

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64 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 level for each enterprise shall be and inserting The minimum capital level established under subsection (g) for each enterprise may not be lower than; (B) in subsection (c) (i) by striking subsections (a) and and inserting subsection; (ii) by striking regulated entities the first place such term appears and inserting Federal Home Loan Banks; (iii) by striking for the enterprises,; (iv) by striking , or for both the enterprises and the banks,; (v) by striking the level specified in subsection (a) for the enterprises or; and (vi) by striking the regulated entities operate and inserting such banks operate; (C) in subsection (d)(1) (i) by striking subsections (a) and and inserting subsection; and (ii) by striking regulated entity each place such term appears and inserting Federal home loan bank;

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65 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
ITAL

(D) in subsection (e), by striking regulated entity each place such term appears and inserting Federal home loan bank; (E) in subsection (f) (i) by striking the amount of core capital maintained by the enterprises,; and (ii) by striking regulated entities and inserting banks; and (F) by adding at the end the following new subsection: (g) ESTABLISHMENT LEVELS. (1) IN
GENERAL.The OF

REVISED MINIMUM CAP-

Director shall cause

the enterprises to achieve and maintain adequate capital by establishing minimum levels of capital for the enterprises and by using such other methods as the Director deems appropriate. (2) AUTHORITY.The Director shall have the authority to establish such minimum level of capital for an enterprise in excess of the level specified under subsection (a) as the Director, in the Directors discretion, deems to be necessary or appropriate in light of the particular circumstances of the enterprise.

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66 1 (h) FAILURE
TO

MAINTAIN REVISED MINIMUM

2 CAPITAL LEVELS. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) UNSAFE

DITION.Failure AND UNSOUND PRACTICE OR CON-

of an enterprise to maintain cap-

ital at or above its minimum level as established pursuant to subsection (c) of this section may be deemed by the Director, in his discretion, to constitute an unsafe and unsound practice or condition within the meaning of this title. (2)
LEVEL.

DIRECTIVE

TO

ACHIEVE

CAPITAL

(A) AUTHORITY.In addition to, or in lieu of, any other action authorized by law, including paragraph (1), the Director may issue a directive to an enterprise that fails to maintain capital at or above its required level as established pursuant to subsection (c) of this section. (B) PLAN.Such directive may require the enterprise to submit and adhere to a plan acceptable to the Director describing the means and timing by which the enterprise shall achieve its required capital level. (C) ENFORCEMENT.Any such directive issued pursuant to this paragraph, including

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67 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 plans submitted pursuant thereto, shall be enforceable under the provisions of subtitle C of this title to the same extent as an effective and outstanding order issued pursuant to subtitle C of this title which has become final. (3) ADHERENCE
TO PLAN.

(A) CONSIDERATION.The Director may consider such enterprises progress in adhering to any plan required under this subsection whenever such enterprise seeks the requisite approval of the Director for any proposal which would divert earnings, diminish capital, or otherwise impede such enterprises progress in achieving its minimum capital level. (B) DENIAL.The Director may deny such approval where it determines that such proposal would adversely affect the ability of the enterprise to comply with such plan.. (3) REPEAL
LOAN LIMITS. OF INCREASES TO CONFORMING

(A) REPEAL

OF TEMPORARY INCREASES. STIMULUS ACT OF

(i) ECONOMIC
2008.Section

201 of the Economic Stim-

ulus Act of 2008 (Public Law 110185) is hereby repealed.

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68 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (ii) AMERICAN
RECOVERY AND REIN-

VESTMENT ACT OF 2009.Section

1203 of

division A of the American Recovery and Reinvestment Act of 2009 (Public Law 1115; 123 Stat. 225) is hereby repealed. (B) REPEAL
OF GENERAL LIMIT AND PER-

MANENT HIGH-COST AREA INCREASE.Para-

graph (2) of section 302(b) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)(2)) and paragraph (2) of section 305(a) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)) are each amended to read as such sections were in effect immediately before the enactment of the Housing and Economic Recovery Act of 2008 (Public Law 110289). (C) REPEAL
INDEX.Section OF NEW HOUSING PRICE

1322 of the Federal Housing

Enterprises Financial Safety and Soundness Act of 1992, as added by section 1124(d) of the Housing and Economic Recovery Act of 2008 (Public Law 110289), is hereby repealed. (D) REPEAL.Section 1124 of the Housing and Economic Recovery Act of 2008 (Public Law 110289) is hereby repealed.

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69 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (E) ESTABLISHMENT
LOAN LIMIT.For OF CONFORMING

the year in which the expira-

tion of the period referred to in section 503(b) of this section occurs, the limitations governing the maximum original principal obligation of conventional mortgages that may be purchased by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, referred to in section 302(b)(2) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)(2)) and section

305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)), respectively, shall be considered to be (i) $417,000 for a mortgage secured by a single-family residence, (ii) $533,850 for a mortgage secured by a 2-family residence, (iii) $645,300 for a mortgage secured by a 3-family residence, and (iv) $801,950 for a mortgage secured by a 4-family residence, and such limits shall be adjusted effective each January 1 thereafter in accordance with such sections 302(b)(2) and 305(a)(2).

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70 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (F) PROHIBITION
GAGES PRICE. EXCEEDING OF PURCHASE OF MORTMEDIAN AREA HOME

(i) FANNIE

MAE.Section

302(b)(2)

of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)(2)) is amended by adding at the end the following new sentence: Notwithstanding any other provision of this title, the corporation may not purchase any mortgage for a property having a principal obligation that exceeds the median home price, for properties of the same size, for the area in which such property subject to the mortgage is located.. (ii) FREDDIE
MAC.Section

305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)) is amended by adding at the end the following new sentence: Notwithstanding any other provision of this title, the Corporation may not purchase any mortgage for a property having a principal obligation that exceeds the median home price, for properties of the same size, for

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71 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the area in which such property subject to the mortgage is located.. (4) REQUIREMENT
TAXES. TO PAY STATE AND LOCAL

(A) FANNIE

MAE.Paragraph

(2) of sec-

tion 309(c) of the Federal National Mortgage Association Charter Act (12 U.S.C.

1723a(c)(2)) is amended (i) by striking shall be exempt from and inserting shall be subject to; and (ii) by striking except that any and inserting and any. (B) FREDDIE
MAC.Section

303(e) of the

Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1452(e)) is amended (i) by striking shall be exempt from and inserting shall be subject to; and (ii) by striking except that any and inserting and any. (5) REPEALS
SECURITIES. RELATING TO REGISTRATION OF

(A) FANNIE (i)

MAE. SECURI-

MORTGAGE-BACKED

TIES.Section

304(d) of the Federal Na-

tional Mortgage Association Charter Act

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72 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (12 U.S.C. 1719(d)) is amended by striking the fourth sentence. (ii) SUBORDINATE
OBLIGATIONS.

Section 304(e) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1719(e)) is amended by striking the fourth sentence. (B) FREDDIE
MAC.Section

306 of the

Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1455) is amended by striking subsection (g). (6) RECOUPMENT
GUARANTEE. OF COSTS FOR FEDERAL

(A) ASSESSMENTS.The Director of the Federal Housing Finance Agency shall establish and collect from each enterprise assessments in the amount determined under subparagraph (B). In determining the method and timing for making such assessments, the Director shall take into consideration the determinations and conclusions of the study under subsection (b) of this section. (B) DETERMINATION
ANTEE.Assessments OF COSTS OF GUAR-

under subparagraph (A)

with respect to an enterprise shall be in such

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73 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 amount as the Director determines necessary to recoup to the Federal Government the full value of the benefit the enterprise receives from the guarantee provided by the Federal Government for the obligations and financial viability of the enterprise, based upon the dollar value of such benefit in the market to such enterprise when not operating under conservatorship or receivership. To determine such amount, the Director shall establish a risk-based pricing mechanism as the Director considers appropriate, taking into consideration the determinations and conclusions of the study under subsection (b) of this section. (C) TREATMENT
OF RECOUPED

AMOUNTS.The

Director shall cover into the

general fund of the Treasury any amounts received from assessments made under this paragraph. (b) GAO STUDY REGARDING RECOUPMENT
FOR OF

21 COSTS

FEDERAL GOVERNMENT GUARANTEE.The

22 Comptroller General of the United States shall conduct 23 a study to determine a risk-based pricing mechanism to 24 accurately determine the value of the benefit the enter25 prises receive from the guarantee provided by the Federal

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74 1 Government for the obligations and financial viability of 2 the enterprises. Such study shall establish a dollar value 3 of such benefit in the market to each enterprise when not 4 operating under conservatorship or receivership, shall ana5 lyze various methods of the Federal Government assessing 6 a charge for such value received (including methods involv7 ing an annual fee or a fee for each mortgage purchased 8 or securitized), and shall make a recommendation of the 9 best such method for assessing such charge. Not later 10 than 12 months after the date of the enactment of this 11 Act, the Comptroller General shall submit to the Congress 12 a report setting forth the determinations and conclusions 13 of such study. 14 15 16 17
SEC. 505. REQUIREMENT TO PERIODICALLY RENEW CHARTER UNTIL WIND DOWN AND DISSOLUTION.

(a) REQUIRED RENEWAL; WIND DOWN

SOLUTION

AND

DIS-

UPON NON-RENEWAL.Upon the expiration of

18 the 3-year period that begins upon the expiration of the 19 period referred to in section 503(b), unless the charter of 20 an enterprise is renewed pursuant to subsection (b) of this 21 section, section 506 (relating to wind down of operations 22 and dissolution of enterprise) shall apply to the enterprise. 23 24 25 (b) RENEWAL PROCEDURE. (1) APPLICATION;
TIMING.The

Director shall

provide for each enterprise to apply to the Director,

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75 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 before the expiration of the 3-year period under subsection (a), for renewal of the charter of the enterprise. (2) STANDARD.The Director shall approve the application of an enterprise for the renewal of the charter of the enterprise if (A) the application includes a certification by the enterprise that the enterprise is financially sound and is complying with all provisions of, and amendments made by, section 504 of this title applicable to such enterprise; and (B) the Director verifies that the certification made pursuant to subparagraph (A) is accurate. (c) OPTION
TO

REAPPLY.Nothing in this section

16 may be construed to require an enterprise to apply under 17 this section for renewal of the charter of the enterprise. 18 19 20
SEC. 506. REQUIRED WIND DOWN OF OPERATIONS AND DISSOLUTION OF ENTERPRISE.

(a) APPLICABILITY.This section shall apply to an

21 enterprise 22 23 24 (1) upon the expiration of the 3-year period referred to in such section 505(a), to the extent provided in such section; and

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76 1 2 3 4 5 (2) if this section has not previously applied to the enterprise, upon the expiration of the 6-year period that begins upon the expiration of the period referred to in section 503(b). (b) WIND DOWN.Upon the applicability of this sec-

6 tion to an enterprise, the Director and the Secretary of 7 the Treasury shall jointly take such action, and may pre8 scribe such regulations and procedures, as may be nec9 essary to wind down the operations of an enterprise as 10 an entity chartered by the United States Government over 11 the duration of the 10-year period beginning upon the ap12 plicability of this section to the enterprise (pursuant to 13 subsection (a)) in an orderly manner consistent with this 14 title and the ongoing obligations of the enterprise. 15 16 17 (c) DIVISION
ITY TO OF

ASSETS

AND

LIABILITIES; AUTHORAND

ESTABLISH HOLDING CORPORATION

DIS-

SOLUTION

TRUST FUND.The action and procedures re-

18 quired under subsection (b) 19 20 21 22 23 24 25 (1) shall include the establishment and execution of plans to provide for an equitable division and distribution of assets and liabilities of the enterprise, including any liability of the enterprise to the United States Government or a Federal reserve bank that may continue after the end of the period described in subsection (b); and

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77 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 (2) may provide for establishment of (A) a holding corporation organized under the laws of any State of the United States or the District of Columbia for the purposes of the reorganization and restructuring of the enterprise; and (B) one or more trusts to which to transfer (i) remaining debt obligations of the enterprise, for the benefit of holders of such remaining obligations; or (ii) remaining mortgages held for the purpose of backing mortgage-backed securities, for the benefit of holders of such remaining securities. (d) REPEAL
OF

CHARTER.Effective upon the expi-

17 ration of the 10-year period referred to in subsection (b) 18 for an enterprise, the charter for the enterprise is re19 pealed, except that the provisions of such charter in effect 20 immediately before such repeal shall continue to apply 21 with respect to the rights and obligations of any holders 22 of outstanding debt obligations and mortgage-backed secu23 rities of the enterprise.

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78 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

TITLE VICREDIT RATING AGENCY REFORM

SEC. 601. CLARIFICATION OF DESIGNATION.

(a) IN GENERAL. (1) SINGULAR.Each applicable law is amended by striking nationally recognized statistical rating organization each place it appears and inserting nationally registered statistical rating organization. (2) PLURAL.Each applicable law is amended by striking nationally recognized statistical rating organizations each place it appears and inserting nationally registered statistical rating organizations. (b) APPLICABLE LAWS.For purposes of this sec-

16 tion, the term applicable laws means 17 18 19 20 21 (1) the Securities Exchange Act of 1934; and (2) the Investment Advisers Act of 1940.
SEC. 602. ELIMINATION OF SECURITY CREDIT RATING REQUIREMENTS IN FEDERAL LAW.

(a) SECURITIES EXCHANGE ACT

OF

1934.The Se-

22 curities Exchange Act of 1934 (15 U.S.C. 78a et seq.) 23 is amended 24 25 (1) in section 3(a)(41), by striking is rated in one of the two highest rating categories by at least
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79 1 2 3 4 5 6 7 one nationally recognized statistical rating organization, and; and (2) in section 3(a)(53)(A), by striking is rated in 1 of the 4 highest rating categories by at least 1 nationally recognized statistical rating organization, and. (b) INVESTMENT COMPANY ACT
OF

1940.Section

8 6(a)(5)(A) of the Investment Company Act of 1940 (15 9 U.S.C. 80a-6(a)(5)(A)) is amended 10 11 12 13 14 (1) in clause (ii), by adding and at the end; (2) in clause (iii), by striking ; and and inserting a period; and (3) by striking clause (iv). (c) HIGHER EDUCATION ACT
OF

1965.Section 439

15 of the Higher Education Act of 1965 (20 U.S.C. 1087 16 2) is amended 17 18 19 20 21 (1) by striking subsection (d)(5); and (2) in subsection (r), by striking paragraph (11) and inserting the following: (11) [Repealed]. (d) LAUNCHING OUR COMMUNITIES ACCESS TELEVISION ACT
OF TO

22 LOCAL

2000.Section

23 1004(d)(2)(D) of the Launching Our Communities Ac24 cess to Local Television Act of 2000 (47 U.S.C. 25 1103(d)(2)(D)) is amended

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80 1 2 3 4 5 6 7 8 9 10
OF

(1) in clause (i)(II), by striking , if the Board determines that such nonprofit corporation has one or more issues of outstanding long-term debt that is rated within the highest three rating categories of a nationally recognized statistical rating organization; and (2) by striking clause (ii) (and redesignating succeeding clauses accordingly). (e) EMPLOYEE RETIREMENT INCOME SECURITY ACT 1974.Section 4041(b)(5)(B) of the Employee RetireIncome Security Act of 1974 (29 U.S.C.

11 ment

12 1341(b)(5)(B)) is amended to read as follows: 13 14 15 16 17 18 19 20 21 (B) LIMITATION.Subparagraph (A)

shall not apply to any transaction or series of transactions unless the employer maintaining the plan after the transaction or series of transactions employs at least 20 percent of the employees located in the United States who were employed by such employer immediately before the transaction or series of transactions.. (f) CHAPTER 6
OF

TITLE 23.Chapter 6 of title 23,

22 United States Code, is amended 23 24 25 (1) in section 601(a), by striking paragraph (3) and paragraph (10) and redesignating succeeding paragraphs accordingly;

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81 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (4); (5) in section 603(b)(2), by striking or, if the secured loan does not receive an investment grade rating, the amount of the senior project obligations; (6) in section 604(a)(3) (A) by striking and each rating agency providing a preliminary rating opinion letter under section 602 (b)(2)(B); and (B) by striking , taking into account such letter; (7) in section 604(a), by striking paragraph (4); and (8) by striking section 604(a)(4). (g) FEDERAL HOUSING ENTERPRISES FINANCIAL
AND

(2) in section 602(b)(2), by amending subparagraph (B) to read as follows: (B) [Repealed]; (3) in section 603(a)(3) (A) by striking and each rating agency providing a preliminary rating opinion letter under section 602 (b)(2)(B); and (B) by striking , taking into account such letter; (4) in section 603(a), by striking paragraph

25 SAFETY

SOUNDNESS ACT

OF

1992.Section 1319

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82 1 of the Federal Housing Enterprises Financial Safety and 2 Soundness Act of 1992 (12 U.S.C. 4519) is amended by 3 striking that is a nationally recognized statistical rating 4 organization, as such term is defined in section 3(a) of 5 the Securities Exchange Act of 1934,. 6 (h) REVISED STATUTES.Section 5136A of title

7 LXII of the Revised Statutes of the United States is 8 amended 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) in subsection (a)(2)(E), by striking applicable rating or other; (2) in the heading for subsection (a)(3) by striking Rating or comparable requirement and inserting Requirement; (3) by amending subsection (a)(3)(A) to read as follows: (A) IN
GENERAL.A

national bank meets

the requirements of this paragraph if the bank is 1 of the second 50 largest insured banks and meets such criteria as the Secretary of the Treasury and the Board of Governors of the Federal Reserve System may jointly establish by regulation.; (4) in the heading for subsection (f), by striking maintain public rating or; and

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83 1 2 3 (5) in subsection (f)(1), by striking applicable rating or other. (i) FEDERAL DEPOSIT INSURANCE ACT.Section 28

4 of the Federal Deposit Insurance Act (12 U.S.C. 1831e) 5 is amended by striking subsections (d) and (e) (and redes6 ignating succeeding subsections accordingly). 7 8 9
SEC. 603. ELIMINATION OF SECURITY CREDIT RATING REQUIREMENTS IN REGULATIONS.

Not later than 3 months after the date of the enact-

10 ment of this Act, each Federal agency and department 11 shall modify any regulation promulgated by such agency 12 or department that requires the use of an assessment of 13 the creditworthiness of a security or money market instru14 ment by removing such requirement from any such regula15 tion. 16 17 18 19 20

TITLE VIIANTI-FRAUD PROVISIONS

SEC. 701. AUTHORITY TO IMPOSE CIVIL PENALTIES IN CEASE AND DESIST PROCEEDINGS.

(a) UNDER

THE

SECURITIES ACT

OF

1933.Section

21 8A of the Securities Act of 1933 (15 U.S.C. 77h1) is 22 amended by adding at the end the following new sub23 section: 24 (g) AUTHORITY TO IMPOSE MONEY PENALTIES.

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84 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) GROUNDS
FOR IMPOSING.In

any cease-

and-desist proceeding under subsection (a), the Commission may impose a civil penalty on a person if it finds, on the record after notice and opportunity for hearing, that (A) such person (i) is violating or has violated any provision of this title, or any rule or regulation thereunder; or (ii) is or was a cause of the violation of any provision of this title, or any rule or regulation thereunder; and (B) such penalty is in the public interest. (2) MAXIMUM
AMOUNT OF PENALTY. TIER.The

(A) FIRST

maximum amount

of penalty for each act or omission described in paragraph (1) shall be $6,500 for a natural person or $65,000 for any other person. (B) SECOND
TIER.Notwithstanding

paragraph (A), the maximum amount of penalty for each such act or omission shall be $65,000 for a natural person or $325,000 for any other person if the act or omission described in paragraph (1) involved fraud, deceit,

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85 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (3)
PAY.In

manipulation, or deliberate or reckless disregard of a regulatory requirement. (C) THIRD

TIER.Notwithstanding

para-

graphs (A) and (B), the maximum amount of penalty for each such act or omission shall be $130,000 for a natural person or $650,000 for any other person if (i) the act or omission described in paragraph (1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and (ii) such act or omission directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other persons or resulted in substantial pecuniary gain to the person who committed the act or omission. EVIDENCE
CONCERNING ABILITY TO

any proceeding in which the Commission

may impose a penalty under this section, a respondent may present evidence of the respondents ability to pay such penalty. The Commission may, in its discretion, consider such evidence in determining whether such penalty is in the public interest. Such evidence may relate to the extent of such persons

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86 1 2 3 4 5 6 ability to continue in business and the collectability of a penalty, taking into account any other claims of the United States or third parties upon such persons assets and the amount of such persons assets.. (b) UNDER
THE

SECURITIES EXCHANGE ACT

OF

7 1934.Subsection (a) of section 21B of the Securities 8 Exchange Act of 1934 (15 U.S.C. 78u2(a)) is amend9 ed 10 11 12 13 (1) by striking (a) COMMISSION AUTHORITY TO ASSESS MONEY PENALTIES.In any proceeding and inserting the following: (a) COMMISSION AUTHORITY TO ASSESS MONEY

14 PENALTIES. 15 16 17 18 19 20 21 22 23 24 25 (1) IN
GENERAL.In

any proceeding;

(2) by redesignating paragraphs (1) through (4) of such subsection as subparagraphs (A) through (D), respectively and moving such redesignated subparagraphs and the matter following such subparagraphs 2 ems to the right; and (3) by adding at the end of such subsection the following new paragraph: (2) CEASE-AND-DESIST
PROCEEDINGS.In

any proceeding instituted pursuant to section 21C of this title against any person, the Commission may

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87 1 2 3 4 5 6 7 8 9 10 impose a civil penalty if it finds, on the record after notice and opportunity for hearing, that such person (A) is violating or has violated any provision of this title, or any rule or regulation thereunder; or (B) is or was a cause of the violation of any provision of this title, or any rule or regulation thereunder.. (c) UNDER
THE

INVESTMENT COMPANY ACT

OF

11 1940.Paragraph (1) of section 9(d) of the Investment 12 Company Act of 1940 (15 U.S.C. 80a9(d)(1)) is amend13 ed 14 15 16 17 18 19 20 21 22 23 24 25 (1) by striking (1) AUTHORITY
SION.In OF COMMIS-

any proceeding and inserting the fol-

lowing: (1) AUTHORITY (A) IN

OF COMMISSION.

GENERAL.In

any proceeding;

(2) by redesignating subparagraphs (A) through (C) of such paragraph as clauses (i) through (iii), respectively and by moving such redesignated clauses and the matter following such subparagraphs 2 ems to the right; and (3) by adding at the end of such paragraph the following new subparagraph:

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88 1 2 3 4 5 6 7 8 9 10 11 12 13 (B) CEASE-AND-DESIST
PROCEEDINGS.

In any proceeding instituted pursuant to subsection (f) against any person, the Commission may impose a civil penalty if it finds, on the record after notice and opportunity for hearing, that such person (i) is violating or has violated any provision of this title, or any rule or regulation thereunder; or (ii) is or was a cause of the violation of any provision of this title, or any rule or regulation thereunder.. (d) UNDER
THE

INVESTMENT ADVISERS ACT

OF

14 1940.Paragraph (1) of section 203(i) of the Investment 15 Advisers Act of 1940 (15 U.S.C. 80b3(i)(1)) is amend16 ed 17 18 19 20 21 22 23 24 (1) by striking (1) AUTHORITY
SION.In OF COMMIS-

any proceeding and inserting the fol-

lowing: (1) AUTHORITY (A) IN

OF COMMISSION.

GENERAL.In

any proceeding;

(2) by redesignating subparagraphs (A) through (D) of such paragraph as clauses (i) through (iv), respectively and moving such redesignated clauses

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89 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 and the matter following such subparagraphs 2 ems to the right; and (3) by adding at the end of such paragraph the following new subparagraph: (B) CEASE-AND-DESIST
PROCEEDINGS.

In any proceeding instituted pursuant to subsection (k) against any person, the Commission may impose a civil penalty if it finds, on the record after notice and opportunity for hearing, that such person (i) is violating or has violated any provision of this title, or any rule or regulation thereunder; or (ii) is or was a cause of the violation of any provision of this title, or any rule or regulation thereunder..
SEC. 702. FORMERLY ASSOCIATED PERSONS.

(a) MEMBER
CURITIES

OR

EMPLOYEE

OF THE

MUNICIPAL SE-

RULEMAKING BOARD.Section 15B(c)(8) of

20 the Securities Exchange Act of 1934 (15 U.S.C. 78o 21 4(c)(8)) is amended by striking any member or em22 ployee and inserting any person who is, or at the time 23 of the alleged misconduct was, a member or employee. 24 25 (b) PERSON ASSOCIATED WITH
CURITIES A

GOVERNMENT SE-

BROKER

OR

DEALER.Section 15C of the Se-

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90 1 curities Exchange Act of 1934 (15 U.S.C. 78o5) is 2 amended 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 (1) in subsection (c)(1)(C), by striking or seeking to become associated, and inserting seeking to become associated, or, at the time of the alleged misconduct, associated or seeking to become associated; (2) in subsection (c)(2)(A), by inserting , seeking to become associated, or, at the time of the alleged misconduct, associated or seeking to become associated after any person associated; and (3) in subsection (c)(2)(B), by inserting , seeking to become associated, or, at the time of the alleged misconduct, associated or seeking to become associated after any person associated. (c) PERSON ASSOCIATED WITH
TIONAL TIES A

MEMBER

OF A

NA-

SECURITIES EXCHANGE OR REGISTERED SECURI-

ASSOCIATION.Section 21(a)(1) of the Securities

19 Exchange Act of 1934 (15 U.S.C. 78u(a)(1)) is amended 20 by inserting , or, as to any act or practice, or omission 21 to act, while associated with a member, formerly associ22 ated after member or a person associated. 23 (d) PARTICIPANT
OF A

REGISTERED CLEARING

24 AGENCY.Section 21(a)(1) of the Securities Exchange 25 Act of 1934 (15 U.S.C. 78u(a)(1)) is amended by insert-

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91 1 ing or, as to any act or practice, or omission to act, while 2 a participant, was a participant, after in which such 3 person is a participant,. 4 (e) OFFICER
OR

DIRECTOR

OF A

SELF-REGULATORY

5 ORGANIZATION.Section 19(h)(4) of the Securities Ex6 change Act of 1934 (15 U.S.C. 78s(h)(4)) is amended 7 8 9 10 11 12 13 (1) by striking any officer or director and inserting any person who is, or at the time of the alleged misconduct was, an officer or director; and (2) by striking such officer or director and inserting such person. (f) OFFICER OR DIRECTOR OF AN INVESTMENT COMPANY.Section

36(a) of the Investment Company Act of

14 1940 (15 U.S.C. 80a35(a)) is amended 15 16 17 18 19 20 21 22 23 24 (1) by striking a person serving or acting and inserting a person who is, or at the time of the alleged misconduct was, serving or acting; and (2) by striking such person so serves or acts and inserting such person so serves or acts, or at the time of the alleged misconduct, so served or acted.
SEC. 703. COLLATERAL BARS.

(a) SECTION 15(B)(6)(A)

CHANGE

OF THE

SECURITIES EX-

ACT

OF

1934.Section 15(b)(6)(A) of the Secu-

25 rities Exchange Act of 1934 (15 U.S.C. 78o(b)(6)(A)) is

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92 1 amended by striking 12 months, or bar such person from 2 being associated with a broker or dealer, and inserting 3 12 months, or bar any such person from being associated 4 with a broker, dealer, investment adviser, municipal secu5 rities dealer, or transfer agent,. 6 7 (b) SECTION 15B(C)(4)
CHANGE OF THE

SECURITIES EX-

ACT

OF

1934.Section 15B(c)(4) of the Securi-

8 ties Exchange Act of 1934 (15 U.S.C. 78o4(c)(4)) is 9 amended by striking twelve months or bar any such per10 son from being associated with a municipal securities deal11 er, and inserting twelve months or bar any such person 12 from being associated with a broker, dealer, investment 13 adviser, municipal securities dealer, or transfer agent,. 14 15 (c) SECTION 17A(C)(4)(C)
CHANGE OF THE

SECURITIES EX-

ACT

OF

1934.Section 17A(c)(4)(C) of the Se-

16 curities Exchange Act of 1934 (15 U.S.C. 78q1(c)(4)(C)) 17 is amended by striking twelve months or bar any such 18 person from being associated with the transfer agent, 19 and inserting twelve months or bar any such person from 20 being associated with any transfer agent, broker, dealer, 21 investment adviser, or municipal securities dealer,. 22 23 ACT (d) SECTION 203(F)
OF OF THE INVESTMENT

ADVISERS

1940.Section 203(f) of the Investment Advisers

24 Act of 1940 (15 U.S.C. 80b3(f)) is amended by striking 25 twelve months or bar any such person from being associ-

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93 1 ated with an investment adviser, and inserting twelve 2 months or bar any such person from being associated with 3 an investment adviser, broker, dealer, municipal securities 4 dealer, or transfer agent,. 5 6
SEC. 704. UNLAWFUL MARGIN LENDING.

Section 7(c)(1)(A) of the Securities Exchange Act of

7 1934 (15 U.S.C. 78g(c)(1)(A)) is amended by striking ; 8 and and inserting ; or. 9 10
SEC. 705. NATIONWIDE SERVICE OF SUBPOENAS.

(a) SECURITIES ACT

OF

1933.Section 22(a) of the

11 Securities Act of 1933 (15 U.S.C. 77v(a)) is amended by 12 inserting after the second sentence the following: In any 13 action or proceeding instituted by the Commission under 14 this title in a United States district court for any judicial 15 district, subpoenas issued by or on behalf of such court 16 to compel the attendance of witnesses or the production 17 of documents or tangible things (or both) may be served 18 in any other district. Such subpoenas may be served and 19 enforced without application to the court or a showing of 20 cause, notwithstanding the provisions of rule 45(b)(2), 21 (c)(3)(A)(ii), and (c)(3)(B)(iii) of the Federal Rules of 22 Civil Procedure.. 23 (b) SECURITIES EXCHANGE ACT
OF

1934.Section

24 27 of the Securities Exchange Act of 1934 (15 U.S.C. 25 78aa) is amended by inserting after the third sentence the

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94 1 following: In any action or proceeding instituted by the 2 Commission under this title in a United States district 3 court for any judicial district, subpoenas issued by or on 4 behalf of such court to compel the attendance of witnesses 5 or the production of documents or tangible things (or 6 both) may be served in any other district. Such subpoenas 7 may be served and enforced without application to the 8 court or a showing of cause, notwithstanding the provi9 sions of rule 45(b)(2), (c)(3)(A)(ii), and (c)(3)(B)(iii) of 10 the Federal Rules of Civil Procedure.. 11 (c) INVESTMENT COMPANY ACT
OF

1940.Section

12 44 of the Investment Company Act of 1940 (15 U.S.C. 13 80a43) is amended by inserting after the fourth sentence 14 the following: In any action or proceeding instituted by 15 the Commission under this title in a United States district 16 court for any judicial district, subpoenas issued by or on 17 behalf of such court to compel the attendance of witnesses 18 or the production of documents or tangible things (or 19 both) may be served in any other district. Such subpoenas 20 may be served and enforced without application to the 21 court or a showing of cause, notwithstanding the provi22 sions of rule 45(b)(2), (c)(3)(A)(ii), and (c)(3)(B)(iii) of 23 the Federal Rules of Civil Procedure.. 24 (d) INVESTMENT ADVISERS ACT
OF

1940.Section

25 214 of the Investment Advisers Act of 1940 (15 U.S.C.

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95 1 80b14) is amended by inserting after the third sentence 2 the following: In any action or proceeding instituted by 3 the Commission under this title in a United States district 4 court for any judicial district, subpoenas issued by or on 5 behalf of such court to compel the attendance of witnesses 6 or the production of documents or tangible things (or 7 both) may be served in any other district. Such subpoenas 8 may be served and enforced without application to the 9 court or a showing of cause, notwithstanding the provi10 sions of rule 45(b)(2), (c)(3)(A)(ii), and (c)(3)(B)(iii) of 11 the Federal Rules of Civil Procedure.. 12 13 14 15 16 17 18 19 20 21 22 23 24 25
SEC. 706. REAUTHORIZATION OF THE FINANCIAL CRIMES ENFORCEMENT NETWORK.

(a) FINDINGS. (1) The Congress finds as follows: (A) The work of the Financial Crimes Enforcement Network (hereinafter in this section referred to as FinCEN) is essential to safeguard the United States financial system and its international affiliates from the abuses of financial crime, including terrorist financing, weapons of mass destruction proliferation, and money laundering. (B) All avenues of financial intermediation are vulnerable to abuse by illicit actors, and

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96 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 FinCEN exercises the authorities of the Bank Secrecy Act over a broad range of financial institutions. (2) The Congress further finds and recognizes the recent establishment by FinCEN of an International Programs Division to expand and enhance global financial intelligence sharing initiatives aimed at combating transnational crime threats facing United States financial markets, and takes note of FinCENs efforts to collaborate with foreign financial intelligence unit partners on analytical projects to identify and address emerging threats and vulnerabilities. (3) The Congress further finds and recognizes the role of FinCEN in discovering and investigating widespread fraud in the mortgage market and elsewhere in the financial services industry. Alongside an effective licensing and registration system for all mortgage originators, a vigilant FinCEN is critical to the recovery of our housing markets and consumer confidence in both the home buying process and the financial services industry as a whole. (b) REAUTHORIZATION.Section 310(d)(1) of title

24 31, United States Code, is amended by striking such 25 sums as may be necessary for fiscal years 2002, 2003,

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97 1 2004, and 2005 and inserting not more than 2 $105,500,000 for fiscal year 2010, and such sums as may 3 be necessary for fiscal years 2011, 2012, 2013, and 4 2014. 5 6
OF

(c) ADDITIONAL FINANCIAL FRAUD AUTHORIZATION APPROPRIATIONS.In addition to such other amounts

7 otherwise made available or appropriated to FinCEN, 8 there are authorized to be appropriated to FinCEN 9 $15,000,000 to be used specifically for efforts to detect 10 financial fraud. Such sums are authorized to remain avail11 able until expended. 12 13
SEC. 707. FAIR FUND IMPROVEMENTS.

(a) AMENDMENT.Subsection (a) of section 308 of

14 the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246(a)) is 15 amended to read as follows: 16 17 (a) CIVIL PENALTIES
LIEF OF TO

BE USED

FOR THE

RE-

VICTIMS.If in any judicial or administrative ac-

18 tion brought by the Commission under the securities laws 19 (as such term is defined in section 3(a)(47) of the Securi20 ties Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), the 21 Commission obtains a civil penalty against any person for 22 a violation of such laws, the amount of such civil penalty 23 shall, on the motion or at the direction of the Commission, 24 be added to and become part of a disgorgement fund or

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98 1 other fund established for the benefit of the victims of 2 such violation.. 3 (b) CONFORMING AMENDMENTS.Section 308 of

4 such Act is amended 5 6 7 8 9 10 11 12 13 14 15 (1) in subsection (b) (A) by striking for a disgorgement fund described in subsection (a) and inserting for a disgorgement fund or other fund described in subsection (a); and (B) by striking in the disgorgement fund and inserting in such fund; and (2) by striking subsection (e).
SEC. 708. AUTHORITY TO CONTRACT FOR COLLECTION OF DELINQUENT JUDGMENTS AND ORDERS.

Subsection (b) of section 4 of the Securities Exchange

16 Act of 1934 (15 U.S.C. 78d(b)) is amended 17 18 19 20 21 22 23 24 25 (1) in the heading of such subsection, by striking AND LEASING AUTHORITY and inserting , LEASING AUTHORITY,
ITY; AND

CONTRACTING AUTHOR-

and

(2) by adding at the end the following new paragraph: (4) CONTRACTING (A) IN
AUTHORITY.

GENERAL.Notwithstanding

any

other provision of law, the Commission is au-

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99 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 thorized to enter into contracts to assist in the collection of any claim of indebtedness resulting from any judgment or order (either by litigation or settlement) obtained by the Commission in any judicial action or administrative proceeding brought by or on behalf of the Commission. This authority includes, but is not limited to, the retention of private legal counsel to furnish legal services, including representation in litigation, negotiation, compromise, and settlement. Private counsel retained under this paragraph may represent the Commission in such debt collection matters to the same extent as the Commission may represent itself. (B) TERMS
TRACT.Each AND CONDITIONS OF CON-

such contract shall include such

terms and conditions as the Commission considers necessary and appropriate, and shall include provisions specifying (i) the amount of the fee to be paid under such contract or the method for calculating that fee; (ii) that the Commission retains the authority to represent itself, resolve a dispute, compromise a claim, end collection

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100 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 efforts, and refer a matter to other counsel or to the Attorney General; and (iii) that the Commission may terminate either the contract or the private counsels representation of the Commission in particular cases for any reason, including for the convenience of the Commission. (C) PAYMENT
OF FEES.Notwith-

standing section 3302(b) of title 31, United States Code, a contract under this paragraph may provide that fees and costs incurred by private counsel under such contracts are payable from the amounts recovered. (D) COMPETITION
REQUIRED.Nothing

in this paragraph shall relieve the Commission of the competition requirements set forth in title III of the Federal Property and Administrative Services Act of 1949 (41 U.S.C. 251 et seq.). (E) COUNTERCLAIMS.In any action to recover indebtedness which is brought on behalf of the Commission by private counsel retained under this paragraph, no counterclaim may be asserted against the Commission unless the counterclaim is served directly on the Commis-

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101 1 2 3 sion. Such service shall be made in accordance with the rules of procedure of the court in which the action is brought..

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The materials listed in the attached Table of Contents will be available shortly on the Financial Services Committees Web Site.

Title VII (dealing with derivates) will be transmitted to FSC in the near future as well as additional section by sections.

This is the entire Administrations proposal for financial regulatory reform. No additional titles are expected.

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) ~ 07-28-09 BB to Bachus re CFPA.pdf

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BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

WASHINGTON . D . C. 20551
BEN S . 9ERNANKE CHA I RMAN

July 28, 2009

The Honorable Spencer Bachus Ranking Member Committee on Financial Services House of Representatives Washington, D.C. 20515 Dear Congressman: Thank you for your letter of July 13, in which you posed several questions concerning H.R. 3126, legislation to establish an independent Consumer Financial Protection Agency. I am pleased to enclose my responses to your questions. Please let me know ifl can be of further assistance. Sincerely,

P-~
Enclosure

Responses to Ranking Member Spencer Bachus. July 24, 2009

1. What problem would be addressed by the creation of a CFPA that is not or cannot be

addressed by the current system of rmancial institution and product regulation?

The best argument for an independent consumer agency within the financial regulatory structure is that it will focus single-mindedly on consumer protection as its primary mission. The argument is that the leadership of an agency with multiple functions may trade one off against the other or, at times, be distracted by responsibilities in one area and less attentive to problems in the other. A corollary of this basic point is that the agency would be more inclined to act to deter use of harmful financial products and, if properly structured and funded, may be less susceptible to the sway of powerful industry in.fluences. We believe there are also advantages in maintaining supervision of consumer protection in the same agency that provides safety and soundness and supervision is that the two are linked both substantively and practically. There are substantial efficiency and infonnation advantages from having the two functions housed in the same agency. For example, risk assessments related tQ an institution's management of consumer compliance functions are closely linked with other safety and soundness risks, and factor in to assessments ofbank management and financial, legal and reputation risks. Furthermore, determinations that certain products or practices are "unfair and deceptive" in some cases require an understanding of how products are priced, offered, and marketed in an individual institution. This information is most efficiently obtained through supervisory monitoring and examinations.

2. How would the new consumer protection standards established in H.R 3126 impact the availability of credit for consumers? Would any particular category of consumers be affected more than others?
Of course, it is always difficult to predict, in the abstract, how rules would affect market and industry participants' reactions. There are many issues to consider, including that overly restrictive or burdensome regulations can lead to increases in product pricing or product withdrawals that would overly constrain credit, or in extreme cases, severely impact the availability of responsible credit for consumers. When crafting rules at the Federal Reserve, such as our newly proposed rules on mortgages and home equity lines of credit, our significant research capacity allows us to analyze the impact of those rules on consumers in general. Additionally, we analyze the projected effect on more vulnerable populations, such as lowerincome families, as they have fewer options and lack excess capacity to weather disruptions in managing their personal finances. Were a CFPA to be created, it would be important for that agency to have the capacity to conduct similar analyses.

3. One of the directives given to the proposed agency is to coordinate with a variety of other agencies, both state and federal, to "promote consistent regulatory treatment of consumer and investment products." However, the legislation would permit individual

- 2-

states to pass laws that will differ from federal law. What would be the impact on consumers and the institutions you regulate if individual states can impose additional and different standards?
The issue of whether state law should be preempted is a fundamental policy question for Congress, on which the Board has not taken a position. If federal law sets a high enough standard and adequately addresses consumer protection concerns, then there could be benefits and efficiencies in bringing uniformity to the standards that govern the national consumer credit markets.
On the other hand, the states have been "laboratories" for developing and trying new approaches to resolving issues not addressed by federal laws and regulations. In fact, we have considered state actions and experiences when developing our own regulations. However, significant differences among the states' standards could reduce efficiencies in the national credit markets and could have a cost impact on products offered by those institutions with interstate operations.

Currently, the Truth in Lending and other consumer protection laws implemented by the Board do not preempt the states from adopting more protective state laws.

4. The legislation envisions the separation of safety and soundness regulation from consumer protection regulation. How would this separation impact the safety and soundness of banking institutions? Would it enhance or undermine safety and soundness, in your view?
As is apparent in the current economic crisis, there can be a strong connection between consumer protection concerns and safety and soundness. Examinations for safety and soundness and consumer protection complement each other. The examiners review the same loan portfolios, lending policies, and strategic plans. Management weaknesses identified in implementing consumer protections can impact assessments of other risks and should be reflected in the overall assessment of bank management. Clearly, a bank that errs in its dealings with consumers, either legally or with respect to good judgment, carries the risk of reputational damage, a matter of concern to prudential supervisors. Should there be a new agency, a formal mechanism would be needed to ensure that necessary information sharing takes place between the various examination disciplines so that appropriate judgments can be made.

5. Does your agency have a separate consumer protection compliance examination force? If not, how could the consumer compliance examination function be transferred to a new agency and what would be the impact of the transfer on your safety and soundness supervision?
Yes. The Federal Reserve was the first agency to establish a separate consumer compliance examination function, and currently maintains that expertise both at the Board and in each of our twelve Federal Reserve Banks. In the Reserve Banks, the consumer compliance

-3-

examiners, while specially trained, often share senior management with the prudential examiners. So, at that level, it would not necessarily be a clean transfer. . Additionally, as mentioned in previous questions with regard to the Board staff, the Reserve Bank examiners draw on expertise and knowledge from other areas of the organization. Those knowledge centers would not be part of the transfer to a new agency. 6. H.R. 3126 requires coordination and consultation between the CFPA and the Federal banking agencies. However, it does not offer a framework or mechanism in the event that there is not a consensus. Please comment on any practical or legal problems or challenges that would be presented by this proposal. Recent history would suggest that prudential supervision is entwined with consumer protection for the reasons discussed in the answer to question 4. Should consumer protection, however, be placed under the authority of a specialized agency, a high level of communication, cooperation and coordination would be required between this new agency and the prudential regulators to ensure that the two functions remained complementary to one another. 7. H.R. 3126 provides for each of the Federal banking agencies to transfer consumer fmancial protection functions to the new agency. Such functions are defined to mean "research, rulemaking, issuance of orders or guidance, supervision, examination, and enforcement activities, powers, and duties relating to the provision of consumer fmancial products to services." Please identify all of the functions within your agency that would be transferred under this provision? Does it affect underwriting standards for mortgage loans? Insider lending rules? Lending limits'! Anti-money laundering compliance'! If so, what would be the impact of the transfer on safety and soundness? Given the language of the proposed legislation, it would seem likely that many of the core a~tivities reside in the Division of Consumer and Community Affairs (DCCA), the division dedicated to consumer protection at the Board. These functions would be transferred to the new agency. In addition, consumer compliance examiners resident in the twelve Federal Reserve Banks would also fall within the expertis~ generally described in the proposal. The impact on the Federal Reserve System's community affairs program is not totally clear. However, it is important to note that while the DCCA staff have primary responsibility fo~ consumer protection functions, they collaborate on an ongoing basis with staff in other Divisions at the Board. For example, DCCA staffwork with staff from the Board's Divisions of Research and Statistics, Banking Supervision & Regulation, and the Legal Division. Since these staff also support prudential supervision and the Board's monetary policy responsibilities, they would not be transferred if a new consumer protection agency is created. As such, the new agency will need to hire additional staff to support all of the functions that are described in H.R. 3126, even after transferring staff from the existing banking regulators. With respect to underwriting standards, which has important safety and soundness considerations, the development of these standards will require significant collaboration with prudential supervisors on an ongoing basis. Insider lending rules, lending limits, and anti-money laundering compliance are currently primarily the responsibility of the Federal Reserve's

-4-

prudential supervisors. As noted in the answer to question 4, we believe that prudential supervision and consumer compliance supervision are complementary and should not be separated. The transfer of consumer compliance staff would impact the prudential supervisors. For example, to appropriately assess the Risk Management and Impact components of the bank holding company evaluation rating system and the Management component of the bank performance rating system, prudential supervisors and consumer c<;>mpliance supervisors must work together to share information and understand the interplay of various risks from both perspectives.

8. Does the proposed CFPA get at the heart of what caused the mortgage crisis?
The mortgage crisis is one component ofbreakdowns that occurred across the global financial marketplace. The principal cause of the economic slowdown was the collapse ofthe global credit boom and the ensuing financial crisis, which has affected asset values, credit conditions, and consumer and business confidence around the world. The immediate trigger of the crisis was the end of housing booms in the United States and other countries and the associated problems in mortgage markets, notably the collapse ofthe U.S. subprime mortgage market. It is certainly possible that earlier attention to certain practices in that market, particularly within institutions not subject to federal banking supervision, could have mitigated some effects of the crisis.

9. lii.R. 3126 provides fl)r the agency to approve "standard" financial products and services. What would be the impact of this proposal on product innovation, especially when you consider the risks, expenses, and compliance requirements (e.g., discJosure and opt-out requirements) associated with the creation or sale of other than standard products?
It is not entirely clear what this provision would require in practice. There is an appeal to developing basic products that are easily understandable by consumers. However, there is a possibility that these products could be more expensive or less appropriate for some consumers, depending on individual facts and circumstances. It would be crucial to enlist financial services providers themselves in the development of these products, so as to ensure their market viability.

Moreover, standardization does not mean a loan product is risk free. We also believe that it is important to supplement strong consumer protection with consumer capability developed through effective and timely product disclosures, financial education, and better decisionmaking ~ob.

10. What will be the impact on consumers if the banking and some insurance products are subject to regulation by the new agency, but economically similar investment products are subject to a different form of regulation by the SEC?
At this point, it is difficult to determine all of the implications that a new agency would have on the current regulatory and supervisory structure for consumer protection across the broad range of financial products and services. However, given that the proposal envisions separate rulemaking authority for banking and non-banking products, agencies charged with those responsibilities should closely coordinate rulemaking, supervisory, and enforcement

- 5-

activities to ensure effective overall consumer protection. Any changes to the regulatory oversight structure should not create perverse incentives for fmancial services providers to classify their products as "investinents," "credit related," or "insurance," in order to be subject to a more favorable regulatory regime.

Not Responsive - Internal Emails Between Federal Reserve Staff

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ADDITIONAL QUESTIONS FOR CHAIRMAN BERNANKE FROM JULY 24, 2009 HEARING: REGULATORY PERSPECTIVES ON THE OBAMA ADMINISTRATIONS FINANCIAL REGULATORY REFORM PROPOSALS PART II Representative Spencer Bachus Response Requested by September 7, 2009 UDAP Questions: 1. Under the Federal Trade Commission Act, only the Board of Governors of the Federal Reserve System (Fed) has the authority to issue rules or regulations defining what acts or practices are unfair or deceptive with respect to all banks, including those for which the FDIC or the OCC is the primary federal regulator. Neither the FDIC nor the OCC has the authority to adopt such rules or regulations for the banks they regulate. The Fed, FDIC and OCC, however, have taken the position that the FDIC and the OCC may define what acts or practices they think are unfair or deceptive on a case-by-case basis in the context of administrative enforcement proceedings, and the FDIC has done just that, as reflected in a series of Consent Cease and Desist Orders recently issued by the FDIC, including those regarding Advanta Bank Corporation; American Express Centurion Bank of Salt Lake City, Utah; and the CompuCredit-related cease and desist orders against Columbus Bank and Trust, Columbus, Georgia, First Bank of Delaware, Wilmington, Delaware, and First Bank & Trust, Brookings, South Dakota. a. The FTC Act explicitly confers upon the Federal Reserve Board, the Federal Home Loan Bank Board, and the National Credit Union Administration Board the authority to define with specificity unfair and deceptive acts and practices. While the FTC Act grants enforcement authority to the FDIC and OCC, the Act does not explicitly grant the FDIC and OCC the authority to define unfair or deceptive acts and practices. In other words, under the express language of the FTC Act, the FDIC and the OCC do not have the statutory authority to decide for the banks they regulate that a particular act or practice is unsafe or unsound, either by adopting a regulation or on a caseby-case basis in enforcement proceedings. i. Has your General Counsels office performed its own analysis and prepared its own written opinion? ii. Have any of the opinions that may have been prepared by the FDIC, OCC and/or the Fed regarding this issue been reviewed by any independent third party, such as the relevant Inspectors General or the Justice Department? b. What, if any, procedures have been established to assure that the Fed, OCC and the FDIC are all in agreement as to what acts or practices are unfair or deceptive? i. How do the regulators ensure that the OCC and/or the FDIC do not adopt a UDAP rule in a case through their respective adjudicatory

processes that has not been, or is not, also adopted by the other banking agencies? Do you see a problem with the possibility of inconsistent rulings or positions between or among the federal banking agencies regarding what acts or practices are unfair or deceptive? ii. Are you aware of any inconsistent positions that exist as of today, i.e., situations where the FDIC or OCC or Fed has determined in the context of an administrative enforcement proceeding that a particular act or practice is unfair or deceptive, while one or both of the other agencies have not and do not regard the conduct at issue as a violation of the FTC Act? How would you find out if that were the case? QUESTIONS ON FAS 166 AND 167 1. Treasury Secretary Geithner has warned that no financial recovery plan will be successful unless it helps restart securitization markets. . . . At the same time, the Financial Accounting Standards Board (FASB) has recently finalized significant and retroactive changes to securitization accounting that will have a tremendous impact on existing assets and future lending. These changes which become effective January 1 2010 could seriously complicate efforts to repair financial markets. The Administration has made the securitized credit markets the centerpiece of the Financial Stability Plan (through TALF, PPIP, etc). However, in promulgating FAS 166 and 167, FASB has sought to retroactively eliminate the securitization accounting vehicle known as the Qualified Special Purpose Entity, which will require some bond investors to consolidate an entire pool of loans on their balance sheet, despite only owning 2-3% of the transaction. What will be the impact of this consolidation on bond investors who are critical to the extension of credit and the future of our securitized credit markets? 2. The same statutory capital ratios apply to every federally insured depository institution for purposes of determining what their level of capital adequacy is, e.g., well capitalized, adequately capitalized, undercapitalized, etc. However, each of the federal banking agencies also has the authority to require a given institution it regulates to achieve and maintain capital ratios (e.g., for total risk-based capital, core capital, etc.) at specific levels set by the agency, which may be even higher than the statutory ratios used to define a well-capitalized institution. In connection with these individual capital requirements: a. Does your agency consult with the other federal banking agencies in an effort to achieve uniformity with respect to the factors that will be evaluated and the standards that will be applied in arriving at such individual capital requirements for institutions? b. Should the federal banking agencies apply the same criteria to determine the capital ratios for a regulated institution?

c. Is there consistency between and among the federal banking agencies regarding the criteria they use to determine whether to establish individual capital requirements? d. Does your agency use an economic model to determine the capital ratios a given institution should maintain in light of its particular risk profile in order to be considered adequately capitalized or well-capitalized? i. If you dont use a model, how do you make that determination? ii. If you do use a model, whose model is it? 1. Was it constructed by your agency alone? 2. Did you discuss it with the other banking agencies, or consult with them regarding what, if any, models they use for such purposes? 3. To the extent you know what differences there are between any model that your agency uses and any model used by any other banking agency, how do you go about resolving those differences, if at all? 4. Do you have a set of standards you use in evaluating capital adequacy models that are employed by the institutions you regulate and, if so, what are they and were they developed in consultation with any other agencies? 3. It is my understanding that the Federal Reserve may be considering changing capital requirements for banks to address the impact of FASBs consolidation rules. Is it true that the Federal Reserve can only reactively address some of these issues for banks, while the universe of impacted market participants is much larger and could include bond investors, life insurers, and mutual and pension funds?

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COMMITIEE ON BANKING, HOUSING, AND URBAN AFFAIRS

EOWARDSilVERMAN STArf OlflECTOR Wll UAM 0 OUHNKE. REPUBliCAN STAFF DIRECTOR ANO COIJNS(L

WASHINGTON, DC 205HHi075

August 26, 2009

The Honorable Daniel Tarullo Governor Board of Governors of the Federal Reserve System 201h Street and Constitution Avenue, NW Washington, DC 20551 Dear Governor Tarullo: Thank you for testifying before the Committee on Banking, Housing, and Urban Affairs on July 23, 2009. In order to complete the hearing record, we would appreciate your answers to the enclosed questions as soon as possible. Please repeat the question, then your answer, single spacing both question and answer. Please do not use all capitals. Send your reply to Ms. Dawn L. Ratliff, the Committee's Chief Clerk. She will transmit copies to the appropriate offices, including the committee' s publications office. Due to current procedures regarding Senate mail, it is recommended that you send replies via e-mail in a MS Word, WordPerfect or .pdf attachment to Dawn Ratliff@banking.senate.gov. If you have any questions about this letter, please contact Ms. Ratliff at (202)224-3043. Sincerely,

CHRISTOPHER J. DODD Chairman CJD/dr

Questions for the Hearing on "Establishing a Framework for Systemic Risk Regulation" July 23,2009

Questions for The Honorable Daniel Tarullo, Governor, Board of Governors of tbe Federal Reserve System, from Senator Bunning:

1. Many proposals call for a risk regulator that is separate from the normal safety and soundness regulator of banks and other firms. The idea is that the risk regulator will set rules that the other regulators will enforce. That sounds a Jot like the current system we have today, where different regulators read and enforce the same rules different ways. Under such a risk regulator, how would you make sure the rules were being enforced the same across the board?

2. Before we can regulate systemic risk, we have to know what it is. But no one seems to have a definition. How do you defme systemic risk?

3. Assuming a regulator could spot systemic risk, what exactly is the regulator supposed to do about it? What powers would they need to have?

4.

How do you propose we identify firms that pose systemic risks?

5. All of the largest financial institutions have international ties, and money can flow across borders easily. A.I.G. is probably the best known example of how problems can cross borders. How do we deal with the risks created in our country by actions somewhere else, as well as the impact of actions in the U.S. on foreign firms?

6. Any risk regulator would hav access to valuable information about the business of many e firms. There would be a lot of people who would pay good money to get that information. How do we protect that information from being used improperly, such as theft or an employee leaving the regulator and using his knowledge to make money?

Questions for the Hearing on "Establishing a Framework for Systemic Risk Regulation"

July 23, 2009

Questions for The Honorable Daniel Tarullo, Governor, Board of Governors of the Federal Reserve System, from Senator Reed:

Under the Administration' s plan, there would be heightened supervision and consolidation of all large, interconnected fmancial firms, including likely requiring more firms to become financial holding companies. Can you share your thoughts about concerns raised that such an approach may adversely affect certain companies that currently operate under exemptions or grandfathering provisions, such as unitary thrift holding companies? The Administration's proposal would provide the Federal Reserve with additional authority to oversee the safety and soundness of systemically important payment, clearing, and settlement systems. Can you describe in more detail why the Federal Reserve should help set standards for these systems? What do you see as the key differences in viewpoints with respect to the role and authority of a Systemic Risk Council? For example, it seems like one key question is whether the Council or the Federal Reserve will set capital, liquidity, and risk management standards. Another key question seetns to be who should be the Chair of the Council, the Secretary of the Treasury or a different Senate-appointed Chair. Please share your views on these issues. What are the other unresolved aspects of establishing a framework for systemic risk regulation? How should Tier 1 firms be identified? Which regulator(s) should have this responsibility? One key part of the discussion at the hearing is whether the Federal Reserve, or any agency, can effectively operate with two or more goals or missions. Can the Federal Reserve effectively conduct monetary policy, macro-prudential regulation, and consumer protection? Under the Administration's plan, there would be heightened supervision and consolidation of all large, interconnected fmancial firms, including likely requiring more firms to become financial holding companies. Can you comment on whether this plan adequately addresses the too-big-tofail problem? Is it problematic, as some say, to identify specific firms that are systemically significant, even if you provide disincentives to becoming so large, as the Administration ' s plan does?

Questions for the Hearing on "Establishing a Framework for Systemic Risk Regulation" July 23, 2009
Questions for The Honorable Daniel Tarullo, Governor, Board of Governors of the Federal Reserve System, from Ranking Member Shelby:

AIG Governor Tarullo, I am very concerned that the Fed currently has too many responsibilities. The Fed's bail out of AIG has put the Fed in the position ofhaving to unwind one of the world's largest and most complex financial institutions. Resolving AIG without imposing losses on the U.S. taxpayer is proving to be a time-consuming and difficult task. It could even potentially distract the Fed from its core mission of monetary policy.

Approximately how many hours have you personally dedicated to overseeing the Fed's investments in AIG? How does this compare with the number of hours you have spent on monetary policy issues? What assurance can you provide that the Fed is devoting enough time and attention to both AIG and monetary policy?

Safety & Soundness Regulation Governor Tarullo, in your testimony you state that there are synergies between monetary policy and systemic risk regulation. In order to capture these synergies, you argue that the Fed should become a systemic risk regulator. Yesterday, Chairman Bemanke testified that he believed there are synergies between prudential bank regulation and consumer protection. This argues in favor of establishing one consolidated bank regulator.
In your judgment, is it on the whole better to have prudential supervision and consumer protection consolidated in one agency, or separated into two different agencies?

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  30

Thank you. Enjoy the weekend. -------------------------Jaron R. Bourke Staff Director, Domestic Policy Subcommittee Oversight and Government Reform Committee 202-225-6427

----- Original Message ----From: Laricke.D.Blanchard@frb.gov <Laricke.D.Blanchard@frb.gov> To: Bourke, Jaron Sent: Fri Sep 04 14:15:13 2009 Subject: Re: Domestic Policy Subcommittee request Jaron, We will send you our response on Tuesday. I hope you have a great holiday weekend. Laricke

"Bourke, Jaron" <Jaron.Bourke@mai l.house.gov> To <Laricke.D.Blanchard@frb.gov> 08/13/2009 05:39 cc PM Subject Domestic Policy Subcommittee request

Laricke,

The Domestic Policy Subcommittee will postpone until October its hearing on excess reserve balances and the Federal Reserves plans for winding down

the various credit facilities it is using to stabilize financial markets. In the interim, I request that the Fed provide the following information to the subcommittee to assist us in better understanding the Federal Reserves perspective on these matters.

1) A narrative on the Feds plans to wind down emergency credit facilities and the Feds balance sheet. Chairman Bernanke has published a general treatment of this question in the Wall Street Journal, July 21, 2009. What we are asking for is a more specific discussion of the elements of that plan. Namely,

a.

Rationale for paying interest on both excess and required reserves.

b. Discussion of the extent to which the Feds interventions and policy to pay interest on excess reserves could crowd out private lenders from private lending markets such as the federal funds lending market.

c. Regarding various exit strategies to avoid an increase in inflation:

i. Can you estimate the upper bound volume of the Treasury Supplemental Financing Program and comment on the expected duration of this program?

ii. Can you estimate the upper bound volume of large asset sales that could be potentially made by the Fed as a means of avoiding an increase in inflation without disrupting financial markets?

iii. Can you estimate the upper bound volume of reverse repurchase agreements that could potentially be used by the Fed as a means of avoiding an increase in inflation? How large is turnover in those markets currently?

iv. Do you intend to seek the authority for the Fed to issue its own bonds, and, if so, can you estimate the upper bound volume of Fed bonds that could potentially be used by the Fed as a means of avoiding an increase in inflation?

2) Projections of excess and required reserves during the period 2009-2013.

3) Identity of the largest 10 member banks holding excess and required reserve balances with the Fed and estimate their collective share of excess and required reserves, expressed as a percentage of the total.

It would be appreciated if we can have the Feds response no later than Thursday, September 3, 2009.

Thanks,

Jaron

Jaron R. Bourke

Staff Director, Domestic Policy Subcommittee

Oversight and Government Reform Committee

B-349-B Rayburn

Washington, DC 20515

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[DISCUSSION DRAFT]
SEPTEMBER 25, 2009

1 2

SECTION 1. SHORT TITLE.

This Act may be cited as the Consumer Financial

3 Protection Agency Act of 2009. 4 5

SEC. 2. TABLE OF CONTENTS.

The table of contents for this Act is as follows:

Sec. 1. Short title. Sec. 2. Table of contents. TITLE ICONSUMER FINANCIAL PROTECTION AGENCY Sec. 101. Definitions. Subtitle AEstablishment of the Agency Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. 111. Establishment of the Consumer Financial Protection Agency. 112. Director. 113. Consumer Financial Protection Oversight Board. 114. Executive and administrative powers. 115. Administration. 116. Consumer Advisory Board. 117. Coordination. 118. Reports to the Congress. 119. Funding; fees and assessments; penalties and fines. 120. Amendments relating to other administrative provisions. 120A. Effective date. Subtitle BGeneral Powers of the Director and Agency Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. 121. 122. 123. 124. 125. 126. 127. 128. 129. Mandate and objectives. Authorities. Simultaneous and coordinated supervisory action. Limitations on authority of agency and director. Collection of information; confidentiality regulations. Monitoring; assessments of significant regulations; reports. Authority to restrict mandatory predispute arbitration. Registration and supervision of nondepository covered persons. Effective date. Subtitle CSpecific Authorities Sec. 131. Prohibiting unfair, deceptive, or abusive acts or practices. Sec. 132. Disclosures. Sec. 133. Sales practices.

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2
Sec. 134. Pilot disclosures. Sec. 135. Adopting operational standards to deter unfair, deceptive, or abusive practices. Sec. 136. Duties. Sec. 137. Consumer rights to access information. Sec. 138. Prohibited acts. Sec. 139. Effective date. Subtitle DPreservation of State Law Sec. 141. Relation to State law. Sec. 142. Preservation of enforcement powers of States. Sec. 143. State law preemption standards for national banks and subsidiaries clarified. Sec. 144. Visitorial standards. Sec. 145. Clarification of law applicable to nondepository institution subsidiaries. Sec. 146. State law preemption standards for Federal savings associations and subsidiaries clarified. Sec. 147. Visitorial standards. Sec. 148. Clarification of law applicable to nondepository institution subsidiaries. Sec. 149. Effective date. Subtitle EEnforcement Powers Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. 151. 152. 153. 154. 155. 156. 157. 158. Definitions. Investigations and administrative discovery. Hearings and adjudication proceedings. Litigation authority. Relief available. Referrals for criminal proceedings. Employee protection. Effective date.

Subtitle FTransfer of Functions and Personnel; Transitional Provisions Sec. Sec. Sec. Sec. Sec. Sec. 161. 162. 163. 164. 165. 166. Transfer of certain functions. Designated transfer date. Savings provisions. Transfer of certain personnel. Incidental transfers. Interim authority of the Secretary. Subtitle GRegulatory Improvements Sec. 171. Collection of deposit account data. Sec. 172. Small business data collection. Subtitle HConforming Amendments Sec. 181. Amendments to the Inspector General Act of 1978. Sec. 182. Amendments to the Privacy Act of 1974. Sec. 183. Amendments to the Alternative Mortgage Transaction Parity Act of 1982. Sec. 184. Amendments to the Consumer Credit Protection Act. Sec. 185. Amendments to the Expedited Funds Availability Act.
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3
Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Amendments to the Federal Deposit Insurance Act. Amendments to the Gramm-Leach-Bliley Act. Amendments to the Home Mortgage Disclosure Act of 1975. Amendments to division D of the Omnibus Appropriations Act, 2009. Amendments to the Homeowners Protection Act of 1998. Amendments to the Real Estate Settlement Procedures Act of 1974. Amendments to the Right to Financial Privacy Act of 1978. Amendments to the Secure and Fair Enforcement for Mortgage Licensing Act of 2008. Sec. 194. Amendments to the Truth in Savings Act. Sec. 195. Amendments to the Telemarketing and Consumer Fraud and Abuse Prevention Act. Sec. 196. Effective date. TITLE IIIMPROVEMENTS TO THE FEDERAL TRADE COMMISSION ACT Sec. 201. Amendments to the Federal Trade Commission Act. 186. 187. 188. 189. 190. 191. 192. 193.

1 2 3 4

TITLE ICONSUMER FINANCIAL PROTECTION AGENCY

SEC. 101. DEFINITIONS.

For the purposes of subtitles A through F of this

5 title, the following definitions shall apply: 6 7 8 9 10 11 12 13 14 15 16 (1) AFFILIATE.The term affiliate means any person that controls, is controlled by, or is under common control with another person. (2) AGENCY.The term Agency means the Consumer Financial Protection Agency. (3) BANK
HOLDING COMPANY.The

term

bank holding company has the same meaning as in section 2(a) of the Bank Holding Company Act of 1956. (4) BOARD.Except when used in connection with the term Board of Governors, the term

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4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Board means the Consumer Financial Protection Oversight Board. (5) BOARD
OF GOVERNORS.The

term Board

of Governors means the Board of Governors of the Federal Reserve System. (6) CONSUMER.The term consumer means an individual or an agent, trustee, or representative acting on behalf of an individual. (7) CONSUMER
ICE.The FINANCIAL PRODUCT OR SERV-

term consumer financial product or

service means any financial product or service to be used by a consumer primarily for personal, family, or household purposes. (8) COVERED person means (A) any person who engages directly or indirectly in a financial activity, in connection with the provision of a consumer financial product or service; or (B) any person who, in connection with the provision of a consumer financial product or service, provides a material service to a person described in subparagraph (A). (9) CREDIT.The term credit means the right granted by a person to a consumer to defer
PERSON.The

term covered

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5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 payment of a debt, incur debt and defer its payment, or purchase property or services and defer payment for such purchase. (10) CREDIT
UNION.The

term credit union

means a Federal credit union or a State credit union as defined in section 101 of the Federal Credit Union Act. (11) DEPOSIT.The term deposit (A) has the same meaning as in section 3(l) of the Federal Deposit Insurance Act; and (B) includes a share in a member account (as defined in section 101(5) of the Federal Credit Union Act) at a credit union. (12) DEPOSIT-TAKING
ACTIVITY.The

term

deposit-taking activity means (A) the acceptance of deposits, the maintenance of deposit accounts, or the provision of services related to the acceptance of deposits; (B) the acceptance of money, the provision of other services related to the acceptance of money, or the maintenance of members share accounts by a credit union; or (C) the receipt of money or its equivalent, as the Director may determine by regulation or order, received or held by the covered person

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6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (or an agent for the person) for the purpose of facilitating a payment or transferring funds or value of funds by a consumer to a third party. For the purposes of this title, the Director may determine that the term deposit-taking activity includes the receipt of money or its equivalent in connection with the sale or issuance of any payment instrument or stored value product or service. (13) DESIGNATED
TRANSFER DATE.The

term

designated transfer date has the meaning provided in section 162. (14) DIRECTOR.The term Director means the Director of the Agency. (15) ENUMERATED
CONSUMER LAWS.The

term enumerated consumer laws means each of the following: (A) The Alternative Mortgage Transaction Parity Act (12 U.S.C. 3801 et seq.). (B) The Electronic Funds Transfer Act (15 U.S.C. 1693 et seq.) (C) The Equal Credit Opportunity Act (15 U.S.C. 1691 et seq.). (D) The Fair Credit Reporting Act (15 U.S.C. 1681 et seq.), except with respect to sec-

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7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 tions 615(e) and 628 of such Act and subject to section 124(i) of this Act. (E) The Fair Debt Collection Practices Act (15 U.S.C. 1692 et seq.). (F) Subsections (c), (d), (e), and (f) of section 43 of the Federal Deposit Insurance Act (12 U.S.C. 1831t). (G) Sections 502, 503, 504, 505, 506, 507, 508, and 509 of the Gramm-Leach-Bliley Act (15 U.S.C. 6802 et seq.). (H) The Homeowners Protection Act of 1998. (I) The Home Mortgage Disclosure Act (12 U.S.C. 2801 et seq.). (J) The Real Estate Settlement Procedures Act (12 U.S.C. 2601 et seq.). (K) The Secure and Fair Enforcement for Mortgage Licensing Act (12 U.S.C. 5101 et seq.). (L) The Truth in Lending Act (15 U.S.C. 1601 et seq.). (M) The Truth in Savings Act (12 U.S.C. 4301 et seq.). (16) FEDERAL
BANKING AGENCY.The

term

Federal banking agency means the Board of Gov-

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8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 ernors, the Comptroller of the Currency, the Director of the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, or the National Credit Union Administration and the term Federal banking agencies means all of such agencies. (17) FAIR
LENDING.The

term fair lending

means fair, equitable, and nondiscriminatory access to credit for both individuals and communities. (18) FINANCIAL
ACTIVITY.The

term finan-

cial activity means any of the following activities: (A) Deposit-taking activities. (B) Extending credit and servicing loans, including (i) acquiring, purchasing, selling,

brokering, or servicing loans or other extensions of credit; (ii) engaging in any other activity usual in connection with extensions of credit or servicing loans, including performing appraisals of real estate and personal property and selling or servicing credit insurance or mortgage insurance. (C) Check cashing and check-guaranty services, including

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9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (i) authorizing a subscribing merchant to accept personal checks tendered by the merchants customers in payment for goods and services; and (ii) purchasing from a subscribing merchant validly authorized checks that are subsequently dishonored. (D) Collection of debt related to any consumer financial product or service. (E) Providing real estate settlement services, including providing title insurance. (F) Leasing personal or real property or acting as agent, broker, or adviser in leasing such property if (i) the lease is on a non-operating basis; (ii) the initial term of the lease is at least 90 days; and (iii) in the case of leases involving real property, at the inception of the initial lease, the transaction is intended to result in ownership of the leased property to be transferred to the lessee, subject to standards prescribed by the Director.

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10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (G) Acting as an investment adviser to any person (not subject to regulation by or registered with the Commodity Futures Trading Commission or the Securities and Exchange Commission). (H) Acting as financial adviser to any person, including (i) providing financial and other related advisory services; (ii) providing educational courses, and instructional materials to consumers on individual financial management matters; (iii) providing credit counseling to any person; or (iv) providing services to assist a consumer with debt management or debt settlement, with modifying the terms of any extension of credit, or with avoiding foreclosure. (I) Financial data processing by any technological means, including providing data processing, access to or use of databases or facilities, or advice regarding processing or

archiving, if the data to be processed, furnished, stored, or archived are financial, bank-

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11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 ing, or economic, except that it shall not be considered a financial activity if with respect to financial data processing the person (i) unknowingly or incidentally transmits, processes, or stores financial data in a manner that such data is undifferentiated from other types of data that the person transmits, processes, or stores; (ii) does not provide to any consumer a consumer financial product or service in connection with or relating to in any manner financial data processing; and (iii) does not provide a material service to any covered person in connection with the provision of a consumer financial product or service. (J) Money transmitting. (K) Issuance of stored value. (L) Acting as a money services business. (M) Acting as a custodian of money or any financial instrument. (N) Any other activity that the Director defines, by regulation, as a financial activity after finding that

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12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (i) the activity has, or there is a substantial likelihood that the activity will have, a material adverse impact on the creditworthiness or financial well being of consumers; (ii) the activity is incidental or complementary to any other financial activity regulated by the Agency; or (iii) the activity is entered into or conducted as a subterfuge or with a purpose to evade any requirement under this title, the enumerated consumer laws, and the authorities transferred under subtitles F and H. (19) FINANCIAL
PRODUCT OR SERVICE.The

term financial product or service means any product or service that, directly or indirectly, results from or is related to engaging in 1 or more financial activities, except that the Director shall not define engaging in the business of insurance as a financial activity (other than with respect to credit insurance, mortgage insurance, or title insurance, as described in this section). (20) FOREIGN
EXCHANGE.The

term foreign

exchange means the exchange, for compensation, of

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13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 currency of the United States or of a foreign government for currency of another government. (21) INSURED
DEPOSITORY INSTITUTION.The

term insured depository institution has the same meaning as in section 3 of the Federal Deposit Insurance Act. (22) MONEY
SERVICES BUSINESS.The

term

money services business means a person that (A) receives currency, monetary value, or payment instruments for the purpose of exchanging or transmitting the same by any means, including transmission by wire, facsimile, electronic transfer, courier, the Internet, or through bill payment services, or other businesses that facilitate third-party transfers within the United States or to or from the United States; or (B) issues payment instruments or stored value. (23) MATERIAL
SERVICE.The

term material

service means any activity or service provided to a covered person described in subparagraph (A) of paragraph (8) under an agreement with such covered person that

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14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (A) involves direct interaction with a consumer, whether in person or via telecommunication device or other similar technology (except that the processing of transactions or transmission of data shall not be considered direct interaction for purposes of this subparagraph, other than as may be determined under subparagraph (B)); or (B) is determined by the Director to assist or facilitate the provision of a consumer financial product or service that goes beyond a support service of a type provided to businesses generally or a similar ministerial service. (24) MONEY
TRANSMITTING.The

term

money transmitting means the receipt by a covered person of currency, monetary value, or payment instruments for the purpose of transmitting the same to any third-party by any means, including transmission by wire, facsimile, electronic transfer, courier, the Internet, or through bill payment services. (25) PAYMENT
INSTRUMENT.The

term pay-

ment instrument means a check, draft, warrant, money order, travelers check, electronic instrument,

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15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 or other instrument, payment of money, or monetary value (other than currency). (26) PERSON.The term person means an individual, partnership, company, corporation, association (incorporated or unincorporated), trust, estate, cooperative organization, or other entity. (27) PERSON
REGULATED BY THE COMMODITY

FUTURES TRADING COMMISSION.The

term person

regulated by the Commodity Futures Trading Commission means any futures commission merchant, commodity trading adviser, commodity pool operator, or introducing broker that is subject to the jurisdiction of the Commodity Futures Trading Commission under the Commodity Exchange Act, but only to the extent that the person acts in such capacity. (28) PERSON
REGULATED BY THE SECURITIES

AND EXCHANGE COMMISSION.The

term person

regulated by the Securities and Exchange Commission means (A) a broker or dealer that is required to be registered under the Securities Exchange Act of 1934;

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16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) an investment adviser that is registered under the Investment Advisers Act of 1940; (C) an investment company that is required to be registered under the Investment Company Act of 1940; (D) a national securities exchange that is required to be registered under the Securities Exchange Act of 1934; (E) a transfer agent that is required to be registered under the Securities Exchange Act of 1934; or (F) a clearing corporation that is required to be registered under the Securities Exchange Act of 1934, and any employee, agent, or contractor acting on behalf of, registered with, or providing services to, any such person, but only to the extent that the person, or the employee agent, or contractor of such person, acts in a registered capacity. (29) PROVISION
OF A CONSUMER FINANCIAL

PRODUCT OR SERVICE.The

terms provision of a

consumer financial product or service and providing a consumer financial product or service mean the advertisement, marketing, solicitation,

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17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 sale, disclosure, delivery, or account maintenance or servicing of a consumer financial product or service. (30) RELATED (A) IN
PERSON.

GENERAL.The

term related per-

son, when used in connection with a covered person that is not a bank holding company, credit union, depository institution, means (i) any director, officer, employee charged with managerial responsibility, or controlling stockholder of, or agent for, such covered person; (ii) any shareholder, consultant, joint venture partner, and any other person as determined by the Director (by regulation or on a case-by-case basis) who materially participates in the conduct of the affairs of such covered person; and (iii) any independent contractor (including any attorney, appraiser, or accountant), with respect to such covered person, who knowingly or recklessly participates in any (I) violation of any law or regulation; or (II) breach of fiduciary duty.

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18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) TREATMENT
OF A RELATED PERSON

AS A COVERED PERSON.Any

person who is a

related person under subparagraph (A) shall be deemed to be a covered person for all purposes of this title, any enumerated consumer law, and any law for which authorities were transferred by subtitles F and H. (31) SECRETARY.The term Secretary

means the Secretary of the Treasury. (32) STATE.The term State means any State, territory, or possession of the United States, the District of Columbia, Commonwealth of Puerto Rico, Commonwealth of the Northern Mariana Islands, Guam, American Samoa, or the United States Virgin Islands. (33) value (A) means funds or monetary value represented in any electronic format, whether or not specially encrypted, and stored or capable of storage on electronic media in such a way as to be retrievable and transferred electronically; and (B) includes a prepaid debit card or product (other than a card or product used solely STORED
VALUE.The

term

stored

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19 1 2 3 4 5 6 7 8 9 for telephone services) or any other similar product, regardless of whether the amount of the funds or monetary value may be increased or reloaded.

Subtitle AEstablishment of the Agency

SEC. 111. ESTABLISHMENT OF THE CONSUMER FINANCIAL PROTECTION AGENCY.

(a) AGENCY ESTABLISHED.There is established the

10 Consumer Financial Protection Agency as an independent 11 agency to regulate the provision of consumer financial 12 products or services under this title, the enumerated con13 sumer laws, and the authorities transferred under sub14 titles F and H. 15 (b) PRINCIPAL OFFICE.The principal office of the

16 Agency shall be located in the city of Washington, District 17 of Columbia, at 1 or more sites. 18 19 20 21 22 23 24 25
SEC. 112. DIRECTOR.

(a) ESTABLISHMENT OF POSITION. (1) IN

GENERAL.There

is hereby established

the position of the Director of the Agency who shall be the head of the Agency. (2) AUTHORITY
TO PRESCRIBE REGULA-

TIONS.The

Director may prescribe such regula-

tions and issue such orders in accordance with this

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20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Act as the Director may determine to be necessary for carrying out this Act and all other laws within the Directors jurisdiction. (b) APPOINTMENT; TERM. (1) APPOINTMENT.The Director shall be appointed by the President, by and with the advice and consent of the Senate, from among individuals who are citizens of the United States. (2) TERM.The Director shall be appointed for a term of 5 years. (3) REMOVAL.The Director may be removed before the end of a term only for cause. (4) VACANCY. (A) IN
GENERAL.A

vacancy in the posi-

tion of Director which occurs before the expiration of the term for which a Director was appointed shall be filled in the manner established in paragraph (1) and the Director appointed to fill such vacancy shall be appointed only for the remainder of such term. (B) ACTING (i) IN
DIRECTOR. GENERAL.In

the event of a

vacancy in the position of Director or during the absence or disability of the Director, an Acting Director shall be appointed

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21 1 2 3 4 5 6 7 8 9 10 11 12 in the manner provided in section 3345, of title 5, United States Code. (ii) AUTHORITY
TOR.Any OF ACTING DIREC-

individual serving as Acting Di-

rector under this subparagraph shall be vested with all authority, duties, and privileges of the Director. (5) SERVICE
AFTER END OF TERM.An

indi-

vidual may serve as Director after the expiration of the term for which appointed until a successor Director has been appointed and qualified. (c) PROHIBITION
ON

FINANCIAL INTERESTS.The

13 Director shall not have a direct or indirect financial inter14 est in any covered person. 15 (d) COMPENSATION.The Director shall receive com-

16 pensation at the rate prescribed for Level I of the Execu17 tive Schedule under section 5313 of title 5, United States 18 Code. 19 20 21
SEC. 113. CONSUMER FINANCIAL PROTECTION OVERSIGHT BOARD.

(a) ESTABLISHED.There is hereby established the

22 Consumer Financial Protection Oversight Board as an in23 strumentality of the United States. 24 (b) DUTIES AND POWERS.

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22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 (1) DUTY
TO ADVISE DIRECTOR.The

Board

shall advise the Director on (A) the consistency of a proposed regulation of the Director with prudential, market, or systemic objectives administered by the agencies that comprise the Board; (B) the overall strategies and policies in carrying out the duties of the Director under this title; and (C) actions the Director can take to enhance and ensure that all consumers are subject to robust financial protection. (2) LIMITATION
ON POWERS.The

Board may

not exercise any executive authority, and the Director may not delegate to the Board any of the functions, powers, or duties of the Director. (c) COMPOSITION.The Board shall be comprised of

18 7 members as follows: 19 20 21 22 23 24 25 (1) The Chairman of the Board of Governors. (2) The head of the agency responsible for chartering and regulating national banks. (3) The Chairperson of the Federal Deposit Insurance Corporation. (4) The Chairman of the National Credit Union Administration.

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23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 (5) The Chairman of the Federal Trade Commission. (6) The Secretary of Housing and Urban Development. (7) The Chairman of the liaison committee of representatives of State agencies to the Financial Institutions Examination Council. (d) MEETINGS. (1) IN
GENERAL.The

Board shall meet upon

notice by the Director, but in no event shall the Board meet less frequently than once every 3 months. (2) SPECIAL
MEETINGS.Any

member of the

Board may, upon giving written notice to the Director, require a special meeting of the Board. (e) PROHIBITION ON ADDITIONAL COMPENSATION.

17 Members of the Board may not receive additional pay, al18 lowances, or benefits by reason of their service on the 19 Board. 20 21
SEC. 114. EXECUTIVE AND ADMINISTRATIVE POWERS.

The Director may exercise all executive and adminis-

22 trative functions of the Agency, including to 23 24 25 (1) establish regulations for conducting the Agencys general business in a manner not inconsistent with this title;

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24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (2) bind the Agency and enter into contracts; (3) direct the establishment of and maintain divisions or other offices within the Agency in order to fulfill the responsibilities of this title, the enumerated consumer laws, and the authorities transferred under subtitles F and H, and to satisfy the requirements of other applicable law; (4) coordinate and oversee the operation of all administrative, enforcement, and research activities of the Agency; (5) adopt and use a seal; (6) determine the character of and the necessity for the Agencys obligations and expenditures, and the manner in which they shall be incurred, allowed, and paid; (7) delegate authority, at the Directors discretion, to any officer or employee of the Agency to take action under any provision of this title or under other applicable law; (8) to implement this title and the Agencys authorities under the enumerated consumer laws and under subtitles F and H through regulations, orders, guidance, interpretations, statements of policy, examinations, and enforcement actions; and

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25 1 2 3 4 (9) perform such other functions as may be authorized or required by law.

SEC. 115. ADMINISTRATION.

(a) OFFICERS.The Director shall appoint the fol-

5 lowing officials: 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) A secretary, who shall be charged with maintaining the records of the Agency and performing such other activities as the Director directs. (2) A general counsel, who shall be charged with overseeing the legal affairs of the Agency and performing such other activities as the Director directs. (3) An inspector general, who shall have the authority and functions of an inspector general of a designated Federal entity under the Inspector General Act of 1978 (5 U.S.C. App. 3). (b) PERSONNEL. (1) APPOINTMENT. (A) IN
GENERAL.The

Director may fix

the number of, and appoint and direct, all employees of the Agency. (B) EXPEDITED
HIRING.During

the 2-

year period beginning on the date of the enactment of this Act, the Director may appoint, without regard to the provisions of sections

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26 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 3309 through 3318, of title 5, United States Code, candidates directly to positions for which public notice has been given. (2) COMPENSATION. (A) PAY.The Director shall fix, adjust, and administer the pay for all employees of the Agency without regard to the provisions of chapter 51 or subchapter III of chapter 53 of title 5, United States Code. (B) BENEFITS.The Director may provide additional benefits to Agency employees if the same type of benefits are then being provided by the Board of Governors or, if not then being provided, could be provided by the Board of Governors under applicable provisions of law or regulations. (C) MINIMUM
STANDARD.The

Director

shall at all times provide compensation and benefits to classes of employees that, at a minimum, are equivalent to the compensation and benefits provided by the Board of Governors for the corresponding class of employees in any fiscal year. (c) SPECIFIC FUNCTIONAL UNITS.

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27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) RESEARCH.The Director shall establish a unit whose functions shall include researching, analyzing, and reporting on (A) current and prospective developments in markets for consumer financial products or services, including market areas of alternative consumer financial products or services with high growth rates and areas of risk to consumers; (B) consumer awareness, understanding, and use of disclosures and communications regarding consumer financial products or services, including language accessible materials for nonEnglish speakers; (C) consumer awareness and under-

standing of costs, risks, and benefits of consumer financial products or services; (D) consumer behavior with respect to consumer financial products or services; and (E) traditionally underserved consumer experiences regarding consumer financial products or services. (2) COMMUNITY
AFFAIRS.The

Director shall

establish a unit whose functions shall include providing information, guidance, and technical assist-

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28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 ance regarding the provision of consumer financial products or services to traditionally underserved consumers and communities. (3) CONSUMER (A) IN
COMPLAINTS.

GENERAL.The

Director shall es-

tablish a unit whose functions shall include establishing a central database for collecting and tracking information on consumer complaints about consumer financial products or services and resolution of complaints. (B) COORDINATION.In performing the functions described in paragraph (A), the Director shall coordinate with the Federal banking agencies, other Federal agencies, and other regulatory agencies or enforcement authorities. (C) DATA
SHARING REQUIRED.To

the

extent permitted by law and the regulations prescribed by the Director regarding the confidential treatment of information, the Director shall share data relating to consumer complaints with Federal banking agencies, other Federal agencies, and State regulators. (d) OFFICE
TUNITY. OF

FAIR LENDING

AND

EQUAL OPPOR-

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29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) ESTABLISHMENT.Before the end of the 180-day period beginning on the date of the enactment of this Act, the Director shall establish within the Agency the Office of Fair Lending and Equal Opportunity. (2) FUNCTIONS. The Office of Fair Lending and Equal Opportunity shall have such powers and duties as the Director may delegate the Office which shall include the following functions: (A) Providing oversight and enforcement of Federal laws intended to ensure the fair, equitable, and nondiscriminatory access to credit for both individuals and communities that are enforced by the Agency, including the Equal Credit Opportunity Act and the Home Mortgage Disclosure Act. (B) Coordinating fair lending enforcement efforts of the Agency with other Federal agencies and State regulators, as appropriate, to promote consistent, efficient and effective enforcement of Federal fair lending laws. (C) Working with private industry, fair lending, civil rights, consumer and community advocates on the promotion of fair lending compliance and education.

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30 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 (D) Providing annual reports to the Congress on the Agencys efforts to fulfill its fair lending mandate. (3) ADMINISTRATION
OF OFFICE.There

is

hereby established the position of Assistant Director of the Agency for Fair Lending and Equal Opportunity who (A) shall be appointed by the Director; (B) shall carry out such duties as the Director may delegate to such Assistant Director; and (C) shall serve as the Director of the Office of Fair Lending and Equal Opportunity
SEC. 116. CONSUMER ADVISORY BOARD.

(a) ESTABLISHMENT REQUIRED.The Director shall

16 establish a Consumer Advisory Board to advise and con17 sult with the Director in the exercise of the functions of 18 the Director and the Agency under this title, the enumer19 ated consumer laws, and to provide information on emerg20 ing practices in the consumer financial products or serv21 ices industry. 22 (b) MEMBERSHIP.In appointing the members of

23 the Consumer Advisory Board, the Director shall seek 24 25 (1) to assemble experts in financial services, community development, fair lending and civil

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31 1 2 3 4 5 rights, and consumer financial products or services; and (2) to represent the interests of covered persons and consumers. (c) MEETINGS.The Consumer Advisory Board shall

6 meet from time to time at the call of the Director, but, 7 at a minimum, shall meet at least twice in each year. 8 (d) COMPENSATION AND TRAVEL EXPENSES.Mem-

9 bers of the Consumer Advisory Board who are not full10 time employees of the United States shall 11 12 13 14 15 16 17 18 19 20 (1) be entitled to receive compensation at a rate fixed by the Director while attending meetings of the Consumer Advisory Board, including travel time; and (2) be allowed travel expenses, including transportation and subsistence, while away from their homes or regular places of business.
SEC. 117. COORDINATION.

(a) COORDINATION WITH OTHER FEDERAL AGENCIES AND

STATE REGULATORS.The Director shall co-

21 ordinate with the Securities and Exchange Commission, 22 the Commodity Futures Trading Commission, and other 23 Federal agencies and State regulators, as appropriate, to 24 promote consistent regulatory treatment of, and enforce-

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32 1 ment related to, consumer and investment products, serv2 ices, and laws. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 (b) COORDINATION
TIATIVES. OF

CONSUMER EDUCATION INI-

(1) IN

GENERAL.The

Director shall coordi-

nate with each agency that is a member of the Financial Literacy and Education Commission established by the Financial Literacy and Education Improvement Act (20 U.S.C. 9701 et seq.) to assist each agency in enhancing its existing financial literacy and education initiatives to better achieve the goals in paragraph (2) and to ensure the consistency of such initiatives across Federal agencies. (2) GOALS
OF COORDINATION.In

coordinating

with the agencies described in paragraph (1), the Director shall seek to improve efforts to educate consumers about financial matters generally, the management of their own financial affairs, and their judgments about the appropriateness of certain financial products. (c) COORDINATION.The Agency may coordinate in-

22 vestigations, compliance examinations, information shar23 ing, and related activities in support of activities under24 taken pursuant to the Fair Housing Act by other Federal 25 agencies.

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33 1 2
SEC. 118. REPORTS TO THE CONGRESS.

(a) REPORTS REQUIRED.The Director shall pre-

3 pare and submit to the President and the appropriate 4 committees of the Congress a report at the beginning of 5 each regular session of the Congress, beginning with the 6 session following the designated transfer date. 7 (b) CONTENTS.The reports required by subsection

8 (a) shall include 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 (1) a list of the significant regulations and orders adopted by the Director, as well as other significant initiatives conducted by the Director, during the preceding year and the Directors plan for regulations, orders, or other initiatives to be undertaken during the upcoming period; (2) an analysis of complaints about consumer financial products or services that the Agency has received and collected in its central database on complaints during the preceding year; (3) a list, with a brief statement of the issues, of the public supervisory and enforcement actions to which the Agency is a party (including adjudication proceedings conducted under subtitle E) during the preceding year; (4) the actions taken regarding regulations, orders, and supervisory actions with respect to covered persons which are not credit unions or depository in(449871|9)

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34 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 stitutions, including descriptions of the types of such covered persons, financial activities, and consumer financial products or services affected by such regulations, orders, and supervisory actions; (5) an appraisal of significant actions, including actions under Federal or State law, by State attorneys general or State regulators relating to this title, the authorities transferred under subtitles F and H, and the enumerated consumer laws; and (6) an analysis of the Agencys efforts to fulfill the fair lending mission of the Agency through the Office of Fair Lending and Equal Opportunity.
SEC. 119. FUNDING; FEES AND ASSESSMENTS; PENALTIES AND FINES.

(a) TRANSFER

OF

FUNDS FROM

THE

BOARD

OF

16 GOVERNORS. 17 18 19 20 21 22 23 24 (1) TRANSFER

REQUIRED.Each

year, begin-

ning on the designated transfer date, the Board of Governors shall transfer funds in an amount equaling 10 percent of the Federal Reserve Systems total system expenses (as reported in the Budget Review of the Board of Governors most recent Annual Report to Congress) to the Director for the purposes of carrying out the authorities granted in this title,

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35 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 under the enumerated consumer laws, and transferred under subtitles F and H. (2) PROCEDURES.The Board of Governors, in consultation with the Agency, shall make appropriate arrangements to transfer funds to the Director in accordance with this subsection. (b) FEES AND ASSESSMENTS. (1) ASSESSMENT (A) IN
REQUIRED.

GENERAL.Taking

into account

such other sums available to the Agency and subject to the provisions of this subsection and subsection (d), the Director shall assess fees on covered persons to meet the Agencys expenses for carrying out the duties and responsibilities of the Agency, including supervising such covered persons. (B) BASIS
FOR ASSESSMENT.The

Agency

shall assess fees on covered persons pursuant to this subsection based on the size and complexity of the covered person, and the compliance record of the covered person under the enumerated consumer laws, the laws and authorities transferred under subtitles F and H, and this title. (2) REGULATIONS.

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36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (A) IN
GENERAL.The

Director shall pre-

scribe regulations to govern the imposition and collection of fees and assessments. (B) FACTORS
REQUIRED TO BE AD-

DRESSED.Regulations

prescribed by the Di-

rector under this subsection shall specify and define (i) the basis of fees or assessments (such as the outstanding number of consumer credit accounts, off-balance sheet receivables attributable to the covered person, total consolidated assets, total assets under management, or volume of consumer financial transactions); (ii) the amount and frequency of fees or assessments; and (iii) such other factors that the Director determines are appropriate, which shall include a covered persons compliance record under the enumerated consumer laws, the authorities transferred under subtitles F and H, and this title. (3) ASSESSMENTS
ON DEPOSITORY INSTITU-

TION COVERED PERSONS.

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37 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (A) DEPOSITORY
INSTITUTION COVERED

PERSON DEFINED.For

purposes of this sec-

tion, the term depository institution covered person means a covered person that is an insured depository institution or credit union. (B) ASSESSMENTS. (i) FEES
REQUIRED.The

Director

shall assess fees for supervision as are appropriate on depository institution covered persons, taking into account the size and complexity of the covered person, and the compliance record of the covered person under the enumerated consumer laws, the laws and authorities transferred under subtitles F and H, and this title. (ii) BASIS
FOR FEE AMOUNTS.Fees

assessed by the Director under this subparagraph may be established at levels necessary to meet the Agencys expenses for carrying out the duties and responsibilities of the Director and the Agency under this title with regard to depository institution covered persons. (C) COORDINATION
TION PERIOD.The DURING IMPLEMENTA-

Director and the agencies

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38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 responsible for chartering and or supervising depository institution covered persons shall coordinate on the levels of fees assessed on depository institution covered persons under this paragraph, so that levels of assessments under this subparagraph combined with levels of assessments by agencies responsible for chartering and or supervising depository institution covered persons shall be no more than the assessments such depository institution covered person was required to pay for the 12-month period ending on December 31, 2009. (D) MARGINAL (i) IN
ASSESSMENT RATE.

GENERAL.In

setting assess-

ment rates for depository institution covered persons, the Director shall not impose assessments that result in higher marginal assessment rates for depository institution covered persons with assets of less than $25,000,000,000 than the marginal rates for depository institutions covered persons with assets that exceed that amount. (ii) RULE
OF CONSTRUCTION.

Clause (i) shall not be construed as limiting or impairing the authority of the Di-

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39 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 rector to set assessments that would result in higher marginal assessment rates on the larger depository institution covered persons. (E) LIMITATIONS
ON ASSESSMENTS. FOR ADMINISTRA-

(i) ASSESSMENTS

TIVE COSTS.Notwithstanding

any provi-

sion in this title, no depository institution covered person shall be charged an assessment to be used for the supervision, examination, enforcement or regulation by the Agency of nondepository covered persons. (ii) AMOUNTS
COMPLIANCE PAID FOR CONSUMER

SUPERVISION.Notwith-

standing any provision in this title, no depository institution covered person shall pay more for consumer compliance supervision than it paid before the date of enactment of this Act. (4) ASSESSMENTS
ERED PERSONS. ON NONDEPOSITORY COV-

(A) NONDEPOSITORY
DEFINED.For

COVERED

PERSON

purposes of this section, the

term nondepository covered person

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40 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (i) means a covered person that is not a credit union or insured depository institution; and (ii) includes any bank holding company. (B) ASSESSMENTS. (i) FEES
REQUIRED.The

Director

shall assess fees for fees for registration, examination, and supervision of nondepository covered persons. (ii) BASIS
FOR FEE AMOUNTS.

Fees

assessed by the Director under this subparagraph may be established at levels necessary to meet the Agencys expenses for carrying out the duties and responsibilities of the Director and the Agency, including supervising such covered persons, taking into account such other sums available to the Agency. (iii) REGISTRATION
FEE MINIMUMS.

Registration fees imposed on a nondepository covered person under this paragraph shall, at a minimum, be imposed on such covered person at the time the person registers (or periodically renews any such reg-

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41 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 istration) with the Agency, in accordance with regulations prescribed by the Director. (C) NONDEPOSITORY
COVERED PERSON

ASSESSMENT NOT LESS THAN FOR DEPOSITORY COVERED PERSONS.Assessment

rates levied

by the Director under this section on a nondepository institution covered persons shall be no less than assessments levied by the Agency under this section on a depository institution covered person with similar characteristics. (c) AUTHORIZATION OF APPROPRIATIONS. (1) IN
GENERAL.For

the purposes of carrying

out the authorities granted in this title, under the enumerated consumer laws, and the laws and authorities transferred under subtitles F and H, there are authorized to be appropriated to the Director such sums as may be necessary for any fiscal year. (2) APPORTIONMENT.Notwithstanding any

other provision of law, such amounts shall be subject to apportionment under section 1517 of title 31, United States Code, and restrictions that generally apply to the use of appropriated funds in title 31, United States Code, and other laws.

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42 1 2 3 4 5 (3) OTHER
COUNT.Sums AVAILABLE FUNDS TAKEN INTO AC-

appropriated under this subsection

shall take into account such other sums available to the Agency under this section. (d) CONSUMER FINANCIAL PROTECTION AGENCY

6 DEPOSITORY INSTITUTION FUND. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) ESTABLISHMENT. (A) IN

GENERAL.There

is established in

the Treasury a separate fund to be known as the Consumer Financial Protection Agency Depository Institution Fund (hereafter in this section referred to as the CFPA Depository Fund). (B) AMOUNTS
IN FUND NOT AVAILABLE

FOR CERTAIN PURPOSES.Other

than pursuant

to subsection (f), amounts on deposit in the CFPA Depository Fund shall not be used in the supervision and examination of nondepository institution covered persons. (2) ALL
TRANSFERRED FUNDS DEPOSITED.

All amounts transferred to the Agency under subsection (a) shall be deposited into the CFPA Depository Fund. (3) ALL
APPLICABLE SUPERVISORY FEES AND

ASSESSMENTS DEPOSITED.The

Director shall de-

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43 1 2 3 posit all amounts received from assessments under subsection (b)(3) in the CFPA Depository Fund. (e) CONSUMER FINANCIAL PROTECTION AGENCY

4 NONDEPOSITORY INSTITUTION FUND. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) ESTABLISHMENT. (A) IN

GENERAL.There

is established in

the Treasury a separate fund called the Consumer Financial Protection Agency Nondepository Institution Fund (hereafter in this section referred to as the CFPA Nondepository Fund). (B) AMOUNTS
IN FUND NOT AVAILABLE

FOR CERTAIN PURPOSES.Other

than pursuant

to subsection (f), amounts on deposit in the CFPA Nondepository Fund shall not be used for the supervision and examination of depository institution covered persons. (2) ALL
APPLICABLE SUPERVISORY FEES AND

ASSESSMENTS DEPOSITED.The

Director shall de-

posit all amounts received from assessments under subsection (b)(4) in the CFPA Nondepository Fund. (f) GENERAL PROVISIONS RELATING (1) MAINTENANCE (A) AGENCY
OF FUNDS. FUNDS MAINTAINED BY TO

FUNDS.

TREASURY.The

Consumer Financial Protec-

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44 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 tion Agency Depository Institution Fund established under subsection (d) and the Consumer Financial Protection Agency Nondepository Institution Fund established under subsection (e) shall each be (i) maintained and administered by the Secretary; and (ii) maintained separately and not commingled. (B) AGENCYS
AUTHORITY.Any

provision

of this Act forbidding the commingling or use of the CFPA Depository Fund and the CFPA Nondepository Fund shall not be construed as limiting or impairing the authority of the Agency to use the same facilities and resources in the course of conducting supervisory and regulatory functions with respect to depository institutions and nondepository institutions, or to integrate such functions. (C) ACCOUNTING
REQUIREMENTS. FOR USE OF FACILI-

(i) ACCOUNTING

TIES AND RESOURCES.The

Agency shall

keep a full and complete accounting of all costs and expenses associated with the use of any facility or resource used in the

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45 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 course of any function specified in subparagraph (B) and shall allocate, in the manner provided in subparagraph (D), any such costs and expenses incurred by the Agency (I) with respect to depository institution covered persons, to the

CFPA Depository Fund; and (II) with respect to nondepository covered persons, to the CFPA Nondepository fund. (D) ALLOCATION
PENSES.Any OF ADMINISTRATIVE EX-

personnel, administrative, or

other overhead expense of the Agency shall be allocated (i) fully to the CFPA Depository Fund if the expense was incurred directly as a result of the Agencys responsibilities solely with respect to depository institution covered persons; (ii) fully to the CFPA Nondepository Fund, if the expense was incurred directly as a result of the Agencys responsibilities solely with respect to nondepository covered persons;

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46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (iii) between the CFPA Depository Fund and the CFPA Nondepository Fund, in amounts reflecting the relative degree to which the expense was incurred as a result of the activities of depository institution covered persons, and nondepository covered persons; and (iv) if the Director is unable to make a complete allocation under clause (i), (ii), or (iii), between the CFPA Depository Fund and the CFPA Nondepository Fund, in amounts reflecting the relative proportion that, as of the end of the preceding year (I) the aggregate assets of all depository institution covered persons bears to the aggregate assets of all covered persons; and (II) the aggregate assets of all nondepository covered persons bears to the aggregate assets of all covered persons. (E) AGENCY
FUND.The

Agency fund

means the Consumer Financial Protection Agency Depository Institution Fund established

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47 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 under subsection (d), and, the Consumer Financial Protection Agency Nondepository Institution Fund established under subsection (e) , and the Consumer Financial Protection Agency Civil Penalty Fund established under subsection (g) (2) INVESTMENT. (A) AMOUNTS
VESTED.The IN FUNDS MAY BE IN-

Director may request the Sec-

retary to invest the portion of any Agency fund that, in the Directors judgment, is not required to meet the current needs of such fund. (B) ELIGIBLE
INVESTMENTS.Invest-

ments pursuant to subparagraph (A) shall be made by the Secretary in obligations of the United States or obligations that are guaranteed as to principal and interest by the United States, with maturities suitable to the needs of the Agency fund involved, as determined by the Director. (C) INTEREST
ITED.The AND PROCEEDS CRED-

interest on, and the proceeds from

the sale or redemption of, any obligations held in the respective Agency Fund shall be credited

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48 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 to and form a part of the respective Agency Fund. (3) USE

OF FUNDS.Funds

obtained by, trans-

ferred to, or credited to any Agency fund shall be immediately available to the Agency, and remain available until expended, to pay the expenses of the Agency in carrying out the duties and responsibilities of the Director and the Agency, including the payment of compensation of the Director and officers and employees of the Agency. (2) FEES,
ASSESSMENTS AND OTHER FUNDS

NOT GOVERNMENT FUNDS.Funds

obtained by or

transferred to any Agency fund shall not be construed to be Government funds or appropriated monies. (3) AMOUNTS
NOT SUBJECT TO APPORTION-

MENT.Notwithstanding

any other provision of law,

amounts in any Agency fund shall not be subject to apportionment for purposes of chapter 15 of title 31, United States Code, or under any other authority. (g) PENALTIES AND FINES. (1) ESTABLISHMENT
OF VICTIMS RELIEF

FUND.There

is established in the Treasury of the

United States a fund to be known as the Consumer Financial Protection Agency Civil Penalty Fund

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49 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 (hereafter in this section referred to as the Civil Penalty Fund). (2) DEPOSITS. If the Agency obtains a civil penalty against any person in any judicial or administrative action under this title, any law or authority transferred under subtitles F and H, or any enumerated consumer law, the Agency shall deposit into the Civil Penalty Fund the amount of the penalty collected. (3) PAYMENT
TO VICTIMS.Amounts

in the

Civil Penalty Fund shall be available to the Director, without fiscal year limitation, for payments to the victims of activities for which civil penalties have been imposed under this title, the law and authorities transferred under subtitles F and H, or any enumerated consumer law. (h) EXCLUSION
FOR

SERVICE PROVIDERS.No pro-

18 vision of this section shall apply to a covered person de19 scribed in subparagraph (B) of section 101(8) (except to 20 the extent that such person also acts in a capacity de21 scribed in subparagraph (A) of such section). 22 23 24
SEC. 120. AMENDMENTS RELATING TO OTHER ADMINISTRATIVE PROVISIONS.

(a) ACT

OF

OCTOBER 28, 1974.Section 111 of

25 Public Law 93495 (12 U.S.C. 250) is amended by in-

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50 1 serting the Consumer Financial Protection Agency, 2 after Federal Deposit Insurance Corporation,. 3 (b) PAPERWORK REDUCTION ACT.Section 2(5) of

4 the Paperwork Reduction Act (44 U.S.C. 3502(5)) by in5 serting the Consumer Financial Protection Agency, 6 after the Securities and Exchange Commission,. 7 8
SEC. 120A. EFFECTIVE DATE.

This subtitle shall take effect on the date of the en-

9 actment of this Act. 10 11 12 13

Subtitle BGeneral Powers of the Director and Agency

SEC. 121. MANDATE AND OBJECTIVES.

(a) MANDATE.The Director shall seek to promote

14 transparency, simplicity, fairness, accountability, and 15 equal access in the market for consumer financial products 16 or services. 17 (b) OBJECTIVES.The Director may exercise the au-

18 thorities granted in this title, in the enumerated consumer 19 laws, and transferred under subtitles F and H for the pur20 poses of ensuring that, with respect to consumer financial 21 products or services 22 23 24 (1) consumers have and can use the information they need to make responsible decisions about consumer financial products or services;

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51 1 2 3 4 5 6 7 8 9 10 (2) consumers are protected from abuse, unfairness, deception, and discrimination; (3) markets for consumer financial products or services operate fairly and efficiently with ample room for sustainable growth and innovation; and (4) traditionally underserved consumers and communities have equal access to responsible financial services.
SEC. 122. AUTHORITIES.

(a) IN GENERAL.The Director may exercise the au-

11 thorities granted in this title, in the enumerated consumer 12 laws, and transferred under subtitles F and H, to admin13 ister, enforce, and otherwise implement the provisions of 14 this title, the authorities transferred in subtitles F and 15 H, and the enumerated consumer laws. 16 17 18 19 20 21 22 23 24 (b) RULEMAKING, ORDERS, AND GUIDANCE. (1) IN
GENERAL.The

Director may prescribe

regulations and issue orders and guidance as may be necessary or appropriate to enable it to administer and carry out the purposes and objectives of this title, the authorities transferred under subtitles F and H, and the enumerated consumer laws, and to prevent evasions of this title, any such authority, and any such law.

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52 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (2) STANDARDS
FOR RULEMAKING.In

pre-

scribing a regulation under this title or pursuant to the authorities transferred under subtitles F and H or the enumerated consumer laws, the Director shall (A) consider the potential benefits and costs to consumers and covered persons, including the potential reduction of consumers access to consumer financial products or services, resulting from such regulation; and (B) consult with the Federal banking agencies, State bank supervisors, or other Federal agencies, as appropriate, regarding the consistency of a proposed regulation with prudential, civil rights, market, or systemic objectives administered by such agencies or supervisors. (3) EXEMPTIONS. (A) IN
GENERAL.The

Director, by regu-

lation or order, may conditionally or unconditionally exempt any covered person or any consumer financial product or service or any class of covered persons or consumer financial products or services, from any provision of this title, any enumerated consumer law, or from any regulation under any such provision or law, as the

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53 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 son. (ii) The volume of transactions involving consumer financial products or services in which the covered person engages. (iii) The extent to which the covered person engages in 1 or more financial activities. (iv) Existing laws or regulations which are applicable to the consumer financial product or service and the extent to which such laws or regulations provide consumers with adequate protections. (C) RULE
OF CONSTRUCTION.No

Director deems necessary or appropriate to carry out the purposes and objectives of this title taking into consideration the factors in subparagraph (B). (B) FACTORS.In issuing an exemption by regulation or order as permitted in subparagraph (A), the Director shall as appropriate take into consideration the following: (i) The total assets of the covered per-

provi-

sion of this section shall be construed as altering, amending, or affecting any authority under sections 304(a), 304(i), 305(a), and 306(b) of

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54 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 the Home Mortgage Disclosure Act of 1975 and sections 703(a)(1), 703(a)(2), 703(a)(3),

705(f), and 705(g) of the Equal Credit Opportunity Act for determining whether a covered person should be provided an exemption. (c) EXAMINATIONS AND REPORTS. (1) IN
GENERAL.The

Director may on a peri-

odic basis examine, or require reports from, a covered person for purposes of ensuring compliance with the requirements of this title, the enumerated consumer laws, and any regulations prescribed by the Director under this title or pursuant to the authorities transferred under subtitles F and H, and enforcing compliance with such requirements. (2) EXAMINATION
PROGRAM.The

Director

shall exercise any authority of the Director under paragraph (1) in a manner designed to ensure that such authorities are exercised with respect to covered persons, without regard to charter or corporate form, based on the Directors assessment of the risks posed to consumers in the relevant product markets and geographic markets, and taking into consideration, as applicable, the following factors: (A) The asset size of the covered persons.

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55 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (B) The volume of transactions involving consumer financial products or services in which the covered persons engage. (C) The risks to consumers created by the provision of such consumer financial products or services. (D) In the case of State-chartered institutions, the extent to which such institutions are subject to oversight by State authorities for consumer protection. (3) COORDINATION.The Director shall coordinate the Agencys supervisory activities with the supervisory activities of conducted by the Federal banking agencies and the State bank supervisors, including establishing their respective schedules for examining covered persons and requirements regarding reports to be submitted by covered persons. (4) CONTENT
OF REPORTS.The

reports au-

thorized in paragraph (1) may include such information as necessary to keep the Agency informed as to (A) the compliance systems or procedures of the covered person or any affiliate thereof, with applicable provisions of this title or any

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56 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 other law that the Agency has jurisdiction to enforce; and (B) matters related to the provision of consumer financial products or services including the servicing or maintenance of accounts or extensions of credit. (5) USE
OF EXISTING REPORTS.In

general,

the Agency shall, to the fullest extent possible, use (A) reports that a covered person, or any affiliate thereof, has provided or been required to provide to a Federal or State agency; and (B) information that has been reported publicly. (6) ACCESS
BY THE AGENCY TO REPORTS OF

OTHER REGULATORS.

(A) EXAMINATION
TION REPORTS.Upon

AND FINANCIAL CONDI-

providing reasonable as-

surances of confidentiality, the Agency shall have access to any report of examination or financial condition made by a Federal banking agency or other Federal agency having supervision of a covered person, and to all revisions made to any such report. (B) PROVISION
AGENCY.In OF OTHER REPORTS TO

addition to the reports described

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57 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 in paragraph (a), a Federal banking agency may, in its discretion, furnish to the Agency any other report or other confidential supervisory information concerning any insured depository institution, any credit union, or other entity examined by such agency under authority of any Federal law. (7) ACCESS
BY OTHER REGULATORS TO RE-

PORTS OF THE AGENCY.

(A) EXAMINATION

REPORTS.Upon

pro-

viding reasonable assurances of confidentiality, a Federal banking agency, a State regulator, or any other Federal agency having supervision of a covered person shall have access to any report of examination made by the Agency with respect to the covered person, and to all revisions made to any such report. (B) PROVISION
OF OTHER REPORTS TO

OTHER REGULATORS.In

addition to the re-

ports described in paragraph (A), the Agency may, in the discretion of the Agency, furnish to a Federal banking agency any other report or other confidential supervisory information concerning any insured depository institution, any

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58 1 2 3 4 5 6 7 8 9 credit union, or other entity examined by the Agency under authority of any Federal law. (8) PRESERVATION
OF AUTHORITY.No

provi-

sion in paragraph (3) shall be construed as preventing the Agency from conducting an examination authorized by this title or under the authorities transferred under subtitles F and H or pursuant to any enumerated consumer law. (d) EXCLUSIVE RULEMAKING
AND

EXAMINATION

10 AUTHORITY.Notwithstanding any other provision of 11 Federal law other than subsection (f), to the extent that 12 a Federal law authorizes the Director and another Federal 13 agency to prescribe regulations, issue guidance, conduct 14 examinations, or require reports under that law for pur15 poses of assuring compliance with this title, any enumer16 ated consumer law, the laws for which authorities were 17 transferred under subtitles F and H, and any regulations 18 prescribed under this title or pursuant to any such author19 ity, the Director shall have the exclusive authority to pre20 scribe regulations, issue guidance, conduct examinations, 21 require reports, or issue exemptions with regard to any 22 person subject to that law and with respect to any activity 23 regulated under any enumerated consumer law. 24 (e) PRIMARY ENFORCEMENT AUTHORITY.

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59 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) THE
AGENCY TO HAVE PRIMARY ENFORCE-

MENT AUTHORITY.To

the extent that a Federal

law authorizes the Agency and another Federal agency to enforce that law, the Agency shall have primary authority to enforce that Federal law with respect to any person in accordance with this subsection. (2) REFERRAL.Any Federal agency authorized to enforce a Federal law described in paragraph (1) may recommend in writing to the Director that the Agency initiate an enforcement proceeding as the Agency is authorized by that Federal law or by this title. The recommendation shall be accompanied by a written explanation of the concerns giving rise to the recommendation. (3) BACKSTOP
ENFORCEMENT AUTHORITY OF

OTHER FEDERAL AGENCY.If

the Agency does not,

before the end of the 120-day period beginning on the date on which the Agency receives a recommendation under paragraph (2), initiate an enforcement proceeding, the other agency may initiate an enforcement proceeding as permitted by that Federal law. (f) PRESERVATION OF OTHER AUTHORITY.

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60 1 2 3 4 5 6 7 8 9 10 11 12 13 14 (1) ATTORNEY
GENERAL.No

provision of this

title shall be construed as affecting any authority of the Attorney General. (2) SECRETARY
OF THE TREASURY.

No pro-

vision of this title shall be construed as affecting any authority of the Secretary of the Treasury, including with respect to prescribing regulations, initiating enforcement proceedings, or taking other actions with respect to a person providing tax planning or tax preparation services. (3) FAIR
HOUSING ACT.No

provision of this

title shall be construed as affecting any authority arising under the Fair Housing Act. (g) EFFECT
ON

OTHER AUTHORITY.No provision

15 of this section or section 123 shall be construed as modi16 fying or limiting the authority of any appropriate Federal 17 banking agency or the Director or Agency to interpret, 18 or take enforcement action under, any law or regulation 19 the interpretation or enforcement of which is committed 20 to the banking agency or the Director or Agency, which 21 shall include, in the case of the Director and the Agency, 22 this Act, the enumerated consumer laws, and the regula23 tions prescribed under this Act or such laws.

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61 1 2 3
SEC. 123. SIMULTANEOUS AND COORDINATED SUPER-

VISORY ACTION.

(a) EXAMINATIONS.A Federal banking agency and

4 the Agency shall, with respect to each insured depository 5 institution, credit union, or other covered person super6 vised by the Federal banking agency and the Agency, re7 spectively 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 (1) coordinate the scheduling of examinations of the insured depository institution, and credit union, or other covered person; (2) conduct simultaneous examinations of each insured depository institution, credit union or other covered person, unless such institution requests examinations to be conducted separately; (3) share each draft report of examination with the other agency and permit the receiving agency a reasonable opportunity (which shall not be less than a period of 30 days after the date of receipt) to comment on the draft report before such report is made final; and (4) prior to issuing a final report of examination or taking supervisory action, an agency shall take into consideration concerns, if any, raised in the comments made by the other agency. (b) COORDINATION WITH STATE BANK SUPERVISORS.The

Agency shall pursue arrangements and

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62 1 agreements with State bank supervisors to coordinate ex2 aminations consistent with subsection (a). 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (c) RESOLUTION
OF

CONFLICT

IN

SUPERVISION.

(1) REQUEST (A) IN

OF DEPOSITORY INSTITUTION.

GENERAL.If

the proposed mate-

rial supervisory determinations of the Agency and a Federal banking agency are conflicting, an insured depository institution, credit union, or other covered person may request the agencies to coordinate and present a joint statement of coordinated supervisory action. (B) LIMITATION.A request of an insured depository institution, credit union, or other covered person shall not be used to appeal a supervisory rating or determination by the Agency or a Federal banking agency. (2) JOINT
STATEMENT.The

agencies receiving

a request from an insured depository institution, credit union, or covered person under paragraph (1) shall provide a joint statement resolving the conflict under such subparagraph before the end of the 30day period beginning on the date the agencies receive such request. (d) APPEALS TO GOVERNING PANEL.

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63 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 (1) IN
GENERAL.If

the agencies receiving a

request from an insured depository institution, credit union, or covered person under subsection (c)(1) do not issue a joint statement under subsection (c)(2), or if either agency takes or attempts to take any supervisory action relating to the request for the joint statement without the consent of the other agency, the insured depository institution, credit union, or other covered person may institute an appeal to a governing panel under this subsection. (2) TIMETABLE.Any appeal under paragraph (1) with regard to a failure of agencies to issue a joint statement shall be filed before the end of the 30-day period beginning at the end of the 30-day period during which such joint statement was due under subsection (c)(2). (e) COMPOSITION
OF

GOVERNING PANEL.The gov-

18 erning panel for an appeal under this section shall be com19 posed of 20 21 22 23 24 25 (1) 2 individuals (A) 1 of whom is a representative from the Agency; (B) 1 of whom is a representative of the Federal banking agency which received the request to which the appeal relates; and

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64 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (C) neither of whom (i) have participated in the material supervisory determinations under appeal; and (ii) report directly or indirectly to the individual who made the supervisory determinations under appeal; and (2) 1 individual who is a representative from (A) the Federal banking agency that heads the Financial Institution Examination Council; or (B) if the Financial Institutions Examination Council is headed by a Federal banking agency that is a party to the appeal, the Federal banking agency that is next scheduled to head the Financial Institutions Examination Council. (f) CONDUCT OF APPEAL. (1) CONTENT
OF FILING APPEAL.The

insured

depository institution, credit union, or other covered person which institutes an appeal under subsection (d)(1) shall include in the filing of such appeal all the facts and legal arguments pertaining to the matter appealed.

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65 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (2) APPEARANCE.The insured depository institution, credit union, or other covered person which institutes an appeal under this section may appear before the governing panel in person or by telephone, through counsel, employees or representatives of or for such institution, credit union, or other covered person. (3) REQUESTS
TION. FOR ADDITIONAL INFORMA-

Any governing panel convened under this

section may request the insured depository institution, credit union, or other covered person, the Agency, or the Federal banking agency to produce additional information relevant to the appeal. (4) FINAL
WRITTEN DETERMINATIONS

.Any

governing panel convened under this section, by a majority vote of the members of the panel, shall provide a final determination, in writing, within 30 days of the filing of an informationally complete appeal, or such longer period as the panel and the insured depository institution, credit union, or other covered person may jointly agree. (5) PUBLIC
INFORMATION.A

redacted copy of

any determination by a governing panel convened under this section shall be made public upon the issuance of such determination.

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66 1 (g) PROHIBITION AGAINST RETALIATION.The Di-

2 rector and the Federal banking agencies shall prescribe 3 regulations to provide safeguards from retaliation against 4 any insured depository institution, credit union, or other 5 covered person which institutes an appeal under this sec6 tion, as well as against any officer or and employee of any 7 such institution, credit union, or other person. 8 9 (h) MATERIAL SUPERVISORY DETERMINATION DEFINED.For

purposes of this section, the term material

10 supervisory determination 11 12 13 14 15 16 17 18 19 20 21 22 23 (1) includes any action relating to any supervision or examinations; and (2) does not include (A) a determination by any Federal banking agency to appoint a conservator or receiver for an insured depository institution or a liquidating agent for an insured credit union, as the case may be, or a decision to take action pursuant to section 38 of the Federal Deposit Insurance Act or section 212 of the Federal Credit Union Act, as the case may be; or (B) any regulation or guidance, or order of general applicability.

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67 1 2 3
SEC. 124. LIMITATIONS ON AUTHORITY OF AGENCY AND DIRECTOR.

(a) EXCLUSION

FOR

MERCHANTS, RETAILERS,

AND

4 SELLERS OF NONFINANCIAL SERVICES. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 (1) IN

GENERAL.Notwithstanding

any provi-

sion of this title, the Director and the Agency may not exercise any rulemaking, supervisory, enforcement or other authority, including authority to order assessments, under this title regarding credit or any other financial activity issued directly by a merchant, retailer, or seller of nonfinancial services to a consumer exclusively for the purpose of enabling that consumer to purchase goods or services directly from the merchant, retailer, or seller of nonfinancial services, in a case in which the good or service being provided is not itself a consumer financial product or service, except that the Director may exercise any rulemaking authority regarding such credit or other financial activity as may be authorized by the enumerated consumer laws or any law or authority transferred under subtitle F or H. (2) RULE
OF CONSTRUCTION.No

provision of

this title shall be construed as modifying, limiting, or superseding the authority of the Federal Trade Commission or any other agency with respect to credit or any other financial activity issued directly
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68 1 2 3 4 5 by a merchant or retailer to a consumer exclusively for the purpose of enabling that consumer to purchase goods or services directly from the merchant or retailer. (b) EXCLUSION
FOR

PERSONS REGULATED

BY THE

6 SECURITIES AND EXCHANGE COMMISSION. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) IN

GENERAL.No

provision of this title

shall be construed as altering, amending, or affecting the authority of the Securities and Exchange Commission to adopt rules, initiate enforcement proceedings, or take any other action with respect to a person regulated by the Securities and Exchange Commission. The Director and Agency shall have no authority to exercise any power to enforce this title with respect to a person regulated by the Securities and Exchange Commission. (2) CONSULTATION
AND COORDINATION.Not-

withstanding paragraph (1), the Securities and Exchange Commission shall consult and coordinate with the Director with respect to any rule (including any advance notice of proposed rulemaking) regarding an investment product or service that is the same type of product as, or that competes directly with, a consumer financial product or service that is

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69 1 2 3 subject to the jurisdiction of the Agency under this title or under any other law. (c) EXCLUSION
FOR

PERSONS REGULATED

BY THE

4 COMMODITY FUTURES TRADING COMMISSION. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) IN

GENERAL.No

provision of this title

shall be construed as altering, amending, or affecting the authority of the Commodity Futures Trading Commission to adopt rules, initiate enforcement proceedings, or take any other action with respect to a person regulated by the Commodity Futures Trading Commission. The Director and the Agency shall have no authority to exercise any power to enforce this title with respect to a person regulated by the Commodity Futures Trading Commission. (2) CONSULTATION
AND COORDINATION.Not-

withstanding paragraph (1), the Commodity Futures Trading Commission shall consult and coordinate with the Director with respect to any rule (including any advance notice of proposed rulemaking) regarding a product or service that is the same type of product as, or that competes directly with, a consumer financial product or service that is subject to the jurisdiction of the Agency under this title or under any other law.

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70 1 (d) EXCLUSION
FOR

QUALIFIED RETIREMENT
AND

OR

2 ELIGIBLE DEFERRED COMPENSATION PLANS 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

RANGEMENTS.

AR-

(1) IN

GENERAL.No

provision of this title

shall be construed as altering, amending, or affecting the authority of the Secretary of the Treasury, the Secretary of Labor, or the Commissioner of Internal Revenue to adopt regulations, initiate enforcement proceedings, or take any actions with respect to (A) any retirement or eligible deferred compensation plan or arrangement qualified under or meeting the requirements of section 401(a), 403(a), 403(b), 457(b), 408 or 408A of the Internal Revenue Code; or (B) any educational savings arrangement under section 529 of such Code. (2) LIMITATION (A) IN
ON AGENCY AUTHORITY.

GENERAL.The

Director and the

Agency may not exercise any power to enforce this title with respect to services provided directly (or indirectly if the services relate to the operation of such plan or arrangement) to (i) any retirement or eligible deferred compensation plan or arrangement quali-

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71 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 fied under or meeting the requirements of section 401(a), 403(a), 403(b), 457(b), 408, or 408A of the Internal Revenue Code; or (ii) any educational savings arrangement under section 529 of such Code. (B) SERVICES
DEFINED.For

purposes

subparagraph (A), the term services shall include, for example, services for custody and investment of assets, administration, compliance, and participant assistance. (e) EXCLUSION
PARERS, AND FOR

ACCOUNTANTS, TAX PRE-

ATTORNEYS.
GENERAL.Except

(1) IN

as permitted in para-

graph (2), the Director and the Agency may not exercise any rulemaking, supervisory, enforcement or other authority, including authority to order assessments, over (A) any person that is a certified public accountant, permitted to practice as a certified public accounting firm, or certified or licensed for such purpose by a State, when such person or entity is providing customary and usual accounting activities to consumers;

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72 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 (B) any person that performs income tax preparation activities for consumers; or (C) any person that is an attorney licensed by a State, to the extent that the attorney is engaged in the practice of law under the laws of each State in which the attorney is licensed. (2) DESCRIPTION
OF ACTIVITIES.Paragraph

(1) shall not apply to any person described in subparagraph (A), (B), or (C) of such paragraph to the extent such person is engaged in any financial activity described in any subparagraph of section 101(18) or is otherwise subject to any of the enumerated consumer laws or the authorities transferred under subtitle F or H. (f) EXCLUSION FOR REALTORS. (1) IN
GENERAL.Except

as permitted in para-

graph (2), the Director and the Agency may not exercise any rulemaking, supervisory, enforcement or other authority, including authority to order assessments, over a person that is licensed or registered as a real estate broker, real estate agent, in accordance with State law, but only to the extent that such person

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73 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (A) acts as a real estate agent or broker for a buyer, seller, lessor, or lessee of real property; (B) brings together parties interested in the sale, purchase, lease, rental, or exchange of real property; (C) negotiates, on behalf of any party, any portion of a contract relating to the sale, purchase, lease, rental, or exchange of real property (other than in connection with providing financing with respect to any such transaction); (D) engages in any activity for which a person engaged in the activity is required to be registered or licensed as a real estate agent or real estate broker under any applicable law; or (E) offers to engage in any activity, or act in any capacity, described in subparagraph (A), (B), (C), or (D). (2) DESCRIPTION
OF ACTIVITIES.Paragraph

(1) shall not apply to any person described in such paragraph to the extent such person is engaged in any financial activity described in any subparagraph of section 101(18) or is otherwise subject to any of the enumerated consumer laws or the authorities transferred under subtitle F or H.

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74 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (g) EXCLUSION FOR AUTO DEALERS. (1) IN

GENERAL.Except

as permitted in para-

graph (2), the Director and the Agency may not exercise any rulemaking, supervisory, enforcement or other authority, including authority to order assessments, over a person to the extent that such person (A) acts as an agent or broker for a buyer or seller of any automobile; (B) facilitates the purchase or lease by a consumer of any automobile either by negotiating the purchase price or terms of the sale contract (other than in connection with providing financing or arranging for financing or a lease with respect to such transaction); or (C) offers to engage in any activity described in subparagraphs (A) or (B). (2) DESCRIPTION
OF ACTIVITIES.Paragraph

(1) shall not apply to any person described in such paragraph to the extent such person is engaged in any financial activity described in any subparagraph of section 101(18) or is otherwise subject to any of the enumerated consumer laws or the authorities transferred under subtitle F or H.

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75 1 (h) NO AUTHORITY
TO

IMPOSE USURY LIMIT.No

2 provision of this title shall be construed as conferring au3 thority on the Director or the Agency to establish a usury 4 limit applicable to an extension of credit offered or made 5 by a covered person to a consumer, unless explicitly au6 thorized by law. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (i) EXCLUSION
CIES. FOR

CONSUMER REPORTING AGEN-

(1) IN

GENERAL

.The Director and the Agen-

cy may not exercise any rulemaking, supervisory, enforcement or other authority, including authority to order assessments, over any consumer reporting agency (as defined in section 603(f) of the Fair Credit Reporting Act). (2) EXCLUSION
NOT APPLICABLE TO FINANCIAL

ACTIVITIES.Paragraph

(1) shall not apply to any

consumer reporting agency to the extent such consumer reporting agency is engaged in any financial activity described in any subparagraph of section 101(18) other than assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties and the furnishing of such reports in accordance with section 604 of the Fair Credit Reporting Act.

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76 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
SEC. 125. COLLECTION OF INFORMATION; CONFIDEN-

TIALITY REGULATIONS.

(a) COLLECTION OF INFORMATION. (1) IN

GENERAL.In

conducting research on

the provision of consumer financial products or services, the Director shall have the power to gather information from time to time regarding the organization, business conduct, and practices of covered persons. (2) SPECIFIC
AUTHORITY.In

order to gather

such information, the Director shall have the power (A) to gather and compile information; (B) to require persons to file with the Agency, in such form and within such reasonable period of time as the Director may prescribe, by regulation or order, annual or special reports, or answers in writing to specific questions, furnishing information the Director may require; and (C) to make public such information obtained by it under this section as is in the public interest in reports or otherwise in the manner best suited for public information and use. (b) CONFIDENTIALITY REGULATIONS.The Director

26 shall prescribe regulations regarding the confidential

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77 1 treatment of information obtained from persons in connec2 tion with the exercise of any authority of the Agency or 3 Director under this title and the enumerated consumer 4 laws and the authorities transferred under subtitles F and 5 H. 6 (c) PRIVACY CONSIDERATIONS.In collecting infor-

7 mation from any person, publicly releasing information 8 held by the Agency, or requiring covered persons to pub9 licly report information, the Director and the Agency shall 10 take steps to ensure that proprietary, personal or con11 fidential consumer information that are protected from 12 public disclosure under section 552(b) or 552a of title 5, 13 United States Code, or any other provision of law are not 14 made public under this title. 15 16 17 18 19 20 21 22 23 24 25
SEC. 126. MONITORING; ASSESSMENTS OF SIGNIFICANT REGULATIONS; REPORTS.

(a) MONITORING. (1) IN

GENERAL.The

Agency shall monitor

for risks to consumers in the provision of consumer financial products or services, including developments in markets for such products or services. (2) MEANS
OF MONITORING.Such

monitoring

may be conducted by examinations of covered persons, analysis of reports obtained from covered persons, assessment of consumer complaints, surveys

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78 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and interviews of covered persons and consumers, and review of available databases. (3) CONSIDERATIONS.In allocating the resources of the Agency to perform the monitoring required by this section, the Director may consider, among other factors (A) likely risks and costs to consumers associated with buying or using a type of consumer financial product or service; (B) consumers understanding of the risks of a type of consumer financial product or service; (C) the state of the law that applies to the provision of a consumer financial product or service, including the extent to which the law is likely to adequately protect consumers; (D) rates of growth in the provision of a consumer financial product or service; (E) extent, if any, to which the risks of a consumer financial product or service may disproportionately affect traditionally underserved consumers, if any; or (F) types, number, and other pertinent characteristics of covered persons that provide the product or service.

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79 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (4) REPORTS.The Agency shall publish at least 1 report of significant findings of the monitoring required by paragraph (1) in each calendar year, beginning in the calendar year that is 1 year after the designated transfer date. (b) ASSESSMENT (1) IN
OF

SIGNIFICANT REGULATIONS. Agency shall conduct an

GENERAL.The

assessment of each significant regulation prescribed or order issued by the Director under this title, under the authorities transferred under subtitles F and H or pursuant to any enumerated consumer law that addresses, among other relevant factors, the effectiveness of the regulation in meeting the purposes and objectives of this Act and the specific goals stated by the Director. (2) BASIS
FOR ASSESSMENT.The

assessment

shall reflect available evidence and any data that the Agency reasonably may collect. (3) REPORTS.The Agency shall publish a report of an assessment under this subsection not later than 3 years after the effective date of the regulation or order, unless the Director determines that 3 years is not sufficient time to study or review the impact of the regulation, but in no event shall the Agency publish a report of such assessment more

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80 1 2 3 4 5 6 7 8 9 10 than 5 years after the effective date of the regulation or order. (4) PUBLIC
COMMENTED REQUIRED.Before

publishing a report of its assessment, the Agency shall invite, with sufficient time allotted, public comment on, and may hold public hearings on, recommendations for modifying, expanding, or eliminating the newly adopted significant regulation or order. (c) INFORMATION GATHERING.In conducting any

11 monitoring or assessment required by this section, the 12 Agency may gather information through a variety of meth13 ods, including by conducting surveys or interviews of con14 sumers. 15 16 17
SEC. 127. AUTHORITY TO RESTRICT MANDATORY

PREDISPUTE ARBITRATION.

(a) IN GENERAL.The Director, by regulation, may

18 prohibit or impose conditions or limitations on the use of 19 any agreement between a covered person and a consumer 20 for a consumer financial product or service providing for 21 arbitration of any future dispute between the parties if 22 the Director finds that such a prohibition or imposition 23 of conditions or limitations are in the public interest and 24 for the protection of consumers.

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81 1 (b) EFFECTIVE DATE.Notwithstanding any other

2 provision of law, any regulation prescribed by the Director 3 under subsection (a) shall apply, consistent with the terms 4 of the regulation, to any agreement between a consumer 5 and a covered person entered into after the end of the 6 180-day period beginning on the effective date of the regu7 lation, as established by the Director. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
SEC. 128. REGISTRATION AND SUPERVISION OF NONDEPOSITORY COVERED PERSONS.

(a) RISK-BASED PROGRAMS. (1) IN

GENERAL.The

Agency shall develop

risk-based programs to supervise covered persons that are not credit unions, depository institutions, or persons excluded under section 124 by prescribing registration requirements, reporting requirements, and examination standards and procedures. (2) BASIS
FOR PROGRAMS.The

risk-based su-

pervisory programs established pursuant to paragraph (1) shall be based on (A) relevant registration and reporting information about such covered persons, as determined by the Agency; and (B) the Agencys assessment of risks posed to consumers in the relevant geographic mar-

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82 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 kets and markets for consumer financial products and services. (b) REGISTRATION. (1) IN
GENERAL.The

Director shall prescribe

regulations regarding registration requirements for covered persons that are not credit unions or depository institutions. (2) CONSULTATION
WITH STATE AGENCIES.

In developing and implementing registration requirements under this subsection, the Agency shall consult with State agencies regarding requirements or systems for registration (including coordinated or combined systems), where appropriate. (3) EXCEPTION
FOR RELATED PERSONS.The

Agency shall not impose requirements regarding the registration of a related person. (4) REGISTRATION
INFORMATION.Subject

to

regulations prescribed by the Director, the Agency shall publicly disclose the registration information about a covered person which is not a bank holding company, credit union, or depository institution for the purposes of facilitating the ability of consumers to identify the covered person as registered with the Agency.

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83 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 (5) EXCLUSION
FOR SERVICE PROVIDERS.No

provision of this subsection shall apply to a covered person described in subparagraph (B) of section 101(8) (except to the extent that such person also acts in a capacity described in subparagraph (A) of such section). (c) REPORTING REQUIREMENTS. (1) IN
GENERAL.The

Agency may require re-

ports from covered persons that are not credit unions or depository institutions for the purposes of facilitating supervision of such covered persons. (2) CONSISTENCY
OF REPORTING REQUIRE-

MENTS AND RISK-BASED STANDARDS.The

Agency

shall impose reporting requirements under this subsection that are consistent with the risk-based standards developed and implemented under this section and the registration information pertaining to the relevant types or classes of covered persons. (3) CONTENTS
OF REPORTS.Reporting

re-

quirements imposed under this paragraph may include information regarding (A) the nature of the covered persons business;

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84 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) the covered persons name, legal form, ownership and management structure, and related persons; (C) the covered persons locations of operation; (D) the covered persons types and number of consumer financial products and services provided by the covered person; (E) compliance with any requirement imposed or enforced by the Agency, including any requirement relating to registration, licensing, fees, or assessments; and (F) the financial condition of such covered person, including a related person, for the purpose of assessing the ability of such person to perform its obligation to consumers. (4) EXCEPTION
FOR RELATED PERSONS.

Other than reports permitted under paragraph (3)(F) or in connection with a supervisory action or examination or pursuant to the powers granted in subtitle E, the Agency shall not impose requirements regarding reports of any related person. (d) EXAMINATIONS. (1) EXAMINATIONS
REQUIRED.The

Agency

shall conduct examinations of covered persons that

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85 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
ING

are not credit unions or depository institutions as part of the programs implemented under paragraphs (2) and (3) of section 122(c). (2) EXAMINATION
DURES.The STANDARDS AND PROCE-

Director shall establish risk-based

standards and procedures for conducting examinations of covered persons required to be examined under paragraph (1), including the frequency and scope of such examinations, except that the Agency shall conduct examinations of such covered persons that are determined to pose the highest risk to consumers based on factors determined by the Director, such as the operations, sales practices, or consumer financial products or services provided by such covered persons. (e) AUTHORITY TO COLLECT INFORMATION REGARDFEES
OR

ASSESSMENTS.To the extent permitted by

18 Federal law, the Agency may obtain from the Secretary 19 of the Treasury information relating to a covered person 20 which is not a bank holding company, credit union, or de21 pository institution, including information regarding com22 pliance with a reporting or registration requirement under 23 the subchapter II of chapter 53 of title 31, United States 24 Code, for the purposes of, and only to the extent necessary 25 in, investigating, determining, or enforcing compliance

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86 1 with a requirement relating to any fee or assessment im2 posed by the Agency under this title. 3 4
SEC. 129. EFFECTIVE DATE.

This subtitle shall take effect on the designated

5 transfer date. 6 7 8 9

Subtitle CSpecific Authorities

SEC. 131. PROHIBITING UNFAIR, DECEPTIVE, OR ABUSIVE ACTS OR PRACTICES.

(a) IN GENERAL.The Agency may take any action

10 authorized under subtitle E to prevent a person from com11 mitting or engaging in an unfair, deceptive, or abusive act 12 or practice under Federal law in connection with any 13 transaction with a consumer for a consumer financial 14 product or service, or the offering of a consumer financial 15 product or service. 16 17 18 19 20 21 22 23 24 (b) REGULATIONS. (1) IN
GENERAL.The

Director may prescribe

regulations identifying as unlawful unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service or the offering of a consumer financial product or service. (2) INCLUDES
PREVENTION MEASURES.Regu-

lations prescribed under this section may include re-

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87 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 quirements for the purpose of preventing such acts or practices. (c) UNFAIRNESS. (1) IN
GENERAL.The

Director and the Agen-

cy shall have no authority under this section to declare an act or practice in connection with a transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service, to be unlawful on the grounds that such act or practice is unfair unless the Agency has a reasonable basis to conclude that the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers and such substantial injury is not outweighed by countervailing benefits to consumers or to competition. (2) ESTABLISHED
TOR.In PUBLIC POLICY AS FAC-

determining whether an act or practice is

unfair, the Agency may consider established public policies as evidence to be considered with all other evidence. (d) CONSULTATION.In prescribing a regulation

23 under this section, the Director shall consult with the Fed24 eral banking agencies, State bank supervisors, or other 25 Federal agencies, as appropriate, concerning the consist-

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88 1 ency of the proposed regulation with prudential, market, 2 or systemic objectives administered by such agencies. 3 4
SEC. 132. DISCLOSURES.

(a) IN GENERAL.The Director may prescribe regu-

5 lations to ensure the timely, appropriate and effective dis6 closure to consumers of the costs, benefits, and risks asso7 ciated with any consumer financial product or service. 8 (b) COORDINATION WITH OTHER LAWS.In pre-

9 scribing regulations under subsection (a), the Director 10 shall take into account disclosure requirements under 11 other laws in order to enhance consumer compliance and 12 reduce regulatory burden. 13 14 15 16 17 18 19 20 21 22 23 24 (c) COMPLIANCE. (1) MODEL
DISCLOSURES.The

Agency may

provide model disclosures to facilitate compliance with the requirements of regulations prescribed under this section. (2) PER
SE COMPLIANCE.Compliance

by a

covered person with the model disclosures issued by the Agency under this subsection shall per se constitute compliance with the disclosure requirements of this section. (3) ADDITIONAL
GUIDANCE.The

Agency may

issue exemptions, no action letters, and other guid-

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89 1 2 3 ance to promote compliance with disclosures requirements of regulations prescribed under this section. (d) COMBINED MORTGAGE LOAN DISCLOSURE.

4 Within 1 year after the designated transfer date, the Di5 rector shall propose for public comment regulations and 6 model disclosures that combine the disclosures required 7 under the Truth in Lending Act and the Real Estate Set8 tlement Procedures Act into a single, integrated disclosure 9 for mortgage loan transactions covered by those laws, un10 less the Director determines that any proposal issued by 11 the Board of Governors and the Department of Housing 12 and Urban Development carries out the same purpose. 13 14
SEC. 133. SALES PRACTICES.

The Director may prescribe regulations and issue or-

15 ders and guidance regarding the manner, settings, and cir16 cumstances for the provision of any consumer financial 17 products or services to ensure that the risks, costs, and 18 benefits of the products or services, both initially and over 19 the term of the products or services, are fully and accu20 rately represented to consumers. 21 22
SEC. 134. PILOT DISCLOSURES.

(a) PILOT DISCLOSURES.The Agency shall estab-

23 lish standards and procedures for approval of pilot disclo24 sures to be provided or made available by a covered person 25 to consumers in connection with the provision of a con-

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90 1 sumer financial product or service, or the offering of a 2 consumer financial product or service. 3 (b) STANDARDS.The procedures shall provide that

4 a pilot disclosure must be limited in time and scope and 5 reasonably designed to contribute materially to the under6 standing of consumer awareness and understanding of, 7 and responses to, disclosures or communications about the 8 risks, costs, and benefits of consumer financial products 9 or services. 10 (c) TRANSPARENCY.The procedures shall provide

11 for public disclosure of pilots, but the Agency may limit 12 disclosure to the extent necessary to encourage covered 13 persons to conduct effective pilots. 14 (d) EXCLUSION
FOR

SERVICE PROVIDERS.No pro-

15 vision of this section shall apply to a covered person de16 scribed in subparagraph (B) of section 101(8) (except to 17 the extent that such person also acts in a capacity de18 scribed in subparagraph (A) of such section). 19 20 21 22
SEC. 135. ADOPTING OPERATIONAL STANDARDS TO DETER UNFAIR, TICES. DECEPTIVE, OR ABUSIVE PRAC-

(a) AUTHORITY TO PRESCRIBE STANDARDS.The

23 States are encouraged to prescribe standards applicable 24 to covered persons who are not insured depository institu25 tions or credit unions to deter and detect unfair, deceptive,

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91 1 abusive, fraudulent, or illegal transactions in the provision 2 of consumer financial products or services, including 3 standards for 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) background checks for principals, officers, directors, or key personnel of the covered person; (2) registration, licensing, or certification; (3) bond or other appropriate financial requirements to provide reasonable assurance of the ability of the covered person to perform its obligations to consumers; (4) creating and maintaining records of transactions or accounts; or (5) procedures and operations of the covered person relating to the provision of, or maintenance of accounts for, consumer financial products or services. (b) AGENCY AUTHORITY
ARDS. TO

PRESCRIBE STAND-

(1) IN

GENERAL.The

Director may prescribe

regulations establishing minimum standards under this section for any class of covered persons other than covered persons which are subject to the jurisdiction of a Federal banking agency or a State bank supervisor.

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92 1 2 3 4 5 6 7 8 9 10 11 12 (2) REGISTRATION
ARDS.In AND LICENSING STAND-

addition to prescribing standards for the

purposes described in subsection (a), the Director may prescribe registration or licensing standards for the purposes of imposing fees or assessments in accordance with this title. (3) ENFORCEMENT
OF STANDARDS.

The Di-

rector may enforce under subtitle E compliance with standards adopted by the Director or a State pursuant to this section for covered persons operating in that State. (c) CONSULTATION.In prescribing minimum stand-

13 ards under this section, the Director shall consult with the 14 State authorities, the Federal banking agencies, or other 15 Federal agencies, as appropriate, concerning the consist16 ency of the proposed regulation with prudential, market, 17 or systemic objectives administered by such State authori18 ties or such agencies. 19 (d) EXCLUSION
FOR

SERVICE PROVIDERS.No pro-

20 vision of this section shall apply to a covered person de21 scribed in subparagraph (B) of section 101(8) (except to 22 the extent that such person also acts in a capacity de23 scribed in subparagraph (A) of such section). 24 25
SEC. 136. DUTIES.

(a) IN GENERAL.

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93 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) REGULATIONS
ENSURING FAIR DEALING

WITH CONSUMERS.The

Director shall prescribe

regulations imposing duties on a covered person, or an employee of a covered person, or an agent or independent contractor for a covered person, who deals or communicates directly with consumers in the provision of a consumer financial product or service, as the Director deems appropriate or necessary to ensure fair dealing with consumers. (2) CONSIDERATIONS
FOR DUTIES.In

pre-

scribing such regulations, the Director shall consider whether (A) the covered person, employee, agent, or independent contractor represents implicitly or explicitly that the person, employee, agent, or contractor is acting in the interest of the consumer with respect to any aspect of the transaction; (B) the covered person, employee, agent, or independent contractor provides the consumer with advice with respect to any aspect of the transaction; (C) the consumers reliance on or use of any advice from the covered person, employee,

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94 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 agent, or independent contractor would be reasonable and justifiable under the circumstances; (D) the benefits to consumers of imposing a particular duty would outweigh the costs; and (E) any other factors as the Director considers appropriate. (3) DUTIES
PRACTICES. RELATING TO COMPENSATION

(A) IN

GENERAL.The

Director may pre-

scribe regulations establishing duties regarding compensation practices applicable to a covered person, employee, agent, or independent contractor who deals or communicates directly with a consumer in the provision of a consumer financial product or service for the purpose of promoting fair dealing with consumers. (B) NO
COMPENSATION CAPS.The

Direc-

tor may not prescribe a limit on the total dollar amount of compensation paid to any person. (b) ADMINISTRATIVE PROCEEDINGS. (1) IN
GENERAL.Any

regulation prescribed by

the Director under this section shall be enforceable only by the Agency through an adjudication proceeding under subtitle E or by a State regulator

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95 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 through an appropriate administrative proceeding as permitted under State law. (2) EXCLUSIVITY
OF REMEDY.No

action may

be commenced in any court to enforce any requirement of a regulation prescribed under this section, and no court may exercise supplemental jurisdiction over a claim asserted under a regulation prescribed under this section based on allegations or evidence of conduct that otherwise may be subject to such regulation. (3) RULE
OF CONSTRUCTION.The

Agency,

the Attorney General, and any State attorney general or State regulator shall not be precluded from enforcing any other Federal or State law against a person with respect to conduct that may be subject to a regulation prescribed by the Director under this section. (c) EXCLUSIONS.This section shall not be con-

19 strued as authorizing the Director to prescribe regulations 20 applicable to 21 22 23 24 (1) an attorney licensed to practice law and in compliance with the applicable rules and standards of professional conduct, but only to the extent that the consumer financial product or service provided is

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96 1 2 3 4 5 6 7 8 within the attorney-client relationship with the consumer; or (2) any trustee, custodian, or other person that holds a fiduciary duty in connection with a trust, including a fiduciary duty to a grantor or beneficiary of a trust, that is subject to and in compliance with the applicable law relating to such trust. (d) EXCLUSION
FOR

SERVICE PROVIDERS.In addi-

9 tion to the exclusions contained in subsection (c), no provi10 sion of this section shall apply to a covered person de11 scribed in subparagraph (B) of section 101(8) (except to 12 the extent that such person also acts in a capacity de13 scribed in subparagraph (A) of such section). 14 15
SEC. 137. CONSUMER RIGHTS TO ACCESS INFORMATION.

(a) IN GENERAL.Subject to regulations prescribed

16 by the Director, a covered person shall make available to 17 a consumer, in an electronic form usable by the consumer, 18 information in the control or possession of the covered per19 son concerning the consumer financial product or service 20 that the consumer obtained from such covered person in21 cluding information relating to any transaction, series of 22 transactions, or to the account including costs, charges 23 and usage data. 24 (b) EXCEPTIONS.A covered person shall not be re-

25 quired by this section to make available to the consumer

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97 1 2 3 4 5 6 7 8 9 10 11 12 13 14 (1) any confidential commercial information, including an algorithm used to derive credit scores or other risk scores or predictors; (2) any information collected by the covered person for the purpose of preventing fraud or money laundering, or detecting, or making any report regarding other unlawful or potentially unlawful conduct; (3) any information required to be kept confidential by any other law; or (4) any information that the covered person cannot retrieve in the ordinary course of its business with respect to that information. (c) NO DUTY TO MAINTAIN RECORDS.No provision

15 of this section shall be construed as imposing any duty 16 on a covered person to maintain or keep any information 17 about a consumer. 18 (d) STANDARDIZED FORMATS
FOR

DATA.The Di-

19 rector, by regulation, shall prescribe standards applicable 20 to covered persons to promote the development and use 21 of standardized formats for information, including 22 through the use of machine readable files, to be made 23 available to consumers under this section. 24 (e) CONSULTATION.The Director shall, when pre-

25 scribing any regulation under this section, consult with the

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98 1 Federal banking agencies, State bank supervisors, and the 2 Federal Trade Commission to ensure that the regula3 tions 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) impose substantively similar requirements on covered persons; (2) take into account conditions under which covered persons do business both in the United States and in other countries; and (3) do not require or promote the use of any particular technology in order to develop systems for compliance.
SEC. 138. PROHIBITED ACTS.

It shall be unlawful for any person (1) to advertise, market, offer, sell, enforce, or attempt to enforce, any term, agreement, change in terms, fee, or charge in connection with a consumer financial product or service that is not in conformity with this title or applicable regulation prescribed or order issued by the Director or to engage in any unfair, deceptive, or abusive act or practice; (2) to fail or refuse to pay any fee or assessment imposed by the Agency under this title, to fail or refuse to permit access to or copying of records, to fail or refuse to establish or maintain records, or to fail or refuse to make reports or provide informa-

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99 1 2 3 4 5 6 7 8 9 10 11 12 13 14 tion to the Agency, as required by this title, an enumerated consumer law, or pursuant to the authorities transferred by subtitles F and H, or any regulation prescribed or order issued by the Director this title or pursuant to any such authority; or (3) to knowingly or recklessly provide substantial assistance to another person in violation of the provisions of section 131, or any regulation prescribed or order issued under such section, and any such person shall be deemed to be in violation of that section to the same extent as the person to whom such assistance is provided.
SEC. 139. EFFECTIVE DATE.

This subtitle shall take effect on the designated

15 transfer date. 16 17 18 19 20 21 22 23 24 25

Subtitle DPreservation of State Law

SEC. 141. RELATION TO STATE LAW.

(a) IN GENERAL. (1) RULE

OF CONSTRUCTION.This

title shall

not be construed as annulling, altering, or affecting, or exempting any person subject to the provisions of this title from complying with, the laws, regulations, orders, or interpretations, in effect in any State, except to the extent that such statute, regulation,

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100 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 order, or interpretation is inconsistent with the provisions of this title and then only to the extent of the inconsistency. (2) GREATER
PROTECTION UNDER STATE

LAW.For

the purposes of this subsection, a stat-

ute, regulation, order, or interpretation in effect in any State is not inconsistent with the provisions of this title if the protection such statute, regulation, order, or interpretation affords consumers is greater than the protection provided under this title. A determination regarding whether a statute, regulation, order, or interpretation in effect in any State is inconsistent with the provisions of this title may be made by the Agency on its own motion or in response to a nonfrivolous petition initiated by any interested person. (b) RELATION
ATED TO

OTHER PROVISIONS
TO

OF

ENUMER-

CONSUMER LAWS THAT RELATE

STATE LAW.

19 No provision of this title, except as provided in section 20 175, shall be construed as modifying, limiting, or super21 seding the operation of any provision of an enumerated 22 consumer law that relates to the application of a law in 23 effect in any State with respect to such Federal law.

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101 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
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SEC. 142. PRESERVATION OF ENFORCEMENT POWERS OF STATES.

(a) IN GENERAL. (1) ACTION

BY STATE.Any

State attorney

general may bring a civil action in the name of such State, as parens patriae on behalf of natural persons residing in such State, in any district court of the United States or State court having jurisdiction of the defendant, to secure monetary or equitable relief for violation of any provisions of this title or regulations issued thereunder. (2) RULE
OF CONSTRUCTION.No

provision of

this title shall be construed as modifying, limiting, or superseding the operation of any provision of an enumerated consumer law that relates to the authority of a State attorney general or State regulator to enforce such Federal law. (b) CONSULTATION REQUIRED. (1) NOTICE. (A) IN
GENERAL.Before

initiating any

action in a court or other administrative or regulatory proceeding against any covered person to enforce any provision of this title, including any regulation prescribed by the Director under this title, a State attorney general or State regulator shall timely provide a copy of the com(449871|9)

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102 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 plete complaint to be filed and written notice describing such action or proceeding to the Agency, or the Agencys designee. (B) EMERGENCY
ACTION.If

prior notice

is not practicable, the State attorney general or State regulator shall provide a copy of the complete complaint and the notice to the Agency immediately upon instituting the action or proceeding. (C) CONTENTS
OF NOTICE.The

notifica-

tion required under this section shall, at a minimum, describe (i) the identity of the parties; (ii) the alleged facts underlying the proceeding; and (iii) whether there may be a need to coordinate the prosecution of the proceeding so as not to interfere with any action, including any rulemaking, undertaken by the Director or Agency or another Federal agency. (2) AGENCY
RESPONSE.In

any action de-

scribed in paragraph (1), the Agency may (A) intervene in the action as a party; (B) upon intervening

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103 1 2 3 4 5 6 7 8 9 10 (i) remove the action to the appropriate United States district court, if the action was not originally brought there; and (ii) be heard on all matters arising in the action; and (C) appeal any order or judgment to the same extent as any other party in the proceeding may. (c) REGULATIONS.The Director shall prescribe reg-

11 ulations to implement the requirements of this section 12 and, from time to time, provide guidance in order to fur13 ther coordinate actions with the State attorneys general 14 and other regulators. 15 (d) PRESERVATION
OF

STATE CLAIMS.Nothing in

16 this section shall be construed as limiting the authority 17 of a State attorney general or State regulator to bring an 18 action or other regulatory proceeding arising solely under 19 the law of that State. 20 21 22 23
SEC. 143. STATE LAW PREEMPTION STANDARDS FOR NATIONAL BANKS AND SUBSIDIARIES CLARIFIED.

(a) IN GENERAL.Chapter one of title LXII of the

24 Revised Statutes of the United States (12 U.S.C. 21 et

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104 1 seq.) is amended by inserting after section 5136B the fol2 lowing new section: 3 4 5 6
SEC. 5136C. STATE LAW PREEMPTION STANDARDS FOR NATIONAL BANKS AND SUBSIDIARIES CLARIFIED.

(a) DEFINITIONS.For purposes of this section, the

7 following definitions shall apply: 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and (D) any Federal branch established in accordance with the International Banking Act of 1978. (2) OTHER
DEFINITIONS.The

(1) NATIONAL bank includes

BANK.The

term national

(A) any bank organized under the laws of the United States; (B) any affiliate of a national bank; (C) any subsidiary of a national bank;

terms affil-

iate, subsidiary, includes, and including have the same meaning as in section 3 of the Federal Deposit Insurance Act. (3) STATE
CONSUMER LAW.The

term State

consumer law means any law of a State that (A) accords rights to or protects the rights of its citizens in financial transactions

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105 1 2 3 4 5 6 7 8 concerning negotiation, sales, solicitation, disclosure, terms and conditions, advice, and remedies; or (B) prevents counterparties, successors, and assigns of financial contracts from engaging in unfair or deceptive acts and practices. (b) STATE CONSUMER LAWS
CATION.Notwithstanding OF

GENERAL APPLI-

any other provision of Federal

9 law and except as provided in subsection (d), any con10 sumer protection provision in State consumer laws of gen11 eral application, including any law relating to unfair or 12 deceptive acts or practices, any consumer fraud law and 13 repossession, foreclosure, and collection law, shall apply to 14 any national bank. 15 (c) STATE BANKING LAWS ENACTED PURSUANT
TO

16 FEDERAL LAW.Notwithstanding any other provision of 17 Federal law and except as provided in subsection (d), any 18 State consumer law that 19 20 21 22 23 24 (1) is applicable to State banks; and (2) was enacted pursuant to or in accordance with, and is not inconsistent with, an Act of Congress, including the Gramm-Leach-Bliley Act, the Consumer Credit Protection Act, and the Real Estate Settlement Procedures Act, that explicitly or by

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106 1 2 implication, permits States to exceed or supplement the requirements of any comparable Federal law,

3 shall apply to any national bank. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 (d) EXCEPTIONS. (1) IN

GENERAL.Subsections

(b) and (c)

shall not apply with respect to any State consumer law if (A) the State consumer law discriminates against national banks; or (B) the State consumer law is inconsistent with provisions of Federal law other than this title, but only to the extent of the inconsistency (as determined in accordance with the provision of the other Federal law). (2) RULE
ENCY.For FOR DETERMINING INCONSIST-

purposes of paragraph (1)(B), a State

consumer law is not inconsistent with Federal law if the protection the State consumer law affords consumers is greater than the protection provided under Federal law as determined by the Director. (e) NO NEGATIVE IMPLICATIONS
BILITY OF FOR

APPLICA-

OTHER STATE LAWS.No provision of this

23 section shall be construed as altering or affecting the ap24 plicability, to national banks, of any State law which is 25 not described in this section.

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107 1 (f) EFFECT

OF

TRANSFER

OF

TRANSACTION.

2 State consumer law applicable to a transaction at the in3 ception of the transaction may not be preempted under 4 Federal law solely because a national bank subsequently 5 acquires the asset or instrument that is the subject of the 6 transaction. 7 8 (g) DENIAL
OF A OF

PREEMPTION NOT

DEPRIVATION

CIVIL RIGHT.The preemption of any provision of

9 the law of any State with respect to any national bank 10 shall not be treated as a right, privilege, or immunity for 11 purposes of section 1979 of the Revised Statutes of the 12 United States (42 U.S.C. 1983).. 13 (b) CLERICAL AMENDMENT.The table of sections

14 for chapter one of title LXII of the Revised Statutes of 15 the United States is amended by inserting after the item 16 relating to section 5136B the following new item:
5136C. State law preemption standards for national banks and subsidiaries clarified..

17 18

SEC. 144. VISITORIAL STANDARDS.

Section 5136C of the Revised Statutes of the United

19 States (as added by section 143) is amended by adding 20 at the end the following new subsections: 21 22 23 24 (h) VISITORIAL POWERS. (1) RULE
OF CONSTRUCTION.No

provision

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108 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 tion, or regulatory authority to which any national bank is subject shall be construed as limiting or restricting the authority of any attorney general (or other chief law enforcement officer) of any State to bring any action in any court of appropriate jurisdiction (A) to require a national bank to produce records relative to the investigation of violations of State consumer law, or Federal consumer laws; (B) to enforce any applicable Federal or State law, as authorized by such law; or (C) on behalf of residents of such State, to enforce any applicable provision of any Federal or State law against a national bank, as authorized by such law, or to seek relief and recover damages for such residents from any violation of any such law by any national bank. (2) CONSULTATION.The attorney general (or other chief law enforcement officer) of any State shall consult with the head of the agency responsible for chartering and regulating national banks before acting under paragraph (1). (i) ENFORCEMENT ACTIONS.The ability of the

25 head of the agency responsible for chartering and regu-

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109 1 lating national banks to bring an enforcement action 2 under this title or section 5 of the Federal Trade Commis3 sion Act shall not be construed as precluding private par4 ties from enforcing rights granted under Federal or State 5 law in the courts.. 6 7 8
SEC. 145. CLARIFICATION OF LAW APPLICABLE TO NONDEPOSITORY INSTITUTION SUBSIDIARIES.

Section 5136C of the Revised Statutes of the United

9 States is amended by inserting after subsection (i) (as 10 added by section 144) the following new subsection: 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (j) CLARIFICATION
DEPOSITORY ATES OF OF

LAW APPLICABLE
AND

TO

NON-

INSTITUTION SUBSIDIARIES

AFFILI-

NATIONAL BANKS. (1) DEFINITIONS.For purposes of this sec-

tion, the following definitions shall apply: (A) DEPOSITORY

INSTITUTION, SUB-

SIDIARY, AFFILIATE.The

terms depository in-

stitution, subsidiary, and affiliate have the same meanings as in section 3 of the Federal Deposit Insurance Act. (B) NONDEPOSITORY
INSTITUTION.The

term nondepository institution means any entity that is not a depository institution. (2) IN
GENERAL.No

provision of this title

shall be construed as annulling, altering, or affecting

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110 1 2 3 4 5 6 7 the applicability of State law to any nondepository institution, subsidiary, other affiliate, or agent of a national bank..
SEC. 146. STATE LAW PREEMPTION STANDARDS FOR FEDERAL SAVINGS ASSOCIATIONS AND SUBSIDIARIES CLARIFIED.

(a) IN GENERAL.The Home Owners Loan Act (12

8 U.S.C. 1461 et seq.) is amended by inserting after section 9 5 the following new section: 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
SEC. 6. STATE LAW PREEMPTION STANDARDS FOR FEDERAL SAVINGS ASSOCIATIONS CLARIFIED.

(a) DEFINITION.For purposes of this section (1) the terms includes and including have the same meaning as in section 3(t) of the Federal Deposit Insurance Act. (2) the term State consumer law means any law of a State that: (A) accords rights to or protects the rights of its citizens in financial transactions concerning negotiation, sales, solicitation, disclosure, terms and conditions, advice, and remedies; or (B) prevents counterparties, successors, and assigns of financial contracts from engaging in unfair or deceptive acts and practices.

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111 1 2 (b) STATE CONSUMER LAWS

CATION.Notwithstanding OF

GENERAL APPLI-

any other provision of Federal

3 law and except as provided in subsection (c), any con4 sumer protection provision in State consumer laws of gen5 eral application, including any law relating to unfair or 6 deceptive acts or practices, any consumer fraud law and 7 repossession, foreclosure, and collection law, shall apply to 8 any Federal savings association. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (c) EXCEPTIONS. (1) IN
GENERAL.Subsection

(b) shall not

apply with respect to any State law if (A) the State law discriminates against Federal savings associations; or (B) the State consumer law is inconsistent with provisions of Federal law other than this Act, but only to the extent of the inconsistency (as determined in accordance with the provision of the other Federal law). (2) RULE
ENCY.For FOR DETERMINING INCONSIST-

purposes of paragraph (1)(B), a State

consumer law is not inconsistent with Federal law if the protection the State consumer law affords consumers is greater than the protection provided under Federal law, as determined by the Director.

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112 1 (d) STATE BANKING

OR

THRIFT LAWS ENACTED

2 PURSUANT TO FEDERAL LAW. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) IN

GENERAL.Notwithstanding

any other

provision of Federal law and except as provided in paragraph (2), any State law that (A) is applicable to State savings associations (as defined in section 3 of the Federal Deposit Insurance Act); and (B) was enacted pursuant to or in accordance with, and is not inconsistent with, an Act of Congress, including the Gramm-Leach-Bliley Act, the Consumer Credit Protection Act, and the Real Estate Settlement Procedures Act, that explicitly or by implication, permits States to exceed or supplement the requirements of any comparable Federal law, shall apply to any Federal savings association. (2) EXCEPTIONS.Paragraph (1) shall not apply with respect to any State law if (A) the State law discriminates against Federal savings associations; or (B) the State consumer law is inconsistent with provisions of Federal law other than this Act, but only to the extent of the inconsistency (as determined in accordance with

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113 1 2 3 4 5 6 7 8 the provision of the other Federal law). For this purpose, a State consumer law is not inconsistent with Federal law if the protection the State consumer law affords consumers is greater than the protection provided under Federal law, as determined by the Director. (e) NO NEGATIVE IMPLICATIONS
BILITY OF FOR

APPLICA-

OTHER STATE LAWS.No provision of this

9 section shall be construed as altering or affecting the ap10 plicability, to Federal savings associations, of any State 11 law which is not described in this section. 12 (f) EFFECT
OF

TRANSFER

OF

TRANSACTION.

13 State consumer law applicable to a transaction at the in14 ception of the transaction may not be preempted under 15 Federal law solely because a Federal savings association 16 subsequently acquires the asset or instrument that is the 17 subject of the transaction. 18 19 (g) DENIAL
OF A OF

PREEMPTION NOT

DEPRIVATION

CIVIL RIGHT.The preemption of any provision of

20 the law of any State with respect to any Federal savings 21 association shall not be treated as a right, privilege, or 22 immunity for purposes of section 1979 of the Revised 23 Statutes of the United States (42 U.S.C. 1983).. 24 (b) CLERICAL AMENDMENT.The table of sections

25 for the Home Owners Loan Act (12 U.S.C. 1461 et seq.)

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114 1 is amended by striking the item relating to section 6 and 2 inserting the following new item:
6. State law preemption standards for Federal savings associations and subsidiaries clarified..

3 4

SEC. 147. VISITORIAL STANDARDS.

Section 6 of the Home Owners Loan Act (as added

5 by section 146 of this title) is amended by adding at the 6 end the following new subsections: 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 (h) VISITORIAL POWERS. (1) IN
GENERAL.No

provision of this Act

shall be construed as limiting or restricting the authority of any attorney general (or other chief law enforcement officer) of any State to bring any action in any court of appropriate jurisdiction (A) to require a Federal savings association to produce records relative to the investigation of violations of State consumer law, or Federal consumer laws; (B) to enforce any applicable Federal or State law, as authorized by such law; or (C) on behalf of residents of such State, to enforce any applicable provision of any Federal or State law against a Federal savings association, as authorized by such law, or to seek relief and recover damages for such residents

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115 1 2 3 4 5 6 7 from any violation of any such law by any Federal savings association. (2) CONSULTATION.The attorney general (or other chief law enforcement officer) of any State shall consult with the Director or any successor agency before acting under paragraph (1). (i) ENFORCEMENT ACTIONS.The ability of the Di-

8 rector or any successor officer or agency to bring an en9 forcement action under this Act or section 5 of the Federal 10 Trade Commission Act shall not be construed as pre11 cluding private parties from enforcing rights granted 12 under Federal or State law in the courts.. 13 14 15
SEC. 148. CLARIFICATION OF LAW APPLICABLE TO NONDEPOSITORY INSTITUTION SUBSIDIARIES.

Section 6 of the Home Owners Loan Act is amended

16 by adding after subsection (i) (as added by section 147) 17 the following new subsection: 18 19 20 21 22 23 24 25 (j) CLARIFICATION
DEPOSITORY ATES OF OF

LAW APPLICABLE
AND

TO

NON-

INSTITUTION SUBSIDIARIES

AFFILI-

FEDERAL SAVINGS ASSOCIATIONS. (1) DEFINITIONS.For purposes of this sec-

tion, the following definitions shall apply: (A) DEPOSITORY

INSTITUTION, SUB-

SIDIARY, AFFILIATE.The

terms depository in-

stitution, subsidiary, and affiliate have the

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116 1 2 3 4 5 6 7 8 9 10 11 12 same meanings as in section 3 of the Federal Deposit Insurance Act. (B) NONDEPOSITORY
INSTITUTION.The

term nondepository institution means any entity that is not a depository institution. (2) IN
GENERAL.No

provision of this title

shall be construed as preempting the applicability of State law to any nondepository institution, subsidiary, other affiliate, or agent of a Federal savings association..
SEC. 149. EFFECTIVE DATE.

This subtitle shall take effect on the designated

13 transfer date. 14 15 16

Subtitle EEnforcement Powers

SEC. 151. DEFINITIONS.

For purposes of this subtitle, the following definitions

17 shall apply: 18 19 20 21 22 23 24 25 (1) CIVIL

MAND.The INVESTIGATIVE DEMAND AND DE-

terms civil investigative demand and

demand mean any demand issued by the Agency. (2) AGENCY

INVESTIGATION.The

term

Agency investigation means any inquiry conducted by an Agency investigator for the purpose of ascertaining whether any person is or has been engaged in any conduct that violates this title, any

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117 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 enumerated consumer law, or any regulation prescribed or order issued by the Director under this title or under the authorities transferred under subtitles F and H. (3) AGENCY
INVESTIGATOR.The

term Agen-

cy investigator means any attorney or investigator employed by the Agency who is charged with the duty of enforcing or carrying into effect any provisions of this title, any enumerated consumer law, the authorities transferred under subtitles F and H, or any regulation prescribed or order issued under this title or pursuant to any such authority by the Director. (4) CUSTODIAN.The term custodian means the custodian or any deputy custodian designated by the Agency. (5) DOCUMENTARY
MATERIAL.The

term

documentary material includes the original or any copy of any book, document, record, report, memorandum, paper, communication, tabulation, chart, log, electronic file, or other data or data compilations stored in any medium. (6) VIOLATION.The term violation means any act or omission that, if proved, would constitute a violation of any provision of this title, any enumer-

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118 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ated consumer law, any law for which authorities were transferred under subtitles F and H, or of any regulation prescribed or order issued by the Director under this title or pursuant to any such authority.
SEC. 152. INVESTIGATIONS AND ADMINISTRATIVE DISCOVERY.

(a) JOINT INVESTIGATIONS. (1) IN

GENERAL.The

Agency or, where ap-

propriate, an Agency representative may engage in joint investigations and requests for information. (2) FAIR
LENDING.The

authority under para-

graph (1) includes matters relating to fair lending, and where appropriate, joint investigations and requests for information with the Secretary of Housing and Urban Development, the Attorney General, or both. (b) SUBPOENAS. (1) IN
GENERAL.The

Agency or an Agency

investigator may issue subpoenas for the attendance and testimony of witnesses and the production of relevant papers, books, documents, or other material in connection with hearings under this title. (2) FAILURE
TO OBEY.In

case of contumacy

or refusal to obey a subpoena issued pursuant to this paragraph and served upon any person, the dis-

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119 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 trict court of the United States for any district in which such person is found, resides, or transacts business, upon application by the Agency or an Agency investigator and after notice to such person, shall have jurisdiction to issue an order requiring such person to appear and give testimony or to appear and produce documents or other material, or both. (3) CONTEMPT.Any failure to obey an order of the court under this subsection may be punished by the court as a contempt thereof. (c) DEMANDS. (1) IN
GENERAL.Whenever

the Agency has

reason to believe that any person may be in possession, custody, or control of any documentary material or tangible things, or may have any information, relevant to a violation, the Agency may, before the institution of any proceedings under this title or under any enumerated consumer law or pursuant to the authorities transferred under subtitles F and H, issue in writing, and cause to be served upon such person, a civil investigative demand requiring such person to

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120 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (A) produce such documentary material for inspection and copying or reproduction in the form or medium requested by the Agency; (B) submit such tangible things; (C) file written reports or answers to questions; (D) give oral testimony concerning documentary material or other information; or (E) furnish any combination of such material, answers, or testimony. (2) REQUIREMENTS.Each civil investigative demand shall state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation. (3) PRODUCTION
OF DOCUMENTS.Each

civil

investigative demand for the production of documentary material shall (A) describe each class of documentary material to be produced under the demand with such definiteness and certainty as to permit such material to be fairly identified; (B) prescribe a return date or dates which will provide a reasonable period of time within which the material so demanded may be assem-

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121 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 bled and made available for inspection and copying or reproduction; and (C) identify the custodian to whom such material shall be made available. (4) PRODUCTION
OF THINGS.Each

civil inves-

tigative demand for the submission of tangible things shall (A) describe each class of tangible things to be submitted under the demand with such definiteness and certainty as to permit such things to be fairly identified; (B) prescribe a return date or dates which will provide a reasonable period of time within which the things so demanded may be assembled and submitted; and (C) identify the custodian to whom such things shall be submitted. (5) DEMAND
SWERS.Each FOR WRITTEN REPORTS OR AN-

civil investigative demand for written

reports or answers to questions shall (A) propound with definiteness and certainty the reports to be produced or the questions to be answered;

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122 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) prescribe a date or dates at which time written reports or answers to questions shall be submitted; and (C) identify the custodian to whom such reports or answers shall be submitted. (6) ORAL
TESTIMONY.Each

civil investigative

demand for the giving of oral testimony shall (A) prescribe a date, time, and place at which oral testimony shall be commenced; and (B) identify a Agency investigator who shall conduct the investigation and the custodian to whom the transcript of such investigation shall be submitted. (7) SERVICE. (A) Any civil investigative demand may be served by any Agency investigator at any place within the territorial jurisdiction of any court of the United States. (B) Any such demand or any enforcement petition filed under this section may be served upon any person who is not found within the territorial jurisdiction of any court of the United States, in such manner as the Federal Rules of Civil Procedure prescribe for service in a foreign nation.

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123 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (C) To the extent that the courts of the United States have authority to assert jurisdiction over such person consistent with due process, the United States District Court for the District of Columbia shall have the same jurisdiction to take any action respecting compliance with this section by such person that such district court would have if such person were personally within the jurisdiction of such district court. (8) METHOD
OF SERVICE.Service

of any civil

investigative demand or any enforcement petition filed under this section may be made upon a person, including any legal entity, by (A) delivering a duly executed copy of such demand or petition to the individual or to any partner, executive officer, managing agent, or general agent of such person, or to any agent of such person authorized by appointment or by law to receive service of process on behalf of such person; (B) delivering a duly executed copy of such demand or petition to the principal office or place of business of the person to be served; or

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124 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (C) depositing a duly executed copy in the United States mails, by registered or certified mail, return receipt requested, duly addressed to such person at its principal office or place of business. (9) PROOF
OF SERVICE.

(A) A verified return by the individual serving any civil investigative demand or any enforcement petition filed under this section setting forth the manner of such service shall be proof of such service. (B) In the case of service by registered or certified mail, such return shall be accompanied by the return post office receipt of delivery of such demand or enforcement petition. (10) PRODUCTION
RIAL.The OF DOCUMENTARY MATE-

production of documentary material in

response to a civil investigative demand shall be made under a sworn certificate, in such form as the demand designates, by the person, if a natural person, to whom the demand is directed or, if not a natural person, by any person having knowledge of the facts and circumstances relating to such production, to the effect that all of the documentary material required by the demand and in the possession,

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125 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 custody, or control of the person to whom the demand is directed has been produced and made available to the custodian. (11) SUBMISSION
OF TANGIBLE THINGS.The

submission of tangible things in response to a civil investigative demand shall be made under a sworn certificate, in such form as the demand designates, by the person to whom the demand is directed or, if not a natural person, by any person having knowledge of the facts and circumstances relating to such production, to the effect that all of the tangible things required by the demand and in the possession, custody, or control of the person to whom the demand is directed have been submitted to the custodian. (12) SEPARATE
ANSWERS.Each

reporting re-

quirement or question in a civil investigative demand shall be answered separately and fully in writing under oath, unless it is objected to, in which event the reasons for the objection shall be stated in lieu of an answer, and it shall be submitted under a sworn certificate, in such form as the demand designates, by the person, if a natural person, to whom the demand is directed or, if not a natural person, by any person responsible for answering each report-

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126 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ing requirement or question, to the effect that all information required by the demand and in the possession, custody, control, or knowledge of the person to whom the demand is directed has been submitted. (13) TESTIMONY. (A) PROCEDURE. (i) OATH
AND RECORDATION.Any

Agency investigator before whom oral testimony is to be taken shall put the witness on oath or affirmation and shall personally, or by any individual acting under the direction of and in the presence of the investigator, record the testimony of the witness. (ii) TRANSCRIPTIONS.The testimony shall be taken stenographically and transcribed. (iii) COPY
TO CUSTODIAN.After

the

testimony is fully transcribed, the Agency investigator before whom the testimony is taken shall promptly transmit a copy of the transcript of the testimony to the custodian. (B) PARTIES
PRESENT.Any

Agency in-

vestigator before whom oral testimony is to be

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127 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 taken shall exclude from the place where the testimony is to be taken all other persons except the person giving the testimony, the attorney for such person, the officer before whom the testimony is to be taken, an investigator or representative of an agency with which the Agency is engaged in a joint investigation, and any stenographer taking such testimony. (C) LOCATION.The oral testimony of any person taken pursuant to a civil investigative demand shall be taken in the judicial district of the United States in which such person resides, is found, or transacts business, or in such other place as may be agreed upon by the Agency investigator before whom the oral testimony of such person is to be taken and such person. (D) ATTORNEY (i) IN
REPRESENTATION.

GENERAL.Any

person com-

pelled to appear under a civil investigative demand for oral testimony pursuant to this section may be accompanied, represented, and advised by an attorney. (ii) CONFIDENTIAL
ADVICE.The

at-

torney may advise the person summoned, in confidence, either upon the request of

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128 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 such person or upon the initiative of the attorney, with respect to any question asked of such person. (iii) OBJECTIONS.The person summoned or the attorney may object on the record to any question, in whole or in part, and shall briefly state for the record the reason for the objection. (iv) REFUSAL
TO ANSWER.An

objec-

tion may properly be made, received, and entered upon the record when it is claimed that the person summoned is entitled to refuse to answer the question on grounds of any constitutional or other legal right or privilege, including the privilege against self-incrimination, but such person shall not otherwise object to or refuse to answer any question, and shall not otherwise interrupt the oral examination, directly or through such persons attorney. (v) PETITION
FOR ORDER.If

such

person refuses to answer any question, the Agency may petition the district court of the United States pursuant to this section

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129 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 for an order compelling such person to answer such question. (vi) BASIS
MONY.If FOR COMPELLING TESTI-

such person refuses to answer

any question on grounds of the privilege against self-incrimination, the testimony of such person may be compelled in accordance with the provisions of section 6004 of title 18, United States Code. (E) TRANSCRIPTS. (i) RIGHT
TO EXAMINE.After

the

testimony of any witness is fully transcribed, the Agency investigator shall afford the witness (who may be accompanied by an attorney) a reasonable opportunity to examine the transcript. (ii) READING
THE TRANSCRIPT.The

transcript shall be read to or by the witness, unless such examination and reading are waived by the witness. (iii) REQUEST
FOR CHANGES.Any

changes in form or substance which the witness desires to make shall be entered and identified upon the transcript by the Agency investigator with a statement of

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130 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the reasons given by the witness for making such changes. (iv) SIGNATURE.The transcript

shall be signed by the witness, unless the witness in writing waives the signing, is ill, cannot be found, or refuses to sign. (v) AGENCY
NATURE.If ACTION IN LIEU OF SIG-

the transcript is not signed

by the witness during the 30-day period following the date upon which the witness is first afforded a reasonable opportunity to examine it, the Agency investigator shall sign the transcript and state on the record the fact of the waiver, illness, absence of the witness, or the refusal to sign, together with any reasons given for the failure to sign. (F) CERTIFICATION
BY INVESTIGATOR.

The Agency investigator shall certify on the transcript that the witness was duly sworn by the investigator and that the transcript is a true record of the testimony given by the witness, and the Agency investigator shall promptly deliver the transcript or send it by registered or certified mail to the custodian.

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131 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (G) COPY

OF TRANSCRIPT.The

Agency

investigator shall furnish a copy of the transcript (upon payment of reasonable charges for the transcript) to the witness only, except that the Agency may for good cause limit such witness to inspection of the official transcript of the testimony of such witness. (H) WITNESS
FEES.Any

witness appear-

ing for the taking of oral testimony pursuant to a civil investigative demand shall be entitled to the same fees and mileage which are paid to witnesses in the district courts of the United States. (d) CONFIDENTIAL TREATMENT
RIAL. OF

DEMAND MATE-

(1) IN

GENERAL.Materials

received as a re-

sult of a civil investigative demand shall be subject to requirements and procedures regarding confidentiality, in accordance with regulations established by the Director. (2) DISCLOSURE
TO CONGRESS.No

regulation

established by the Director regarding the confidentiality of materials submitted to, or otherwise obtained by, the Agency shall be intended to prevent disclosure to either House of the Congress or to an

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132 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 appropriate committee of the Congress, except that the Director may prescribe regulations allowing prior notice to any party that owns or otherwise provided the material to the Agency and has designated such material as confidential. (e) PETITION FOR ENFORCEMENT. (1) IN
GENERAL.Whenever

any person fails

to comply with any civil investigative demand duly served upon such person under this section, or whenever satisfactory copying or reproduction of material requested pursuant to the demand cannot be accomplished and such person refuses to surrender such material, the Agency, through such officers or attorneys as the Director may designate, may file, in the district court of the United States for any judicial district in which such person resides, is found, or transacts business, and serve upon such person, a petition for an order of such court for the enforcement of this section. (2) SERVICE
OF PROCESS.All

process of any

court to which application may be made as provided in this subsection may be served in any judicial district. (f) PETITION
FOR

ORDER MODIFYING

OR

SETTING

25 ASIDE DEMAND.

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133 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) IN
GENERAL.Not

later than 20 days after

the service of any civil investigative demand upon any person under subsection (b), or at any time before the return date specified in the demand, whichever period is shorter, or within such period exceeding 20 days after service or in excess of such return date as may be prescribed in writing, subsequent to service, by any Agency investigator named in the demand, such person may file with the Agency a petition for an order by the Agency modifying or setting aside the demand. (2) COMPLIANCE
DURING PENDENCY.The

time permitted for compliance with the demand in whole or in part, as deemed proper and ordered by the Agency, shall not run during the pendency of such petition at the Agency, except that such person shall comply with any portions of the demand not sought to be modified or set aside. (3) SPECIFIC
GROUNDS.Such

petition shall

specify each ground upon which the petitioner relies in seeking such relief, and may be based upon any failure of the demand to comply with the provisions of this section, or upon any constitutional or other legal right or privilege of such person.

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134 1 (g) CUSTODIAL CONTROL.At any time during

2 which any custodian is in custody or control of any docu3 mentary material, tangible things, reports, answers to 4 questions, or transcripts of oral testimony given by any 5 person in compliance with any civil investigative demand, 6 such person may file, in the district court of the United 7 States for the judicial district within which the office of 8 such custodian is situated, and serve upon such custodian, 9 a petition for an order of such court requiring the per10 formance by such custodian of any duty imposed upon 11 such custodian by this section or regulation prescribed by 12 the Director. 13 14 15 16 17 18 19 20 21 22 23 24 (h) JURISDICTION OF COURT. (1) IN
GENERAL.Whenever

any petition is

filed in any district court of the United States under this section, such court shall have jurisdiction to hear and determine the matter so presented, and to enter such order or orders as may be required to carry into effect the provisions of this section. (2) APPEAL.Any final order so entered shall be subject to appeal pursuant to section 1291 of title 28, United States Code.
SEC. 153. HEARINGS AND ADJUDICATION PROCEEDINGS.

(a) IN GENERAL.The Agency may conduct hear-

25 ings and adjudication proceedings with respect to any per-

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135 1 son in the manner prescribed by chapter 5 of title 5, 2 United States Code in order to ensure or enforce compli3 ance with 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) the provisions of this title, including any regulations prescribed by the Director under this title; and (2) any other Federal law that the Agency is authorized to enforce, including an enumerated consumer law, and any regulations or order prescribed thereunder, unless such Federal law specifically limits the Agency from conducting a hearing or adjudication proceeding and only to the extent of such limitation. (b) SPECIAL RULES
CEEDINGS. FOR

CEASE-AND-DESIST PRO-

(1) ISSUANCE. (A) NOTICE

OF CHARGES.If,

in the opin-

ion of the Agency, any covered person is engaging or has engaged in an activity that violates a law, regulation, or any condition imposed in writing on the person by the Agency, the Agency may issue and serve upon the person a notice of charges with respect to such violation. (B) CONTENTS
OF NOTICE.The

notice

shall contain a statement of the facts consti-

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136 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 tuting any alleged violation and shall fix a time and place at which a hearing will be held to determine whether an order to cease-and-desist there from should issue against the person. (C) TIME
OF HEARING.A

hearing under

this subsection shall be fixed for a date not earlier than 30 days nor later than 60 days after service of such notice unless an earlier or a later date is set by the Agency at the request of any party so served. (D) NONAPPEARANCE
CONSENT TO ORDER.Unless DEEMED TO BE

the party or par-

ties so served shall appear at the hearing personally or by a duly authorized representative, they shall be deemed to have consented to the issuance of the cease-and-desist order. (E) ISSUANCE
OF ORDER.In

the event of

such consent, or if upon the record made at any such hearing, the Agency shall find that any violation specified in the notice of charges has been established, the Agency may issue and serve upon the person an order to cease-and-desist from any such violation or practice. (F) INCLUDES
REQUIREMENT FOR COR-

RECTIVE ACTION.Such

order may, by provi-

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137 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 sions which may be mandatory or otherwise, require the person to cease-and-desist from the same, and, further, to take affirmative action to correct the conditions resulting from any such violation. (2) EFFECTIVENESS
OF ORDER.A

cease-and-

desist order shall take effect at the end of the 30day period beginning on the date of the service of such order upon the covered person concerned (except in the case of a cease-and-desist order issued upon consent, which shall take effect at the time specified therein), and shall remain effective and enforceable as provided therein, except to such extent as it is stayed, modified, terminated, or set aside by action of the Agency or a reviewing court. (3) DECISION
AND APPEAL. OF AND PROCEDURES FOR

(A) PLACE
HEARING.Any

hearing provided for in this

subsection shall be held in the Federal judicial district or in the territory in which the residence or home office of the person is located unless the person consents to another place, and shall be conducted in accordance with the provisions of chapter 5 of title 5 of the United States Code.

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138 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) TIME

LIMIT FOR DECISION.After

such hearing, and within 90 days after the Agency has notified the parties that the case has been submitted to it for final decision, the Agency shall (i) render its decision (which shall include findings of fact upon which its decision is predicated) and shall issue; and (ii) serve upon each party to the proceeding an order or orders consistent with the provisions of this section. Judicial review of any such order shall be exclusively as provided in this subsection. (C) MODIFICATION
OF ORDER GEN-

ERALLY.Unless

a petition for review is timely

filed in a court of appeals of the United States, as hereinafter provided in paragraph (4), and thereafter until the record in the proceeding has been filed as so provided, the Agency may at any time, upon such notice and in such manner as it shall deem proper, modify, terminate, or set aside any such order. (D) MODIFICATION
OF ORDER AFTER FIL-

ING RECORD ON APPEAL.Upon

such filing of

the record, the Agency may modify, terminate,

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139 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 or set aside any such order with permission of the court. (4) APPEAL (A) IN
TO COURT OF APPEALS. GENERAL.Any

party to any pro-

ceeding under this subsection may obtain a review of any order served pursuant to this subsection (other than an order issued with the consent of the person concerned) by the filing in the court of appeals of the United States for the circuit in which the principal office of the covered person is located, or in the United States Court of Appeals for the District of Columbia Circuit, within 30 days after the date of service of such order, a written petition praying that the order of the Agency be modified, terminated, or set aside. (B) TRANSMITTAL
CY.A OF COPY TO THE AGEN-

copy of such petition shall be forthwith

transmitted by the clerk of the court to the Agency, and thereupon the Agency shall file in the court the record in the proceeding, as provided in section 2112 of title 28 of the United States Code. (C) JURISDICTION
OF COURT.Upon

the

filing of a petition under subparagraph (A),

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140 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 such court shall have jurisdiction, which upon the filing of the record shall except as provided in the last sentence of paragraph (3) be exclusive, to affirm, modify, terminate, or set aside, in whole or in part, the order of the Agency. (D) SCOPE
OF REVIEW.Review

of such

proceedings shall be had as provided in chapter 7 of title 5 of the United States Code. (E) FINALITY.The judgment and decree of the court shall be final, except that the same shall be subject to review by the Supreme Court upon certiorari, as provided in section 1254 of title 28 of the United States Code. (5) NO
STAY.The

commencement of pro-

ceedings for judicial review under paragraph (4) shall not, unless specifically ordered by the court, operate as a stay of any order issued by the Agency. (c) SPECIAL RULES
FOR

TEMPORARY CEASE-AND-

19 DESIST PROCEEDINGS. 20 21 22 23 24 25 (1) ISSUANCE. (A) IN

GENERAL.Whenever

the Agency

determines that the violation specified in the notice of charges served upon a person pursuant to subsection (b), or the continuation of such violation, is likely to cause the person to

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141 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 be insolvent or otherwise prejudice the interests of consumers before the completion of the proceedings conducted pursuant to subsection (b), the Agency may issue a temporary order requiring the covered person to cease-and-desist from any such violation or practice and to take affirmative action to prevent or remedy such insolvency or other condition pending completion of such proceedings. (B) OTHER
REQUIREMENTS.Any

tem-

porary order issued under this paragraph may include any requirement authorized under this subtitle. (C) EFFECT
DATE OF ORDER.Any

tem-

porary order issued under this paragraph shall take effect upon service upon the person and, unless set aside, limited, or suspended by a court in proceedings authorized by paragraph (2) of this subsection, shall remain effective and enforceable pending the completion of the administrative proceedings pursuant to such notice and until such time as the Agency shall dismiss the charges specified in such notice, or if a cease-and-desist order is issued against the person, until the effective date of such order.

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142 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (2) APPEAL.Within 10 days after the person concerned has been served with a temporary ceaseand-desist order, the person may apply to the United States district court for the judicial district in which the home office of the covered person is located, or the United States District Court for the District of Columbia, for an injunction setting aside, limiting, or suspending the enforcement, operation, or effectiveness of such order pending the completion of the administrative proceedings pursuant to the notice of charges served upon the person under subsection (b), and such court shall have jurisdiction to issue such injunction. (3) INCOMPLETE
OR INACCURATE RECORDS. ORDER.If

(A) TEMPORARY

a notice of

charges served under subsection (b) specifies, on the basis of particular facts and circumstances, that a persons books and records are so incomplete or inaccurate that the Agency is unable to determine the financial condition of that person or the details or purpose of any transaction or transactions that may have a material effect on the financial condition of that person, the Agency may issue a temporary order requiring

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143 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (i) the cessation of any activity or practice which gave rise, whether in whole or in part, to the incomplete or inaccurate state of the books or records; or (ii) affirmative action to restore such books or records to a complete and accurate state, until the completion of the proceedings under subsection (b)(1). (B) EFFECTIVE
PERIOD.Any

temporary

order issued under subparagraph (A) (i) shall take effect upon service; and (ii) unless set aside, limited, or suspended by a court in proceedings under paragraph (2), shall remain in effect and enforceable until the earlier of (I) the completion of the proceeding initiated under subsection (b) in connection with the notice of charges; or (II) the date the Agency determines, by examination or otherwise, that the persons books and records are accurate and reflect the financial condition of the person.

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144 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 (d) SPECIAL RULES

DERS. FOR

ENFORCEMENT

OF

OR-

(1) IN

GENERAL.The

Agency may in its dis-

cretion apply to the United States district court within the jurisdiction of which the principal office of the covered person is located, for the enforcement of any effective and outstanding notice or order issued under this section, and such court shall have jurisdiction and power to order and require compliance herewith. (2) EXCEPTION.Except as otherwise provided in this subsection, no court shall have jurisdiction to affect by injunction or otherwise the issuance or enforcement of any notice or order or to review, modify, suspend, terminate, or set aside any such notice or order. (e) REGULATIONS.The Director shall prescribe reg-

18 ulations establishing such procedures as may be necessary 19 to carry out this section. 20 21
SEC. 154. LITIGATION AUTHORITY.

(a) IN GENERAL.If any person violates a provision

22 of this title, any enumerated consumer law, any law for 23 which authorities were transferred under subtitles F and 24 H, or any regulation prescribed or order issued by the Di25 rector under this title or pursuant to any such authority,

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145 1 the Agency may commence a civil action against such per2 son to impose a civil penalty and to seek all appropriate 3 legal and equitable relief including a permanent or tem4 porary injunction as permitted by law. 5 (b) REPRESENTATION.The Agency may act in its

6 own name and through its own attorneys in enforcing any 7 provision of this title, regulations under this title, or any 8 other law or regulation, or in any action, suit, or pro9 ceeding to which the Agency is a party. 10 (c) COMPROMISE
OF

ACTIONS.The Agency may

11 compromise or settle any action if such compromise is ap12 proved by the court. 13 (d) NOTICE
TO THE

ATTORNEY GENERAL.When

14 commencing a civil action under this title, any enumerated 15 consumer law, any law for which authorities were trans16 ferred under subtitles F and H, or any regulation there17 under, the Agency shall notify the Attorney General. 18 (e) APPEARANCE BEFORE
THE

SUPREME COURT.

19 The Agency may represent itself in its own name before 20 the Supreme Court of the United States, if 21 22 23 24 25 (1) the Agency makes a written request to the Attorney General within the 10-day period which begins on the date of entry of the judgment which would permit any party to file a petition for writ of certiorari; and

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146 1 2 3 4 (2) the Attorney General concurs with such request or fails to take action within 60 days of the Agencys request. (f) FORUM.Any civil action brought under this title

5 may be brought in a United States district court or in 6 any court of competent jurisdiction of a state in a district 7 in which the defendant is located or resides or is doing 8 business, and such court shall have jurisdiction to enjoin 9 such person and to require compliance with this title, any 10 enumerated consumer law, any law for which authorities 11 were transferred under subtitles F and H, or any regula12 tion prescribed or order issued by the Director under this 13 title or pursuant to any such authority. 14 15 16 17 18 19 20 21 22 23 24 (g) TIME FOR BRINGING ACTION. (1) IN
GENERAL.Except

as otherwise per-

mitted by law or equity, no action may be brought under this title more than 3 years after the date of the discovery of the violation to which an action relates. (2) LIMITATIONS
LAWS. UNDER OTHER FEDERAL

(A) For purposes of this section, an action arising under this title shall not include claims arising solely under enumerated consumer laws.

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147 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (B) In any action arising solely under an enumerated consumer law, the Agency may commence, defend, or intervene in the action in accordance with the requirements of that law, as applicable. (C) In any action arising solely under the laws for which authorities were transferred by subtitles F and H, the Agency may commence, defend, or intervene in the action in accordance with the requirements of that law, as applicable.
SEC. 155. RELIEF AVAILABLE.

(a) ADMINISTRATIVE PROCEEDINGS

TIONS.

OR

COURT AC-

(1) JURISDICTION.The court (or Agency, as the case may be) in an action or adjudication proceeding brought under this title, any enumerated consumer law, or any law for which authorities were transferred by subtitles F and H, shall have jurisdiction to grant any appropriate legal or equitable relief with respect to a violation of this title, any enumerated consumer law, and any law for which authorities were transferred by subtitles F and H, including a violation of a regulation prescribed or order issued under this title, any enumerated consumer law and

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148 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 (c). (3) NO

EXEMPLARY OR PUNITIVE DAMAGES.

any law for which authorities were transferred by subtitles F and H. (2) RELIEF.Such relief may include (A) rescission or reformation of contracts; (B) refund of moneys or return of real property; (C) restitution; (D) disgorgement or compensation for unjust enrichment; (E) payment of damages; (F) public notification regarding the violation, including the costs of notification; (G) limits on the activities or functions of the person; and (H) civil money penalties under subsection

Nothing in this subsection shall be construed as authorizing the imposition of exemplary or punitive damages. (b) RECOVERY
OF

COSTS.In any action brought by

22 the Agency, a State attorney general, or a State bank su23 pervisor to enforce any provision of this title, any enumer24 ated consumer law, any law for which authorities were 25 transferred by subtitles F and H, or any regulation pre-

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149 1 scribed or order issued by the Director under this title 2 or pursuant to any such authority, the Agency, State at3 torney general, or State bank supervisor may recover the 4 costs incurred by such Agency, attorney general, or super5 visor in connection with prosecuting such action if the 6 Agency, State attorney general, or State bank supervisors 7 (as the case may be) is the prevailing party in the action. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (c) CIVIL MONEY PENALTY
TRATIVE IN

COURT

AND

ADMINIS-

ACTIONS. (1) Any person that violates, through any act or

omission, any provision of this title, any enumerated consumer law, or any regulation prescribed or order issued by the Director under this title shall forfeit and pay a civil penalty pursuant to this subsection determined as follows: (A) FIRST
TIER.For

any violation of any

law, regulation, final order or condition imposed in writing by the Agency, or for any failure to pay any fee or assessment imposed by the Agency (including any fee or assessment for which a related person may be liable), a civil penalty shall not exceed $5,000 for each day during which such violation continues. (B) SECOND
TIER.Notwithstanding

paragraph (A), for any violation of a regulation

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150 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 prescribed under section 136 or for any person that recklessly engages in a violation of this title, any enumerated consumer law, or any regulation prescribed or order issued by the Director under this title, relating to the provision of an alternative consumer financial product or service, a civil penalty shall not exceed $25,000 for each day during which such violation continues. (C) THIRD
TIER.Notwithstanding

sub-

paragraphs (A) and (B), for any person that knowingly violates this title, any enumerated consumer law, or any regulation prescribed or order issued by the Director under this title, a civil penalty shall not exceed $1,000,000 for each day during which such violation continues. (2) MITIGATING
FACTORS.In

determining the

amount of any penalty assessed under paragraph (1), the Agency or the court shall take into account the appropriateness of the penalty with respect to (A) the size of financial resources and good faith of the person charged; (B) the gravity of the violation or failure to pay;

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151 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 (C) the severity of the risks to or losses of the consumer, which may take into account the number of products or services sold or provided; (D) the history of previous violations; and (E) such other matters as justice may require. (3) AUTHORITY
ALTY.The TO MODIFY OR REMIT PEN-

Agency may compromise, modify, or

remit any penalty which may be assessed or had already been assessed under paragraph (1). The amount of such penalty, when finally determined, shall be exclusive of any sums owed by the person to the United States in connection with the costs of the proceeding, and may be deducted from any sums owing by the United States to the person charged. (4) NOTICE
AND HEARING.No

civil penalty

may be assessed with respect to a violation of this title, any enumerated consumer law, or any regulation prescribed or order issued by the Director, unless (A) the Agency gives notice and an opportunity for a hearing to the person accused of the violation; or

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152 1 2 3 4 5 (B) the appropriate court has ordered such assessment and entered judgment in favor of the Agency.
SEC. 156. REFERRALS FOR CRIMINAL PROCEEDINGS.

Whenever the Agency obtains evidence that any per-

6 son, either domestic or foreign, has engaged in conduct 7 that may constitute a violation of Federal criminal law, 8 the Agency may transmit such evidence to the Attorney 9 General, who may institute criminal proceedings under ap10 propriate law. No provision of this section shall be con11 strued as affecting any other authority of the Agency to 12 disclose information. 13 14
SEC. 157. EMPLOYEE PROTECTION.

(a) IN GENERAL.No covered person shall terminate

15 or in any other way discriminate against, or cause to be 16 terminated or discriminated against, any covered employee 17 or any authorized representative of covered employees by 18 reason of the fact that such employee or representative, 19 whether at the employees initiative or in the ordinary 20 course of the employees duties (or any person acting pur21 suant to a request of the employee) 22 23 24 25 (1) has provided information to the Agency or to any other State, local, or Federal Government authority or law enforcement official information relating to any violation of, or any act or omission the

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153 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 employee reasonably believes to be a violation of any provision of this Act or any other law that is subject to the jurisdiction of the Agency, or any regulation, order, standard, or prohibition prescribed by the Director; (2) has testified or is about to testify in any proceeding resulting from the administration or enforcement of any provision of this Act or any other law that is subject to the jurisdiction of the Agency, or any regulation, order, standard, or prohibition prescribed by the Director; (3) has filed or instituted, or has caused to be filed or instituted, any proceeding under any enumerated consumer law or any law for which authorities were transferred by subtitles F and H; or (4) has objected to, or refused to participate in, any activity, policy, practice, or assigned task that the employee (or other such person) reasonably believed to be in violation of any law, regulation, order, standard, or prohibition, subject to the jurisdiction of, or enforceable by, the Agency. (b) COVERED EMPLOYEE DEFINED.For the pur-

23 poses of this section, the term covered employee means 24 any individual performing tasks related to the provision 25 of a financial product or service to a consumer.

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154 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (c) TIMETABLES. (1) FILING

COMPLAINT.Any

individual who

believes that such individual has been discharged or otherwise discriminated against by any person in violation of subsection (a) may, before the end of the 180-day period beginning on the date on which such violation occurs, file (or have any person file on behalf of such individual) a complaint with the Secretary of Labor (hereafter in this subsection referred to as the Secretary, notwithstanding section 101(32)) alleging such discharge or discrimination and identifying the person responsible for such act. (2) SECRETARYS
PLAINT.Upon ACTION ON RECEIPT OF COM-

receipt of a complaint by any indi-

vidual under paragraph (1), the Secretary shall notify, in writing, the person named in the complaint who is alleged to have committed the violation of (A) the filing of the complaint; (B) the allegations contained in the complaint; (C) the substance of the evidence supporting the complaint; and (D) the opportunities that will be afforded to such person under paragraph (3). (3) INVESTIGATION,
HEARING, AND ORDERS.

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155 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (A) FINDINGS.Not later than 60 days after the date of receipt of a complaint filed under paragraph (1) and after affording the individual filing the complaint and the person named in the complaint who is alleged to have committed the violation an opportunity to submit to the Secretary a written response to the complaint and an opportunity to meet with a representative of the Secretary to present statements from witnesses, the Secretary shall initiate an investigation and determine whether there is reasonable cause to believe that the complaint has merit and notify, in writing, the complainant and the person alleged to have committed a violation of subsection (a) of the Secretarys findings. (B) PRELIMINARY
ORDER.If

the Sec-

retary concludes that there is reasonable cause to believe that a violation of subsection (a) has occurred, the Secretary shall accompany the Secretarys findings with a preliminary order providing the relief prescribed by paragraph (3)(B). (C) OBJECTIONS
TO FINDINGS OR PRE-

LIMINARY ORDER.Not

later than 30 days

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156 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 after the date of notification of findings under subparagraph (A), the person alleged to have committed the violation or the complainant may file objections to the findings or preliminary order, or both, and request a hearing on the record. (D) OBJECTIONS
STAY. DO NOT CONSTITUTE A

The filing of objections under subpara-

graph (C) shall not operate to stay any reinstatement remedy contained in the preliminary order. (E) EXPEDITIOUS
HEARING.Any

hearing

requested under subparagraph (C) shall be conducted expeditiously. (F) FINALITY

OF ORDER.

If a hearing is

not requested under subparagraph (C) with respect to any findings of the Secretary under subparagraph (A) within the 30-day period described in subparagraph (C), the preliminary order shall be deemed a final order that is not subject to judicial review. (4) STANDARDS (A) PRIMA
TION.The FOR DETERMINATION. FACIE EVIDENCE OF CONTRIBU-

Secretary shall dismiss a complaint

filed under paragraph (1) and shall not conduct

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157 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 an investigation otherwise required under paragraph (3)(A) unless the individual filing the complaint makes a prima facie showing that any behavior described in paragraph (1), (2), (3), or (4) of subsection (a) was a contributing factor in the unfavorable personnel action alleged in the complaint. (B) PROHIBITION
ON INVESTIGATION IN

CASE OF CLEAR AND CONVINCING EVIDENCE OF INDEPENDENT BASIS.Notwithstanding

a find-

ing by the Secretary that the complainant has made the showing required under subparagraph (A), no investigation otherwise required under paragraph (3) shall be conducted if the employer demonstrates, by clear and convincing evidence, that the employer would have taken the same unfavorable personnel action in the absence of that behavior. (C) CONTRIBUTING
FACTOR REQUIRE-

MENT.The

Secretary may determine that a

violation of subsection (a) has occurred only if the complainant demonstrates that any behavior described in paragraph (1), (2), (3), or (4) of subsection (a) was a contributing factor in the

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158 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 unfavorable personnel action alleged in the complaint. (D) PROHIBITION

ON FINAL ORDER IN

CASE OF CLEAR AND CONVINCING EVIDENCE OF INDEPENDENT BASIS.Relief

may not be or-

dered under paragraph (3) if the employer demonstrates by clear and convincing evidence that the employer would have taken the same unfavorable personnel action in the absence of that behavior. (5) FINAL
ORDER. GENERAL.Not

(A) IN

later than 120

days after the date of conclusion of any hearing under paragraph (3), the Secretary shall issue a final order providing the relief prescribed by this subsection or denying the complaint. (B) SETTLEMENT
AGREEMENT.

At any

time before issuance of a final order, a proceeding under this subsection may be terminated on the basis of a settlement agreement entered into by the Secretary, the complainant, and the person alleged to have committed the violation. (C) CONTENTS
OF ORDER.

If, in re-

sponse to a complaint filed under paragraph

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159 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1), the Secretary determines that a violation of subsection (a) has occurred, the Secretary shall order the person who committed such violation (i) to take affirmative action to abate the violation; (ii) to reinstate the complainant to such individuals former position together with compensation (including back pay) and restore the terms, conditions, and privileges associated with such individuals employment; and (iii) to provide compensatory damages to the complainant. (D) COSTS
AND ATTORNEYS FEES.

If an

order is issued under this paragraph, the Secretary, at the request of the complainant, shall assess against the person against whom the order is issued a sum equal to the aggregate amount of all costs and expenses (including attorneys and expert witness fees) reasonably incurred, as determined by the Secretary, by the complainant for, or in connection with, the bringing of the complaint upon which the order was issued.

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160 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (E) FRIVOLOUS

PLAINTS.If OR BAD FAITH COM-

the Secretary finds that a com-

plaint under paragraph (1) is frivolous or has been brought in bad faith, the Secretary may award to the prevailing employer a reasonable attorneys fee, not exceeding $1,000, to be paid by the complainant. (6) DE
NOVO ACTION ON CLAIM. AT LAW OR EQUITY.If

(A) ACTION

the

Secretary has not issued a final decision within 210 days after the filing of the complaint, or within 90 days after receiving a written determination, the complainant who filed such complaint may bring an action at law or equity for de novo review in the appropriate district court of the United States. (B) JURY
TRIAL.At

the request of either

party to an action brought under subparagraph (A), such action shall be tried by the court with a jury. (C) STANDARDS
FOR DETERMINATION.

The standards for determination established under paragraph (4) shall apply in any action under this paragraph.

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161 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (D) RELIEF.The court shall have jurisdiction to grant all relief, including injunctive relief and compensatory damages , that necessary to make the complainant who sought de novo review whole, including (i) reinstatement with the same seniority status that the complainant would have had, but for the discharge or discrimination; (ii) the amount of back pay, with interest; and (iii) compensation for any special damages sustained as a result of the discharge or discrimination, including litigation costs, expert witness fees, and reasonable attorneys fees. (E) NOT
REVIEWABLE.The

decision of

the court shall be final without further review. (7) JUDICIAL (A) IN
REVIEW OF FINAL ORDER. GENERAL.Unless

a complainant

brings a de novo action under paragraph (6), any person adversely affected or aggrieved by a final order issued under paragraph (5) may obtain review of the order in the United States Court of Appeals for the circuit in which the

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162 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 violation, with respect to which the order was issued, allegedly occurred or the circuit in which the complainant resided on the date of such violation. (B) STATUTE
OF LIMITATION

.Any peti-

tion for review of a final order under subsection shall be filed not later than 60 days after the date of the issuance of the final order by the Secretary. (C) STANDARDS
FOR REVIEW.The

stand-

ards for review established under chapter 7 of title 5, United States Code, shall apply in any review of a final order under this paragraph. (D) EFFECT
OF PROCEEDINGS AS STAY.

The commencement of proceedings under this paragraph shall not operate as a stay of the final order of the Secretary under review, unless so ordered by the court. (E) LIMITATION
ON EFFECT OF OTHER

PROCEEDINGS.Except

as provided in para-

graph (6) and this paragraph, an order of the Secretary with respect to which review could have been obtained under subparagraph (A) shall not be subject to judicial review in any criminal or other civil proceeding.

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163 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (8) ENFORCEMENT

OF ORDERS BY SEC-

RETARY.

(A) IN

GENERAL.Whenever

any person

has failed to comply with an order issued under paragraph (5), the Secretary may file a civil action in the United States district court for the district in which the violation was found to occur, or in the United States district court for the District of Columbia, to enforce such order. (B) RELIEF. In actions brought under this paragraph, the district courts shall have jurisdiction to grant all appropriate relief including injunctive relief and compensatory damages. (9) ENFORCEMENT
PARTY OF ORDER BY AGGRIEVED

. (A) IN
GENERAL.A

person on whose be-

half an order was issued under paragraph (5) may commence a civil action against the person to whom such order was issued to require compliance with such order. (B) RELIEF.The court, in issuing any final order under this paragraph, may award costs of litigation (including reasonable attorneys and expert witness fees) to any party

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164 1 2 3 whenever the court determines such award is appropriate. (d) ACTION
IN

NATURE

OF

MANDAMUS.Any non-

4 discretionary duty imposed by this section shall be enforce5 able in a mandamus proceeding brought under section 6 1361 of title 28, United States Code. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (e)
MENTS.

UNENFORCEABILITY

OF

CERTAIN

AGREE-

(1) NO

WAIVER OF RIGHTS AND REMEDIES.

Notwithstanding any law and except as provided under paragraph (3), the rights and remedies provided for in this section may not be waived by any agreement, policy, form, or condition of employment, including by any predispute arbitration agreement. (2) PREDISPUTE
ARBITRATION AGREEMENTS.

Notwithstanding any law and except as provided under paragraph (3), no predispute arbitration agreement shall be valid or enforceable and to the extent the agreement requires arbitration of a dispute arising under this section. (3) EXCEPTION.Notwithstanding paragraphs (1) and (2), an arbitration provision in a collective bargaining agreement shall be enforceable as to disputes arising under subsection (a)(2) unless the Di-

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165 1 2 3 4 rector determines by regulation that such provision is inconsistent with the purposes of this Act.
SEC. 158. EFFECTIVE DATE.

This subtitle shall take effect on the designated

5 transfer date. 6 7 8 9 10

Subtitle FTransfer of Functions and Personnel; Transitional Provisions

SEC. 161. TRANSFER OF CERTAIN FUNCTIONS.

(a) IN GENERAL.Except as provided in subsection

11 (b), consumer financial protection functions are trans12 ferred as follows: 13 14 15 16 17 18 19 20 21 22 23 24 (1) BOARD
OF GOVERNORS. OF FUNCTIONS.All

(A) TRANSFER

con-

sumer financial protection functions of the Board of Governors are transferred to the Director. (B) BOARD
OF GOVERNORS AUTHORITY.

The Director shall have all powers and duties that were vested in the Board of Governors, relating to consumer financial protection functions, on the day before the designated transfer date. (2) COMPTROLLER
OF THE CURRENCY.

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166 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (A) TRANSFER

OF FUNCTIONS.All

con-

sumer financial protection functions of the Comptroller of the Currency are transferred to the Director. (B) COMPTROLLERS
AUTHORITY.The

Director shall have all powers and duties that were vested in the Comptroller of the Currency, relating to consumer financial protection functions, on the day before the designated transfer date. (3) DIRECTOR
PERVISION. OF THE OFFICE OF THRIFT SU-

(A) TRANSFER

OF FUNCTIONS.All

con-

sumer financial protection functions of the Director of the Office of Thrift Supervision are transferred to the Director. (B) DIRECTORS
AUTHORITY.The

Direc-

tor shall have all powers and duties that were vested in the Director of the Office of Thrift Supervision, relating to consumer financial protection functions, on the day before the designated transfer date. (4) FEDERAL
TION. DEPOSIT INSURANCE CORPORA-

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167 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (A) TRANSFER

OF FUNCTIONS.All

con-

sumer financial protection functions of the Federal Deposit Insurance Corporation are transferred to the Director. (B) CORPORATIONS
AUTHORITY.The

Di-

rector shall have all powers and duties that were vested in the Federal Deposit Insurance Corporation, relating to consumer financial protection functions, on the day before the designated transfer date. (5) FEDERAL
TRADE COMMISSION. OF FUNCTIONS.Except

(A) TRANSFER

as

provided in subparagraph (C), all consumer financial protection functions of the Federal Trade Commission are transferred to the Director. (B) COMMISSIONS
AUTHORITY.Except

as provided in subparagraph (C), the Director shall have all powers and duties that were vested in the Federal Trade Commission, relating to consumer financial protection functions, on the day before the designated transfer date. (C) CONTINUATION
OF CERTAIN COMMIS-

SION AUTHORITIES.Notwithstanding

subpara-

graphs (A) and (B), the Federal Trade Com-

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168 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Act. (ii) Section 5 of the Federal Trade Commission Act. (iii) The Telemarketing and Consumer Fraud and Abuse Prevention Act. (6) NATIONAL
TION. CREDIT UNION ADMINISTRA-

mission shall continue to enforce the following provisions of law and prescribe regulations under such provisions: (i) The Credit Repair Organizations

(A) TRANSFER

OF FUNCTIONS.All

con-

sumer financial protection functions of the National Credit Union Administration are transferred to the Director. (B) NATIONAL
TRATIONS CREDIT UNION ADMINIS-

AUTHORITY.The

Director shall

have all powers and duties that were vested in the National Credit Union Administration, relating to consumer financial protection functions, on the day before the designated transfer date. (7) SECRETARY
VELOPMENT. OF HOUSING AND URBAN DE-

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169 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 (A) TRANSFER

OF FUNCTIONS.All

con-

sumer protection functions of the Secretary of Housing and Urban Development relating to the Real Estate Settlement Procedures Act of 1974 and the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 are transferred to the Director. (B) SECRETARY
OF HUDS AUTHORITY.

The Director shall have all powers and duties that were vested in the Secretary of Housing and Urban Development relating to the Real Estate Settlement Procedures Act of 1974 and the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, on the day before the designated transfer date (b) TRANSFERS
STOP OF

FUNCTIONS SUBJECT

TO

BACK-

ENFORCEMENT AUTHORITY REMAINING WITH

18 TRANSFEROR AGENCIES.The transfers of functions in 19 subsection (a) shall not affect the authority of the agencies 20 identified in subsection (a) from initiating enforcement 21 proceedings under the circumstances described in section 22 122(e)(3). 23 (c) TERMINATION
OF

AUTHORITY
FOR

OF

TRANSFEROR

24 AGENCIES TO COLLECT FEES 25

CIAL

CONSUMER FINAN-

PROTECTION PURPOSES.Authorities of the agen-

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170 1 cies identified in subsection (a) to assess and collect fees 2 to cover the cost of conducting consumer financial protec3 tion functions shall terminate on the day before the des4 ignated transfer date. 5 (d) CONSUMER FINANCIAL PROTECTION FUNCTIONS

6 DEFINED.For purposes of this subtitle, the term con7 sumer financial protection functions means research, 8 rulemaking, issuance of orders or guidance, supervision, 9 examination, and enforcement activities, powers, and du10 ties relating to the provision of consumer financial prod11 ucts or services, including the authority to assess and col12 lect fees for those purposes, except that such term shall 13 not include any such function relating to an agencys re14 sponsibilities under the Community Reinvestment Act of 15 1977. 16 (e) EFFECTIVE DATE.Subsections (a) and (b) shall

17 take effect on the designated transfer date. 18 19

SEC. 162. DESIGNATED TRANSFER DATE.

(a) IN GENERAL.Not later than 60 days after the

20 date of the enactment of this Act, the Secretary 21 22 23 24 25 (1) shall, in consultation with the Chairman of the Board of Governors, the Chairperson of the Federal Deposit Insurance Corporation, the Chairman of the Federal Trade Commission, the Chairman of the National Credit Union Administration Board,

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171 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 the Comptroller of the Currency, the Director of the Office of Thrift Supervision, the Secretary of Housing and Urban Development, and the Director of the Office of Management and Budget, designate a single calendar date for the transfer of functions to the Director under section 161; and (2) shall publish notice of that designation in the Federal Register. (b) CHANGING DESIGNATION.The Secretary (1) may, in consultation with the Chairman of the Board of Governors, the Chairperson of the Federal Deposit Insurance Corporation, the Chairman of the Federal Trade Commission, the Chairman of the National Credit Union Administration Board, the Comptroller of the Currency, the Director of the Office of Thrift Supervision, the Secretary of Housing and Urban Development, and the Director of the Office of Management and Budget, change the date designated under subsection (a); and (2) shall publish notice of any changed designation in the Federal Register. (c) PERMISSIBLE DATES. (1) IN
GENERAL.Except

as provided in para-

graph (2), any date designated under this section

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172 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 shall be not earlier than 180 days nor later than 18 months after the date of the enactment of this Act. (2) EXTENSION
OF TIME.The

Secretary may

designate a date that is later than 18 months after the date of the enactment of this Act if the Secretary transmits to appropriate committees of Congress (A) a written determination that orderly implementation of this title is not feasible on the date that is 18 months after the date of the enactment of this Act; (B) an explanation of why an extension is necessary for the orderly implementation of this title; and (C) a description of the steps that will be taken to effect an orderly and timely implementation of this title within the extended time period. (3) EXTENSION
LIMITED.In

no case shall any

date designated under this section be later than 24 months after the date of the enactment of this Act.
SEC. 163. SAVINGS PROVISIONS.

(a) BOARD OF GOVERNORS. (1) EXISTING

RIGHTS, DUTIES, AND OBLIGA-

TIONS NOT AFFECTED.Section

161(a)(1) shall not

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173 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 affect the validity of any right, duty, or obligation of the United States, the Board of Governors (or any Federal reserve bank), or any other person that (A) arises under any provision of law relating to any consumer financial protection function of the Board of Governors transferred to the Director by this title; and (B) existed on the day before the designated transfer date. (2) CONTINUATION
OF SUITS.This

Act shall

not abate any proceeding commenced by or against the Board of Governors (or any Federal reserve bank) before the designated transfer date with respect to any consumer financial protection function of the Board of Governors (or any Federal reserve bank) transferred to the Director by this title, except that the Director shall be substituted for the Board of Governors (or Federal reserve bank) as a party to any such proceeding as of the designated transfer date. (b) FEDERAL DEPOSIT INSURANCE CORPORATION. (1) EXISTING
RIGHTS, DUTIES, AND OBLIGA-

TIONS NOT AFFECTED.Section

161(a)(4) shall not

affect the validity of any right, duty, or obligation of the United States, the Federal Deposit Insurance

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174 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Corporation, the Board of Directors of that Corporation, or any other person, that (A) arises under any provision of law relating to any consumer financial protection function of the Federal Deposit Insurance Corporation transferred to the Director by this title; and (B) existed on the day before the designated transfer date. (2) CONTINUATION
OF SUITS.This

Act shall

not abate any proceeding commenced by or against the Federal Deposit Insurance Corporation (or the Board of Directors of that Corporation) before the designated transfer date with respect to any consumer financial protection function of the Federal Deposit Insurance Corporation transferred to the Director by this title, except that the Director shall be substituted for the Federal Deposit Insurance Corporation (or Board of Directors) as a party to any such proceeding as of the designated transfer date. (c) FEDERAL TRADE COMMISSION. (1) EXISTING
RIGHTS, DUTIES, AND OBLIGA-

TIONS NOT AFFECTED.Section

161(a)(5) shall not

affect the validity of any right, duty, or obligation of

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175 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 the United States, the Federal Trade Commission, or any other person, that (A) arises under any provision of law relating to any consumer financial protection function of the Federal Trade Commission transferred to the Director by this title; and (B) existed on the day before the designated transfer date. (2) CONTINUATION
OF SUITS.This

Act shall

not abate any proceeding commenced by or against the Federal Trade Commission before the designated transfer date with respect to any consumer financial protection function of the Federal Trade Commission transferred to the Director by this title, except that the Director shall be substituted for the Federal Trade Commission as a party to any such proceeding as of the designated transfer date. (d) NATIONAL CREDIT UNION ADMINISTRATION. (1) EXISTING
RIGHTS, DUTIES, AND OBLIGA-

TIONS NOT AFFECTED.Section

161(a)(6) shall not

affect the validity of any right, duty, or obligation of the United States, the National Credit Union Administration, the National Credit Union Administration Board, or any other person, that

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176 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (A) arises under any provision of law relating to any consumer financial protection function of the National Credit Union Administration transferred to the Director by this title; and (B) existed on the day before the designated transfer date. (2) CONTINUATION
OF SUITS.This

Act shall

not abate any proceeding commenced by or against the National Credit Union Administration (or the National Credit Union Administration Board) before the designated transfer date with respect to any consumer financial protection function of the National Credit Union Administration transferred to the Director by this title, except that the Director shall be substituted for the National Credit Union Administration (or National Credit Union Administration Board) as a party to any such proceeding as of the designated transfer date. (e) COMPTROLLER OF THE CURRENCY. (1) EXISTING
RIGHTS, DUTIES, AND OBLIGA-

TIONS NOT AFFECTED.Section

161(a)(2) shall not

affect the validity of any right, duty, or obligation of the United States, the Comptroller of the Currency,

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177 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the Office of the Comptroller of the Currency, or any other person, that (A) arises under any provision of law relating to any consumer financial protection function of the Comptroller of the Currency transferred to the Director by this title; and (B) existed on the day before the designated transfer date. (2) CONTINUATION
OF SUITS.This

Act shall

not abate any proceeding commenced by or against the Comptroller of the Currency (or the Office of the Comptroller of the Currency) with respect to any consumer financial protection function of the Comptroller of the Currency transferred to the Director by this title before the designated transfer date, except that the Director shall be substituted for the Comptroller of the Currency (or the Office of the Comptroller of the Currency) as a party to any such proceeding as of the designated transfer date. (f) DIRECTOR
VISION. OF THE

OFFICE

OF

THRIFT SUPER-

(1) EXISTING

RIGHTS, DUTIES, AND OBLIGA-

TIONS NOT AFFECTED.Section

161(a)(3) shall not

affect the validity of any right, duty, or obligation of the United States, the Director of the Office of

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178 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Thrift Supervision, the Office of Thrift Supervision, or any other person, that (A) arises under any provision of law relating to any consumer financial protection function of the Director of the Office of Thrift Supervision transferred to the Director by this title; and (B) that existed on the day before the designated transfer date. (2) CONTINUATION
OF SUITS.This

Act shall

not abate any proceeding commenced by or against the Director of the Office of Thrift Supervision (or the Office of Thrift Supervision) with respect to any consumer financial protection function of the Director of the Office of Thrift Supervision transferred to the Director by this title before the designated transfer date, except that the Director shall be substituted for the Director (or the Office of Thrift Supervision) as a party to any such proceeding as of the designated transfer date. (g) SECRETARY
MENT. OF

HOUSING

AND

URBAN DEVELOP-

(1) EXISTING

RIGHTS, DUTIES, AND OBLIGA-

TIONS NOT AFFECTED.Section

161(a)(7) shall not

affect the validity of any right, duty, or obligation of

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179 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the United States, the Secretary of Housing and Urban Development, the Department of Housing and Urban Development, or any other person, that (A) arises under any provision of law relating to any function of the Secretary of Housing and Urban Development under the Real Estate Settlement Procedures Act of 1974 and the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 transferred to the Director by this title; and (B) that existed on the day before the designated transfer date. (2) CONTINUATION
OF SUITS.This

Act shall

not abate any proceeding commenced by or against the Secretary of Housing and Urban Development (or the Department of Housing and Urban Development) with respect to any consumer financial protection function of the Secretary of Housing and Urban Development transferred to the Director by this title before the designated transfer date, except that the Director shall be substituted for the Secretary of Housing and Urban Development (or such Department) as a party to any such proceeding as of the designated transfer date.

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180 1 2 3 (h) CONTINUATION

TIONS, OF

EXISTING ORDERS, REGULAAND

DETERMINATIONS, AGREEMENTS,

RESOLU-

TIONS.All

orders, resolutions, determinations, agree-

4 ments, and regulations that have been issued, made, pre5 scribed, or allowed to become effective by the Board of 6 Governors (or any Federal reserve bank), the Federal De7 posit Insurance Corporation, the Federal Trade Commis8 sion, the National Credit Union Administration, the 9 Comptroller of the Currency, the Director of the Office 10 of Thrift Supervision, the Secretary of Housing and 11 Urban Development, or by a court of competent jurisdic12 tion, in the performance of consumer financial protection 13 functions that are transferred by this title and that are 14 in effect on the day before the designated transfer date, 15 shall continue in effect according to the terms of those 16 orders, resolutions, determinations, agreements, and regu17 lations, and shall be enforceable by or against the Director 18 until modified, terminated, set aside, or superseded in ac19 cordance with applicable law by the Director, by any court 20 of competent jurisdiction, or by operation of law. 21 22 (i) IDENTIFICATION
UED.Not OF

REGULATIONS CONTIN-

later than the designated transfer date, the

23 Director 24 25 (1) shall, after consultation with the Chairman of the Board of Governors, the Chairperson of the

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181 1 2 3 4 5 6 7 8 9 10 11 Federal Deposit Insurance Corporation, the Chairman of the Federal Trade Commission, the Chairman of the National Credit Union Administration Board, the Comptroller of the Currency, the Director of the Office of Thrift Supervision, and the Secretary of Housing and Urban Development identify the regulations continued under subsection (g) that will be enforced by the Director; and (2) shall publish a list of such regulations in the Federal Register. (j) STATUS
OF

REGULATIONS PROPOSED

OR

NOT

12 YET EFFECTIVE. 13 14 15 16 17 18 19 20 21 22 23 24 (1) PROPOSED

REGULATIONS.Any

proposed

regulation of the Board of Governors, the Federal Deposit Insurance Corporation, the Federal Trade Commission, the National Credit Union Administration, the Comptroller of the Currency, the Director of the Office of Thrift Supervision, or the Secretary of Housing and Urban Development which that agency, in performing consumer financial protection functions transferred by this title, has proposed before the designated transfer date but has not published as a final regulation before that date, shall be deemed to be a proposed regulation of the Director.

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182 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (2) REGULATIONS

NOT YET EFFECTIVE.Any

interim or final regulation of Board of Governors, the Federal Deposit Insurance Corporation, the Federal Trade Commission, the National Credit Union Administration, the Comptroller of the Currency, the Director of the Office of Thrift Supervision, or the Secretary of Housing and Urban Development which that agency, in performing consumer financial protection functions transferred by this title, has published before the designated transfer date but which has not become effective before that date, shall take effect as a regulation of the Director according to its terms.
SEC. 164. TRANSFER OF CERTAIN PERSONNEL.

(a) IN GENERAL. (1) CERTAIN

FEDERAL RESERVE SYSTEM EM-

PLOYEES TRANSFERRED.

(A) IDENTIFYING
FER.The

EMPLOYEES FOR TRANS-

Director and the Board of Gov-

ernors shall (i) jointly determine the number of employees of the Board necessary to perform or support the consumer financial protection functions of the Board of Gov-

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183 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ernors that are transferred to the Director by this title; and (ii) consistent with the number determined under clause (i), jointly identify employees of the Board of Governors for transfer to the Agency in a manner that the Director and the Board of Governors, in their sole discretion, deem equitable. (B) IDENTIFIED
EMPLOYEES TRANS-

FERRED.All

employees of the Board of Gov-

ernors identified under subparagraph (A)(ii) shall be transferred to the Agency for employment. (C) FEDERAL
EES.Employees RESERVE BANK EMPLOY-

of any Federal reserve bank

who, on the day before the designated transfer date, are performing consumer financial protection functions on behalf of the Board of Governors shall be treated as employees of the Board of Governors for purposes of subparagraphs (A) and (B). (2) CERTAIN
FDIC EMPLOYEES TRANS-

FERRED.

(A) IDENTIFYING
FER.The

EMPLOYEES FOR TRANS-

Director and the Board of Directors

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184 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of the Federal Deposit Insurance Corporation shall (i) jointly determine the number of employees of that Corporation necessary to perform or support the consumer financial protection functions of the Corporation that are transferred to the Director by this title; and (ii) consistent with the number determined under clause (i), jointly identify employees of the Corporation for transfer to the Agency in a manner that the Director and the Board of Directors of the Corporation, in their discretion, deem equitable. (B) IDENTIFIED
EMPLOYEES TRANS-

FERRED.All

employees of the Corporation

identified under subparagraph (A)(ii) shall be transferred to the Agency for employment. (3) CERTAIN
NCUA EMPLOYEES TRANS-

FERRED.

(A) IDENTIFYING
FER.The

EMPLOYEES FOR TRANS-

Director and the National Credit

Union Administration Board shall (i) jointly determine the number of employees of the National Credit Union

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185 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Administration necessary to perform or support the consumer financial protection functions of the National Credit Union Administration that are transferred to the Director by this title; and (ii) consistent with the number determined under clause (i), jointly identify employees of the National Credit Union Administration for transfer to the Agency in a manner that the Director and the National Credit Union Administration Board, in their discretion, deem equitable. (B) IDENTIFIED
EMPLOYEES TRANS-

FERRED.All

employees of the National Credit

Union Administration identified under subparagraph (A)(ii) shall be transferred to the Agency for employment. (4) CERTAIN
HUD EMPLOYEES TRANS-

FERRED.

(A) IDENTIFYING
FER.The

EMPLOYEES FOR TRANS-

Director and the Secretary of Hous-

ing and Urban Development shall (i) jointly determine the number of employees of the Department of Housing and Urban Development necessary to per-

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186 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 form or support the consumer financial protection functions of the Secretary of Housing and Urban Development that are transferred to the Director by this title; and (ii) consistent with the number determined under clause (i), jointly identify employees of the Department of Housing and Urban Development for transfer to the Agency in a manner that the Director and the Secretary of Housing and Urban Development, in their discretion, deem equitable. (B) IDENTIFIED
EMPLOYEES TRANS-

FERRED.All

employees of the Department of

Housing and Urban Development identified under subparagraph (A)(ii) shall be transferred to the Agency for employment. (5) APPOINTMENT
AUTHORITY FOR EXCEPTED

SERVICE AND SENIOR EXECUTIVE SERVICE TRANSFERRED.

(A) IN

GENERAL.In

the case of employ-

ees occupying positions in the excepted service or the Senior Executive Service, any appointment authority established pursuant to law or

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187 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 regulations of the Director of the Office of Personnel Management for filling such positions shall be transferred, subject to subparagraph (B). (B) DECLINING
TRANSFERS ALLOWED.

An agency or entity may decline to make a transfer of authority under subparagraph (A) (and the employees appointed pursuant to such subparagraph) to the extent that such authority relates to positions excepted from the competitive service because of their confidential, policymaking, policy-determining, or policy-advocating character, and non-career positions in the Senior Executive Service (within the meaning of section 3132(a)(7) of title 5, United States Code). (b) TIMING
MENTS.Each OF

TRANSFERS

AND

POSITION ASSIGN-

employee to be transferred under this sec-

19 tion shall 20 21 22 23 24 25 (1) be transferred not later than 90 days after the designated transfer date; and (2) receive notice of such employees position assignment not later than 120 days after the effective date of the employees transfer. (c) TRANSFER OF FUNCTION.

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188 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) IN
GENERAL.Notwithstanding

any other

provision of law, the transfer of employees shall be deemed a transfer of functions for the purpose of section 3503 of title 5, United States Code. (2) PRIORITY
OF THIS TITLE.If

any provi-

sions of this title conflict with any protection provided to transferred employees under section 3503 of title 5, United States Code, the provisions of this title shall control. (d) EQUAL STATUS AND TENURE POSITIONS. (1) EMPLOYEES
TRANSFERRED FROM FDIC,

FTC, HUD, NCUA, OCC, AND OTS.Each

employee

transferred from the Federal Deposit Insurance Corporation, the Federal Trade Commission, the Department of Housing and Urban Development, the National Credit Union Administration, the Office of the Comptroller of the Currency, or the Office of Thrift Supervision shall be placed in a position at the Agency with the same status and tenure as he or she held on the day before the designated transfer date. (2) EMPLOYEES
TRANSFERRED FROM THE

FEDERAL RESERVE SYSTEM.

(A)

COMPARABILITY.Each

employee

transferred from the Board of Governors or

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189 1 2 3 4 5 6 7 8 9 10 11 12 from a Federal reserve bank shall be placed in a position with the same status and tenure as that of employees transferring to the Agency from the Office of the Comptroller of the Currency who perform similar functions and have similar periods of service. (B) SERVICE
PERIODS CREDITED.For

purposes of this paragraph, periods of service with the Board of Governors or a Federal reserve bank shall be credited as periods of service with a Federal agency. (e) ADDITIONAL CERTIFICATION REQUIREMENTS

13 LIMITED.Examiners transferred to the Agency shall not 14 be subject to any additional certification requirements be15 fore being placed in a comparable examiners position at 16 the Agency examining the same types of institutions as 17 the transferred examiners examined before such examiners 18 were transferred. 19 20 21 22 23 24 25 (f) PERSONNEL ACTIONS LIMITED. (1) 5-YEAR
PROTECTION.Except

as provided

in paragraph (2), each transferred employee holding a permanent position on the day before the designated transfer date shall not, during the 5-year period beginning on the designated transfer date, be involuntarily separated, or involuntarily reassigned

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190 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 outside such transferred employees local locality pay area as defined by the Director of the Office of Personnel Management. (2) EXCEPTIONS.Paragraph (1) shall not be construed as limiting the right of the Director to (A) separate an employee for cause or for unacceptable performance; (B) terminate an appointment to a position excepted from the competitive service because of its confidential policy-making, policy-deter-

mining, or policy-advocating character; or (C) reassign a supervisory employee outside such employees locality pay area as defined by the Director of the Office of Personnel Management when the Director determines that the reassignment is necessary for the efficient operation of the Agency. (g) PAY. (1) 1-YEAR
PROTECTION.Except

as provided

in paragraph (2), each transferred employee shall, during the 1-year period beginning on the designated transfer date, receive pay at a rate not less than the basic rate of pay (including any geographic differential) that the employee received during the 1year period immediately before the transfer.

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191 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (2) EXCEPTIONS.Paragraph (1) shall not be construed as limiting the right of the Agency to reduce the rate of basic pay of a transferred employee (A) for cause; (B) for unacceptable performance; or (C) with the employees consent. (3) PROTECTION
ONLY WHILE EMPLOYED.

Paragraph (1) applies to a transferred employee only while that employee remains employed by the Agency. (4) PAY
INCREASES PERMITTED.Paragraph

(1) shall not be construed as limiting the authority of the Agency to increase a transferred employees pay. (h) REORGANIZATION. (1) BETWEEN (A) IN
1ST AND 3RD YEAR.

GENERAL.If

the Agency deter-

mines, during the period beginning 1 year after the designated transfer date and ending 3 years after the designated transfer date, that a reorganization of the staff of the Agency is required (i) that reorganization shall be

deemed a major reorganization for pur-

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192 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 poses of affording affected employees retirement under section 8336(d)(2) or 8414(b)(1)(B) of title 5, United States Code; (ii) before the reorganization occurs, all employees in the same locality pay area as defined by the Director of the Office of Personnel Management shall be placed in a uniform position classification system; and (iii) any resulting reduction in force shall be governed by the provisions of chapter 35 of title 5, United States Code, except that the Agency shall (I) establish competitive areas (as that term is defined in regulations issued by the Director of the Office of Personnel Management) to include at a minimum all employees in the same locality pay area as defined by the Office of Personnel Management; (II) establish competitive levels (as that term is defined in regulations issued by the Director of the Office of Personnel Management) without regard to whether the particular em-

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193 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ployees have been appointed to positions in the competitive service or the excepted service; and (III) afford employees appointed to positions in the excepted service (other than to a position excepted from the competitive service because of its confidential policy-making, policy-determining, or policy-advocating character) the same assignment rights to positions within the Agency as employees appointed to positions in the competitive service. (B) SERVICE
FORCE.For CREDIT FOR REDUCTIONS IN

purposes of this paragraph, peri-

ods of service with a Federal home loan bank, a joint office of the Federal home loan banks, the Board of Governors, a Federal reserve bank, the Federal Deposit Insurance Corporation, or the National Credit Union Administration shall be credited as periods of service with a Federal agency. (2) AFTER
3RD YEAR. GENERAL.If

(A) IN

the Agency deter-

mines, at any time after the 3-year period be-

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194 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ginning on the designated transfer date, that a reorganization of the staff of the Agency is required, any resulting reduction in force shall be governed by the provisions of chapter 35 of title 5, United States Code, except that the Agency shall establish competitive levels (as that term is defined in regulations issued by the Office of Personnel Management) without regard to types of appointment held by particular employees transferred under this section. (B) SERVICE
FORCE.For CREDIT FOR REDUCTIONS IN

purposes of this paragraph, peri-

ods of service with a Federal home loan bank, a joint office of the Federal home loan banks, the Board of Governors, a Federal reserve bank, the Federal Deposit Insurance Corporation, or the National Credit Union Administration shall be credited as periods of service with a Federal agency. (i) BENEFITS. (1) RETIREMENT
EMPLOYEES. BENEFITS FOR TRANSFERRED

(A) IN

GENERAL. OF EXISTING RE-

(i) CONTINUATION

TIREMENT PLAN.Except

as provided in

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195 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 subparagraph (B), each transferred employee shall remain enrolled in such employees existing retirement plan as long as the employee remains employed by the Agency. (ii) EMPLOYERS
CONTRIBUTION.

The Director shall pay any employer contributions to the existing retirement plan of each transferred employee as required under that plan. (B) OPTION
FOR EMPLOYEES TRANS-

FERRED FROM FEDERAL RESERVE SYSTEM TO BE SUBJECT TO FEDERAL EMPLOYEE RETIREMENT PROGRAM.

(i) ELECTION.Any transferred employee who was enrolled in a Federal Reserve System retirement plan on the day before the date of the employees transfer to the Agency may, during the period beginning 6 months after the designated transfer date and ending 1 year after the designated transfer date, elect to be subject to the Federal employee retirement program.

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196 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (ii) EFFECTIVE

DATE OF COV-

ERAGE.For

any employee making an

election under clause (i), coverage by the Federal employee retirement program shall begin 1 year after the designated transfer date. (C) AGENCY
PARTICIPATION IN FEDERAL

RESERVE SYSTEM RETIREMENT PLAN.

(i) SEPARATE

ACCOUNT IN FEDERAL

RESERVE SYSTEM RETIREMENT PLAN ESTABLISHED.A

separate account in the

Federal Reserve System retirement plan shall be established for Agency employees who do not make the election under subparagraph (B). (ii) FUNDS
ATTRIBUTABLE TO TRANS-

FERRED EMPLOYEES REMAINING IN FEDERAL RESERVE SYSTEM RETIREMENT

PLAN TRANSFERRED.The

proportionate

share of funds in the Federal Reserve System retirement plan, including the proportionate share of any funding surplus in that plan, attributable to a transferred employee who does not make the election under subparagraph (B), shall be trans-

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197 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 The ferred to the account established under clause (i). (iii) EMPLOYER
POSITED.The CONTRIBUTIONS DE-

Director shall deposit into

the account established under clause (i) the employer contributions that the Agency makes on behalf of employees who do not make the election under subparagraph (B). (iv) ACCOUNT
ADMINISTRATION.The

Director shall administer the account established under clause (i) as a participating employer in the Federal Reserve System retirement plan. (D) DEFINITIONS.For purposes of this paragraph, the following definitions shall apply: (i) EXISTING term
RETIREMENT PLAN.

existing

retirement

plan

means, with respect to any employee transferred under this section, the particular retirement plan (including the Financial Institutions Retirement Fund) and any associated thrift savings plan of the agency or Federal reserve bank from which the employee was transferred, which the employee

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198 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 was enrolled in on the day before the designated transfer date. (ii) FEDERAL
MENT PLAN.The EMPLOYEE RETIRE-

term Federal employee

retirement program means the retirement program for Federal employees established by chapters 83 and 84 of title 5, United States Code. (2) BENEFITS
OTHER THAN RETIREMENT BEN-

EFITS FOR TRANSFERRED EMPLOYEES.

(A) DURING

1ST YEAR. PLANS CONTINUE.

(i) EXISTING

Each transferred employee may, for 1 year after the designated transfer date, retain membership in any other employee benefit program of the agency or bank from which the employee transferred, including a dental, vision, long-term care, or life insurance program, to which the employee belonged on the day before the designated transfer date. (ii) EMPLOYERS
CONTRIBUTION.

The Director shall reimburse the agency or bank from which an employee was transferred for any cost incurred by that agency

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199 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 or bank in continuing to extend coverage in the benefit program to the employee as required under that program or negotiated agreements. (B) DENTAL,
VISION, OR LIFE INSURANCE

AFTER 1ST YEAR.If,

after the 1-year period

beginning on the designated transfer date, the Director decides not to continue participation in any dental, vision, or life insurance program of an agency or bank from which employees transferred, a transferred employee who is a member of such a program may, before the Directors decision takes effect, elect to enroll, without regard to any regularly scheduled open season, in (i) the enhanced dental benefits established by chapter 89A of title 5, United States Code; (ii) the enhanced vision benefits established by chapter 89B of title 5, United States Code; and (iii) the Federal Employees Group Life Insurance Program established by chapter 87 of title 5, United States Code,

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200 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 without regard to any requirement of insurability. (C) LONG-TERM

1ST YEAR.If, CARE INSURANCE AFTER

after the 1-year period begin-

ning on the designated transfer date, the Director decides not to continue participation in any long-term care insurance program of an agency or bank from which employees transferred, a transferred employee who is a member of such a program may, before the Directors decision takes effect, elect to apply for coverage under the Federal Long Term Care Insurance Program established by chapter 90 of title 5, United States Code, under the underwriting requirements applicable to a new active workforce member (as defined in Part 875, title 5, Code of Federal Regulations). (D) EMPLOYEES
CONTRIBUTION.An

in-

dividual enrolled in the Federal Employees Health Benefits program shall pay any employee contribution required by the plan. (E) ADDITIONAL
FUNDING.The

Director

shall transfer to the Federal Employees Health Benefits Fund established under section 8909 of title 5, United States Code, an amount deter-

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201 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 mined by the Director of the Office of Personnel Management, after consultation with the Director and the Director of the Office of Management and Budget, to be necessary to reimburse the Fund for the cost to the Fund of providing benefits under this subparagraph. (F) CREDIT
OTHER FOR TIME ENROLLED IN

PLANS.For

employees

transferred

under this section, enrollment in a health benefits plan administered by the Comptroller of the Currency, the Director of the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Board of Governors, the Secretary of Housing and Urban Development, or a Federal reserve bank, immediately before enrollment in a health benefits plan under chapter 89 of title 5, United States Code, shall be considered as enrollment in a health benefits plan under that chapter for purposes of section 8905(b)(1)(A) of title 5, United States Code. (G) SPECIAL
PROVISIONS TO ENSURE CON-

TINUATION OF LIFE INSURANCE BENEFITS.

(i) IN

GENERAL.An

annuitant (as

defined in section 8901(3) of title 5,

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202 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 United States Code) who is enrolled in a life insurance plan administered by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Federal Trade Commission, the Secretary of Housing and Urban Development, the National Credit Union Administration, the Comptroller of the Currency, or the Director of the Office of Thrift Supervision on the day before the designated transfer date shall be eligible for coverage by a life insurance plan under sections 8706(b), 8714a, 8714b, and

8714c of title 5, United States Code, or in a life insurance plan established by the Agency, without regard to any regularly scheduled open season and requirement of insurability. (ii) EMPLOYEES
CONTRIBUTION.An

individual enrolled in a life insurance plan under this clause shall pay any employee contribution required by the plan. (iii) ADDITIONAL
FUNDING.The

Di-

rector shall transfer to the Employees Life Insurance Fund established under section

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203 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 8714 of title 5, United States Code, an amount determined by the Director of the Office of Personnel Management, after consultation with the Director and the Director of the Office of Management and Budget, to be necessary to reimburse the Fund for the cost to the Fund of providing benefits under this subparagraph not otherwise paid for by the employee under clause (ii). (iv) CREDIT
FOR TIME ENROLLED IN

OTHER PLANS.For

employees transferred

under this section, enrollment in a life insurance plan administered by the Board of Governors, the Federal Deposit Insurance Corporation, the Federal Trade Commission, the Secretary of Housing and Urban Development, the National Credit Union Administration, the Comptroller of the Currency, the Director of the Office of Thrift Supervision, or a Federal reserve bank immediately before enrollment in a life insurance plan under chapter 87 of title 5, United States Code, shall be considered as enrollment in a life insurance

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204 1 2 3 4 5 plan under that chapter for purposes of section 8706(b)(1)(A) of title 5, United States Code. (j) IMPLEMENTATION OF UNIFORM PAY AND CLASSIFICATION

SYSTEM.Not later than 2 years after the des-

6 ignated transfer date, the Director shall implement a uni7 form pay and classification system for all transferred em8 ployees. 9 (k) EQUITABLE TREATMENT.In administering the

10 provisions of this section, the Director 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) shall take no action that would unfairly disadvantage transferred employees relative to each other based on their prior employment by the Board of Governors, the Federal Deposit Insurance Corporation, the Federal Trade Commission, the Secretary of Housing and Urban Development, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, a Federal reserve bank, a Federal home loan bank, or a joint office of the Federal home loan banks; and (2) may take such action as is appropriate in individual cases so that employees transferred under this section receive equitable treatment, with respect to those employees status, tenure, pay, benefits

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205 1 2 3 4 5 6 7 8 9 10 11 12 13 (other than benefits under programs administered by the Office of Personnel Management), and accrued leave or vacation time, for prior periods of service with any Federal agency, including the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Federal Trade Commission, the Department of Housing and Urban Development, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, a Federal reserve bank, a Federal home loan bank, or a joint office of the Federal home loan banks. (l) IMPLEMENTATION.In implementing the provi-

14 sions of this section, the Director shall work with the Di15 rector of the Office of Personnel Management and other 16 entities with expertise in matters related to employment 17 to ensure a fair and orderly transition for affected employ18 ees. 19 20
SEC. 165. INCIDENTAL TRANSFERS.

(a) INCIDENTAL TRANSFERS AUTHORIZED.The Di-

21 rector of the Office of Management and Budget, in con22 sultation with the Secretary, shall make such additional 23 incidental transfers and dispositions of assets and liabil24 ities held, used, arising from, available, or to be made 25 available, in connection with the functions transferred by

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206 1 this title, as the Director may determine necessary to ac2 complish the purposes of this title. 3 (b) SUNSET.The authority provided in this section

4 shall terminate 5 years after the date of the enactment 5 of this Act. 6 7
SEC. 166. INTERIM AUTHORITY OF THE SECRETARY.

(a) IN GENERAL.The Secretary is authorized to

8 perform the functions of the Director under this subtitle 9 until the appointment of the Director is confirmed by the 10 Senate in accordance with section 112. 11 (b) INTERIM ADMINISTRATIVE SERVICES
OF THE BY THE

12 DEPARTMENT

TREASURY.The Secretary of the

13 Treasury may provide administrative services necessary to 14 support the Agency before the designated transfer date. 15 16
THE

(c) INTERIM FUNDING

FOR THE

DEPARTMENT

OF

TREASURY.For the purposes of carrying out the

17 authorities granted in this section, there are appropriated 18 to the Secretary of the Treasury such sums as are nec19 essary. Notwithstanding any other provision of law, such 20 amounts shall be subject to apportionment under section 21 1517 of title 31, United States Code, and restrictions that 22 generally apply to the use of appropriated funds in title 23 31, United States Code, and other laws.

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207 1 2 3 4

Subtitle GRegulatory Improvements

SEC. 171. COLLECTION OF DEPOSIT ACCOUNT DATA.

(a) PURPOSE.The purpose of this section is to pro-

5 mote awareness and understanding of the access of indi6 viduals and communities to financial services, and to iden7 tify business and community development needs and op8 portunities. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (b) IN GENERAL. (1) RECORDS
REQUIRED.For

each branch,

automated teller machine at which deposits are accepted, and other deposit taking service facility with respect to any financial institution, the financial institution shall maintain records of the number and dollar amounts of deposit accounts of customers. (2) GEO-CODED
ADDRESSES OF DEPOSITORS.

The customers addresses maintained pursuant to paragraph (1) shall be geo-coded so that data shall be collected regarding the census tracts of the residence or business location of the customers. (3) IDENTIFICATION
OF DEPOSITOR TYPE.In

maintaining records on any deposit account under this section, the financial institution shall also record whether the deposit account is for a residential or commercial customer.
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208 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (4) PUBLIC (A) IN

AVAILABILITY. GENERAL.The

following informa-

tion shall be publicly available on an annual basis (i) the address and census tracts of each branch, automated teller machine at which deposits are accepted, and other deposit taking service facility with respect to any financial institution; (ii) the type of deposit account including whether the account was a checking or savings account; and (iii) data on the number and dollar amounts of the accounts, presented by census tract location of the residential and commercial customers. (iv) any other data deemed appropriate by the Director. (B) PROTECTION
OF IDENTITY.In

the

publicly available data, any personally identifiable data element shall be removed so as to protect the identities of the commercial and residential customers. (c) AVAILABILITY OF INFORMATION.

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209 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) SUBMISSION

TO AGENCIES.The

data re-

quired to be compiled and maintained under this section by any financial institution shall be submitted annually to the Agency, or to a Federal banking agency, in accordance with regulations prescribed by the Director. (2) AVAILABILITY
OF INFORMATION.Informa-

tion compiled and maintained under this section shall be retained for not less than 3 years after the date of preparation and shall be made available to the public, upon request, in the form required under regulations prescribed by the Director. (d) AGENCY USE.The Director (1) shall assess the distribution of residential and commercial accounts at such financial institution across income and minority level of census tracts; and (2) may use the data for any other purpose as permitted by law. (e) REGULATIONS AND GUIDANCE. (1) IN
GENERAL.The

Director shall prescribe

such regulations and issue guidance as may be necessary to carry out, enforce, and compile data pursuant to this section.

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210 1 2 3 4 5 6 7 8 9 (2) DATA

COMPILATION REGULATIONS.The

Director shall prescribe regulations regarding the provision of data compiled under this section to the Federal banking agencies to carry out the purposes of this section and shall issue guidance to financial institutions regarding measures to facilitate compliance with the this section and the requirements of regulations prescribed under this section. (f) DEFINITIONS.For purposes of this section, the

10 following definitions shall apply: 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) AGENCY.The term Agency means the Consumer Financial Protection Agency. (2) CREDIT
UNION.The

term credit union

means a Federal credit union or a State-chartered credit union (as such terms are defined in section 101 of the Federal Credit Union Act). (3) DEPOSIT
ACCOUNT.The

term deposit ac-

count includes any checking account, savings account, credit union share account, and other type of account as defined by the Director. (4) DIRECTOR.The term Director means the Director of the Agency. (5) FEDERAL
BANKING AGENCY.The

term

Federal banking agency means the Board of Governors of the Federal Reserve System, the head of

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211 1 2 3 4 5 6 7 8 9 10 11 12 13 the agency responsible for chartering and regulating national banks, the Director of the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, and the National Credit Union Administration; and the term Federal banking agencies means all of those agencies. (6) FINANCIAL nancial institution (A) has the meaning given to the term insured depository institution in section 3(c)(2) of the Federal Deposit Insurance Act; and (B) includes any credit union. (g) EFFECTIVE DATE.This section shall take effect
INSTITUTION.The

term fi-

14 on the designated transfer date. 15 16

SEC. 172. SMALL BUSINESS DATA COLLECTION.

(a) IN GENERAL.The Equal Credit Opportunity

17 Act (15 U.S.C. 1691 et seq.) is amended by inserting after 18 section 704A the following new section: 19 704B. Small business loan data collection 20 (a) PURPOSE.The purpose of this section is to fa-

21 cilitate enforcement of fair lending laws and enable com22 munities, governmental entities, and creditors to identify 23 business and community development needs and opportu24 nities of women- and minority-owned small businesses.

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212 1 (b) IN GENERAL.Subject to the requirements of

2 this section, in the case of any application to a financial 3 institution for credit for a small business, the financial in4 stitution shall 5 6 7 8 9 10 11 12 13 14 15 (1) inquire whether the business is a womenor minority-owned business, without regard to whether such application is received in person, by mail, by telephone, by electronic mail or other form of electronic transmission, or by any other means and whether or not such application is in response to a solicitation by the financial institution; and (2) maintain a record of the responses to such inquiry separate from the application and accompanying information. (c) RIGHT
TO

REFUSE.Any applicant for credit

16 may refuse to provide any information requested pursuant 17 to subsection (b) in connection with any application for 18 credit. 19 20 21 22 23 24 25 (d) NO ACCESS BY UNDERWRITERS. (1) IN
GENERAL.Where

feasible, no loan un-

derwriter or other officer or employee of a financial institution, or any affiliate of a financial institution, involved in making any determination concerning an application for credit shall have access to any information provided by the applicant pursuant to a re-

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213 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 quest under subsection (b) in connection with such application. (2) EXCEPTION.If a financial institution determines that loan underwriter or other officer or employee of a financial institution, or any affiliate of a financial institution, involved in making any determination concerning an application for credit should have access to any information provided by the applicant pursuant to a request under subsection (b), the financial institution will provide notice to the applicant of the access of the underwriter to this information, along with notice that the financial institution may not discriminate on this basis of this information. (e) FORM AND MANNER OF INFORMATION. (1) IN
GENERAL.Each

financial institution

shall compile and maintain, in accordance with regulations of the Agency, a record of the information provided by any loan applicant pursuant to a request under subsection (b). (2) ITEMIZATION.Information compiled and maintained under paragraph (1) shall also be itemized in order to clearly and conspicuously disclose the following:

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214 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (A) The number of the application and the date the application was received. (B) The type and purpose of the loan or other credit being applied for. (C) The amount of the credit or credit limit applied for and the amount of the credit transaction or the credit limit approved for such applicant. (D) The type of action taken with respect to such application and the date of such action. (E) The census tract in which is located the principal place of business of the small business loan applicant. (F) The gross annual revenue of the business in the last fiscal year of the small business loan applicant preceding the date of the application. (G) The race, sex, and ethnicity of the principal owners of the business. (H) Any additional data the Agency determines would aid in fulfilling the purposes of this section. (3) INCLUSION
INFORMATION OF PERSONALLY IDENTIFIABLE

PROHIBITED.In

compiling

and

maintaining any record of information under this

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215 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 section, a financial institution may not include in such record the name, specific address (other than the census tract required under paragraph (1)(E)), telephone number, electronic mail address, and any other personally identifiable information concerning any individual who is, or is connected with, the small business loan applicant. (4) DISCRETION
TO DELETE OR MODIFY PUB-

LICLY AVAILABLE DATA.The

Agency may, in the

discretion of the Agency, delete or modify data collected under this section which is or will be available to the public if the Agency determines that the deletion or modification of the data would advance a compelling privacy interest. (f) AVAILABILITY OF INFORMATION. (1) SUBMISSION
TO AGENCY.The

data re-

quired to be compiled and maintained under this section by any financial institution shall be submitted annually to the Agency. (2) AVAILABILITY (A) IN
OF INFORMATION.

GENERAL.Information

compiled

and maintained under this section shall be retained for not less than 3 years after the date of preparation and shall be made available to

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216 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 the public, upon request, in the form required under regulations prescribed by the Agency. (B) ANNUAL
LIC.In DISCLOSURE TO THE PUB-

addition to the availability by request

under subparagraph (A) of data compiled and maintained under this section, the Agency shall annually provide such data to the public. (C) PROCEDURES.The procedures for disclosing data compiled and maintained under this section to the public shall be determined by the Agency by regulation. (3) COMPILATION (A) IN
OF AGGREGATE DATA.

GENERAL.The

Agency may, in

the discretion of the Agency, compile for the Agencys own use compilations of aggregate data. (B) PUBLIC
GATE DATA.The AVAILABILITY OF AGGRE-

Agency may, in the discre-

tion of the Agency, make public compilations of aggregate data in such manner as the Agency may determine to be appropriate. (g) DEFINITIONS.For purposes of this section, the

23 following definitions shall apply: 24 25 (1) FINANCIAL

INSTITUTION.The

term fi-

nancial institution means any partnership, com-

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217 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 pany, corporation, association (incorporated or unincorporated), trust, estate, cooperative organization, or other entity that engages in any financial activity. (2) MINORITY-OWNED
BUSINESS.The

term

minority-owned business means a business (A) more than 50 percent of the ownership or control of which is held by 1 or more minority individuals; and (B) more than 50 percent of the net profit or loss of which accrues to 1 or more minority individuals. (3) WOMEN-OWNED
BUSINESS.The

term

women-owned business means a business (A) more than 50 percent of the ownership or control of which is held by 1 or more women; and (B) more than 50 percent of the net profit or loss of which accrues to 1 or more women. (4) MINORITY.The term minority has the meaning given to such term by section 1204(c)(3) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. (5) SMALL
BUSINESS LOAN.The

term small

business loan shall be defined by the Agency, which may take into account

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218 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (A) the gross revenues of the borrower; (B) the total number of employees of the borrower; (C) the industry in which the borrower has its primary operations; and (D) the size of the loan. (h) AGENCY ACTION. (1) IN
GENERAL.The

Agency shall prescribe

such regulations and issue such guidance as may be necessary to carry out, enforce, and compile data pursuant to this section. (2) EXCEPTIONS.The Agency, by regulation or order, may adopt exceptions to any requirement of this section and may, conditionally or unconditionally, exempt any financial institution or class of institutions from the requirements of this section as the Agency determines to be necessary or appropriate to carry out the purposes and objectives of this section. (3) GUIDANCE.The Agency shall issue guidance designed to facilitate compliance with the requirements of this section, including assisting financial institutions in working with applicants to determine whether the applicants are women- or minority-owned for the purposes of this section. .

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219 1 (b) TECHNICAL

AND

CONFORMING AMENDMENT.

2 Section 701(b) of the Equal Credit Opportunity Act (15 3 U.S.C. 1691(b)) is amended 4 5 6 7 8 9 10 11 12 (1) by striking or after the semicolon at the end of paragraph (3); (2) by striking the period at the end of paragraph (4) and inserting ; or; and (3) by inserting after paragraph (4), the following new paragraph: (5) to make an inquiry under section 704B in accordance with the requirements of such section.. (c) CLERICAL AMENDMENT.The table of sections

13 for title VII of the Consumer Credit Protection Act is 14 amended by inserting after the item relating to section 15 704A the following new item:
704B. Small business loan data collection..

16

(d) EFFECTIVE DATE.This section shall take effect

17 on the designated transfer date. 18 19 20 21 22

Subtitle HConforming Amendments

SEC. 181. AMENDMENTS TO THE INSPECTOR GENERAL ACT OF 1978.

(a) ESTABLISHMENT.Section 8G(a)(2) of the In-

23 spector General Act of 1978 (5 U.S.C. App. 3, 8G(a)(2)) 24 is amended by inserting the Consumer Financial Protec-

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220 1 tion Agency, before the Consumer Product Safety Com2 mission,. 3 (b) EFFECTIVE DATE.This section shall take effect

4 on the date of the enactment of this Act. 5 6

SEC. 182. AMENDMENTS TO THE PRIVACY ACT OF 1974.

(a) APPLICABILITY.Section 552a of title 5, United

7 States Code, is amended by adding at the end the fol8 lowing new subsection: 9 10 (w) APPLICABILITY TO CONSUMER FINANCIAL PROTECTION

AGENCY.Except as provided in the Consumer

11 Financial Protection Agency Act of 2009, this section 12 shall apply with respect to the Consumer Financial Protec13 tion Agency.. 14 (b) EFFECTIVE DATE.This section shall take effect

15 on the date of the enactment of this Act. 16 17 18

SEC. 183. AMENDMENTS TO THE ALTERNATIVE MORTGAGE TRANSACTION PARITY ACT OF 1982.

(a) SECTION 803(1).Section 803(1) of the Alter-

19 native Mortgage Transaction Parity Act of 1982 (12 20 U.S.C. 3802(1)) is amended by striking paragraphs (B) 21 and (C). 22 (b) SECTION 804(a).Section 804(a) of the Alter-

23 native Mortgage Transaction Parity Act of l982 (12 24 U.S.C. 3803(a)) is amended

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221 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 end; (3) in paragraph (3), by striking the period at the end and inserting ; and; and (4) by adding at the end the following new paragraph: (4) with respect to transactions made after the designated transfer date, as determined in section 1062 of the Consumer Financial Protection Agency Act of 2009, only in accordance with regulations governing alternative mortgage transactions as issued by the Consumer Financial Protection Agency for federally chartered housing creditors, in accordance with the rulemaking authority granted to the Consumer Financial Protection Agency with regard to federally chartered housing creditors under laws other than this section.. (c) SECTION 804.Section 804 of the Alternative (1) in paragraphs (1), (2), and (3), by inserting on or before the designated transfer date, as determined in section 1062 of the Consumer Financial Protection Agency Act of 2009 after transactions made each place such term appears; (2) in paragraph (2), by striking and at the

24 Mortgage Transaction Parity Act of l982 (12 U.S.C. 25 3803) is amended

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222 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 (1) by striking subsection (c) and inserting the following new subsection: (c) EFFECT OF STATE LAW. (1) IN
GENERAL.An

alternative mortgage

transaction may be made by a housing creditor in accordance with this section, notwithstanding any State Constitution, law, or regulation that prohibits an alternative mortgage transaction. (2) RULE
OF CONSTRUCTION.For

purposes

of this subsection, a State Constitution, law, or regulation that prohibits an alternative mortgage transaction does not include any State Constitution, law, or regulation that regulates mortgage transactions generally, including any restriction on prepayment penalties or late charges.; and (2) by adding at the end the following new subsection: (d) DUTIES OF CONSUMER FINANCIAL PROTECTION

19 AGENCY.The Consumer Financial Protection Agency 20 shall 21 22 23 24 25 (1) review the regulations identified by the Comptroller of the Currency, the National Credit Union Administration, and the Director of the Office of Thrift Supervision (as those regulations exist on the designated transfer date, as determined in sec-

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223 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 tion 1062 of the Consumer Financial Protection Agency Act of 2009) as applicable under paragraphs (1), (2), and (3) of subsection (a); (2) determine whether such regulations are fair and not deceptive and otherwise meet the objectives of section 121 of the Consumer Financial Protection Agency Act of 2009; and (3) prescribe regulations under subsection (a)(4) after the designated transfer date, as determined under such Act.. (d) EFFECTIVE DATE
TION. AND

SCOPE

OF

APPLICA-

(1) EFFECTIVE

DATE.This

section shall take

effect on the designated transfer date. (2) SCOPE

OF APPLICATION.The

amendments

made by subsection (a) shall not affect any transaction covered by the Alternative Mortgage Transaction Parity Act of l982 which is entered into on or before the designated transfer date.
SEC. 184. AMENDMENTS TO THE CONSUMER CREDIT PROTECTION ACT.

(a) TRUTH IN LENDING ACT. (1) SECTION

103.Section

103 of the Truth in

Lending Act (15 U.S.C. 1602) is amended by strik-

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224 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ing subsection (b) and inserting the following new subsection: (b) AGENCY DEFINITIONS. (1) BOARD.The term Board means the Board of Governors of the Federal Reserve System. (2) AGENCY.The term Agency means the Consumer Financial Protection Agency.. (2) UNIVERSAL
AMENDMENT RELATING TO

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.

(A) IN

GENERAL.Except

as provided in

subparagraph (B), the Truth in Lending Act (15 U.S.C. 1601 et seq.) is amended by striking Board each place such term appears, including in chapters 4 and 5 relating to credit billing and consumer leases, and inserting Agency. (B) EXCEPTIONS.The amendment described in subparagraph (A) shall not apply to sections 108(a) (as amended by paragraph (4)) and 140(d)) or any reference in either such section to the term Board. (3) SECTION
105.Section

105(b) of the Truth

in Lending Act (15 U.S.C. 1604(b)) is amended by striking the first sentence and inserting the following: The Agency shall publish a single, inte-

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225 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 grated disclosure for mortgage loan transactions, including real estate settlement cost statements, which include the disclosure requirements of this title, in conjunction with the disclosure requirements of the Real Estate Settlement Procedures Act that, taken together, may apply to transactions subject to both or either law. The purpose of such model disclosure shall be to facilitate compliance with the disclosure requirements of those titles, and to aid the borrower or lessee in understanding the transaction by utilizing readily understandable language to simplify the technical nature of the disclosures.. (4) SECTION
108.Section

108 of the Truth in

Lending Act (15 U.S.C. 1607) is amended (A) by striking subsection (a) and inserting the following new subsection: (a) ENFORCING AGENCIES.Subject to section 122

18 of the Consumer Financial Protection Agency Act of 2009, 19 compliance with the requirements imposed under this title 20 shall be enforced as follows: 21 22 23 24 (1) Under section 8 of the Federal Deposit Insurance Act, in the case of (A) national banks, and Federal branches and Federal agencies of foreign banks, by the

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226 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 head of the agency responsible for chartering and regulating national banks; (B) member banks of the Federal Reserve System (other than national banks), branches and agencies of foreign banks (other than Federal branches, Federal agencies, and insured State branches of foreign banks), commercial lending companies owned or controlled by foreign banks, and organizations operating under section 25 or 25(a) of the Federal Reserve Act, by the Board; (C) depository institution insured by the Federal Deposit Insurance Corporation (other than members of the Federal Reserve System, Federal savings associations, and savings and loan holding companies) and insured State branches of foreign banks, by the Board of Directors of the Federal Deposit Insurance Corporation; and (D) Federal savings associations and savings and loan holding companies, by the Director of the Office of Thrift Supervision. (2) Under subtitle E of the Consumer Financial Protection Agency Act of 2009, by the Agency.

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227 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 (3) Under the Federal Credit Union Act, by the head of the agency responsible for chartering and regulating Federal credit unions. (4) Under the Federal Aviation Act of 1958, by the Secretary of Transportation with respect to any air carrier or foreign air carrier subject to that Act. (5) Under the Packers and Stockyards Act, 1921 (except as provided in section 406 of that Act), by the Secretary of Agriculture with respect to any activities subject to that Act. (6) Under the Farm Credit Act of 1971, by the Farm Credit Administration with respect to any Federal land bank, Federal land bank association, Federal intermediate credit bank, or production credit association.; and (B) by striking subsection (c) and inserting the following new subsection: (c) OVERALL ENFORCEMENT AUTHORITY
OF THE

20 FEDERAL TRADE COMMISSION.Except to the extent 21 that enforcement of the requirements imposed under this 22 title is specifically committed to some other Government 23 agency under subsection (a) and subject to section 122 24 of the Consumer Financial Protection Agency Act of 2009, 25 the Federal Trade Commission shall enforce such require-

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228 1 ments. For the purpose of the exercise by the Federal 2 Trade Commission of its functions and powers under the 3 Federal Trade Commission Act, a violation of any require4 ment imposed under this title shall be deemed a violation 5 of a requirement imposed under that Act. All of the func6 tions and powers of the Federal Trade Commission under 7 the Federal Trade Commission Act are available to the 8 Commission to enforce compliance by any person with the 9 requirements under this title, irrespective of whether that 10 person is engaged in commerce or meets any other juris11 dictional tests in the Federal Trade Commission Act.. 12 13 14 15 16 17 18 19 20 21 22 23 24 (5) UNIVERSAL
AMENDMENT RELATING TO THE

FEDERAL TRADE COMMISSION.

(A) IN

GENERAL.Except

as provided in

subparagraph (B), the Truth in Lending Act (15 U.S.C. 1601 et seq.) is amended by striking Federal Trade Commission each place such term appears and inserting Agency. (B) EXCEPTIONS.The amendment described in subparagraph (A) shall not apply to sections 108(c) (as amended by paragraph (4)) and 129(m) (as amended by paragraph (7)) or any reference in either such section to the term Federal Trade Commission.

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229 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (6) SECTION

127.Subparagraph

(C) of section

127(b)(11) of the Truth in Lending Act (15 U.S.C. 1637(b)(11)) is amended to read as follows: (C) Notwithstanding subparagraphs (A) and (B), in the case of a creditor with respect to which compliance with this title is enforced by the Agency, the following statement, in a prominent location on the front of the billing statement, disclosed clearly and conspicuously: Minimum Payment Warning: Making only the required minimum payment will increase the interest you pay and the time it takes to repay your balance. For example, making only the typical 5 percent minimum monthly payment on a balance of $300 at an interest rate of 17 percent would take 24 months to repay the balance in full. For an estimate of the time it would take to repay your balance, making only minimum monthly payments, call the Consumer Financial Protection Agency at this toll-free number: [the blank space to

be filled in by the creditor]. A creditor who is subject to this subparagraph shall not be subject to subparagraph (A) or (B)..

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230 1 2 3 4 5 (7) SECTION

129.Section

129(m) of the Truth

in Lending Act (15 U.S.C. 1639(m)) is amended to read as follows: (m) CIVIL PENALTIES
MISSION IN

FEDERAL TRADE COM-

ENFORCEMENT ACTIONS.For purposes of en-

6 forcement by the Federal Trade Commission, any violation 7 of a regulation issued by the Agency pursuant to sub8 section (l)(2) of this section shall be treated as a violation 9 of a regulation promulgated under section 18 of the Fed10 eral Trade Commission Act (15 U.S.C. 57a) regarding un11 fair or deceptive acts or practices.. 12 13 14 15 16 17 18 19 20 (b) FAIR CREDIT REPORTING ACT. (1) SECTION
603.Section

603 of the Fair

Credit Reporting Act (15 U.S.C. 1681a) is amended (A) by redesignating subsections (w) and (x) as subsections (x) and (y), respectively; and (B) by inserting after subsection (v) the following new subsection: (w) AGENCY.The term Agency means the Con-

21 sumer Financial Protection Agency.. 22 23 24 (2) UNIVERSAL

AMENDMENTS RELATING TO

THE FEDERAL TRADE COMMISSION.Other

than in

connection with the amendment made by paragraph

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231 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (7)(A), the Fair Credit Reporting Act (15 U.S.C. 1681a) is amended (A) by striking Federal Trade Commission each place such term appears and inserting Agency; (B) by striking Commission each place such term appears (other than in connection with the term amended in subparagraph (A)) and inserting Agency; and (C) by striking Federal banking agencies, the National Credit Union Administration, and the Commission shall jointly each place such term appears in sections 605(h)(2), 615(e)(1), 623(a)(8)(A), 623(e)(1), 628(a)(1), and

628(a)(3) and inserting Agency shall. (3) SECTION

603.Section

603(k)(2) of the

Fair Credit Reporting Act (15 U.S.C. 1681a(k)(2)) is amended by striking Board of Governors of the Federal Reserve System and inserting Agency. (4) SECTION
604.Subsection

604(g) of the

Fair Credit Reporting Act (15 U.S.C. 1681b(g)) is amended (A) by striking subparagraph (C) of paragraph (3) and inserting the following new subsections:

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232 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (C) as otherwise determined to be necessary and appropriate, by regulation or order and subject to paragraph (6), by the Agency (consistent with the enforcement authorities prescribed under paragraph (2) of section 621(b)), or the applicable State insurance authority (with respect to any person engaged in providing insurance or annuities).; (B) by striking paragraph (5) and inserting the following new paragraph: (5) REGULATIONS
PARAGRAPH (2). AND EFFECTIVE DATE FOR

(A)

REGULATIONS

REQUIRED.The

Agency may, after notice and opportunity for comment, prescribe regulations that permit transactions under paragraph (2) that are determined to be necessary and appropriate to protect legitimate operational, transactional, risk, consumer, and other needs (and which shall include permitting actions necessary for administrative verification purposes), consistent with the intent of paragraph (2) to restrict the use of medical information for inappropriate purposes.; and (C) by striking paragraph (6).

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233 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (5) SECTION

611.Subsection

611(e)(2) of the

Fair Credit Reporting Act (15 U.S.C.1681i(e)(2)) is amended to read as follows: (2) EXCLUSION.Complaints received or obtained by the Agency pursuant to its investigative authority under the Consumer Financial Protection Agency Act of 2009 shall not be subject to paragraph (1).. (6) SECTION
615.Subparagraph

615(h)(6)(A)

of the Fair Credit Reporting Act (15 U.S.C. 1681m(h)(6)(A)) is amended to read as follows: (A) REGULATIONS
REQUIRED.The

Agency shall prescribe regulations.. (7) SECTION

621.Section

621 of the Fair

Credit Reporting Act (15 U.S.C. 1681s) is amended (A) by striking subsection (a) and inserting the following new subsection: (a) ENFORCEMENT
SION. BY

FEDERAL TRADE COMMIS-

(1) IN

GENERAL.Subject

to section 122 of

the Consumer Financial Protection Agency Act of 2009, compliance with the requirements imposed under this title shall be enforced under the Federal Trade Commission Act by the Federal Trade Com-

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234 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 mission with respect to consumer reporting agencies and all other persons subject thereto, except to the extent that enforcement of the requirements imposed under this title is specifically committed to some other government agency under subsection (b) hereof. For the purpose of the exercise by the Federal Trade Commission of its functions and powers under the Federal Trade Commission Act, a violation of any requirement or prohibition imposed under this title shall constitute an unfair or deceptive act or practice in commerce in violation of section 5(a) of the Federal Trade Commission Act and shall be subject to enforcement by the Federal Trade Commission under section 5(b) of such Act with respect to any consumer reporting agency or person subject to enforcement by the Federal Trade Commission pursuant to this subsection, irrespective of whether that person is engaged in commerce or meets any other jurisdictional tests in the Federal Trade Commission Act. The Federal Trade Commission shall have such procedural, investigative, and enforcement powers (subject to section 122 of the Consumer Financial Protection Agency Act of 2009), including the power to issue procedural rules in enforcing compliance with the requirements imposed under this title and

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235 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 to require the filing of reports, the production of documents, and the appearance of witnesses as though the applicable terms and conditions of the Federal Trade Commission Act were part of this title. (2) CIVIL
MONEY PENALTIES. GENERAL.Subject

(A) IN

to section 122

of the Consumer Financial Protection Agency Act of 2009, in the event of a knowing violation, which constitutes a pattern or practice of violations of this title, the Commission may commence a civil action to recover a civil penalty in a district court of the United States against any person that violates this title. In such action, such person shall be liable for a civil penalty of not more than $2,500 per violation. (B)
AMOUNT.In

FACTORS

IN

DETERMINING

determining the amount of a civil

penalty under subparagraph (A), the court shall take into account the degree of culpability, any history of prior such conduct, ability to pay, effect on ability to continue to do business, and such other matters as justice may require.

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236 1 2 3 4 5 6 7 8 9 10 11 12 13 (3) EXCEPTION.Notwithstanding paragraph (2), a court may not impose any civil penalty on a person for a violation of section 623(a)(1) unless the person has been enjoined from committing the violation, or ordered not to commit the violation, in an action or proceeding brought by or on behalf of the Agency, and has violated the injunction or order, and the court may not impose any civil penalty for any violation occurring before the date of the violation of the injunction or order.; (B) by striking subsection (b) and inserting the following new subsection: (b) ENFORCEMENT
BY

OTHER AGENCIES.Subject

14 to section 122 of the Consumer Financial Protection 15 Agency Act of 2009, compliance with the requirements im16 posed under this title with respect to consumer reporting 17 agencies, persons who use consumer reports from such 18 agencies, persons who furnish information to such agen19 cies, and users of information that are subject to sub20 section (d) of section 615 shall be enforced as follows: 21 22 23 24 (1) Under section 8 of the Federal Deposit Insurance Act, in the case of (A) national banks, and Federal branches and Federal agencies of foreign banks, by the

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237 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 head of the agency responsible for chartering and regulating national banks; (B) member banks of the Federal Reserve System (other than national banks), branches and agencies of foreign banks (other than Federal branches, Federal agencies, and insured State branches of foreign banks), commercial lending companies owned or controlled by foreign banks, and organizations operating under section 25 or 25A of the Federal Reserve Act, by the Board of Governors of the Federal Reserve System; (C) banks insured by the Federal Deposit Insurance Corporation (other than members of the Federal Reserve System, Federal savings associations, and savings and loan holding companies) and insured State branches of foreign banks, by the Board of Directors of the Federal Deposit Insurance Corporation; and (D) Federal savings associations and savings and loan holding companies, by the Director of the Office of Thrift Supervision. (2) Under subtitle E of the Consumer Financial Protection Agency Act of 2009, by the Agency.

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238 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 (3) Under the Federal Credit Union Act, by the National Credit Union Administration Board with respect to any Federal credit union. (4) Under subtitle IV of title 49, United States Code, by the Secretary of Transportation, with respect to all carriers subject to the jurisdiction of the Surface Transportation Board. (5) Under the Federal Aviation Act of 1958, by the Secretary of Transportation with respect to any air carrier or foreign air carrier subject to that Act. (6) Under the Packers and Stockyards Act, 1921 (except as provided in section 406 of that Act), by the Secretary of Agriculture with respect to any activities subject to that Act. (7) Under the Commodity Exchange Act, with respect to a person subject to the jurisdiction of the Commodity Futures Trading Commission. (8) Under the Federal securities laws and any other laws subject to the jurisdiction of the Securities and Exchange Commission, with respect to a person subject to the jurisdiction of the Securities and Exchange Commission

24 Any term used in paragraph (1) that is not defined in 25 this title or otherwise defined in section 3(s) of the Federal

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239 1 Deposit Insurance Act shall have the meaning given to 2 such term in section 1(b) of the International Banking Act 3 of 1978..; 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 (C) by striking subsection (e) and inserting the following new subsection: (e) REGULATORY AUTHORITY. (1) IN
GENERAL.

(A) AGENCY.Except as provided under subparagraph (B), the Agency shall prescribe such regulations as necessary to carry out the purposes of this Act with respect to a covered person described in subsection (b). (B) COMMISSION.The Commission shall prescribe such regulations as necessary to carry out the purposes of this Act with respect to consumer reporting agencies. (2) SCOPE
OF APPLICATION.The

regulations

prescribed by the Agency under paragraph (1) shall apply to any person subject to this Act, notwithstanding the enforcement authorities granted to other agencies under this section; and (D) in the heading of subsection (g) by striking FTC.

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240 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (8) SECTION

623.Section

623 of the Fair

Credit Reporting Act (15 U.S.C. 1681s2) is amended (A) by amending subparagraph (a)(7)(D) to read as follows: (D) MODEL
DISCLOSURE. OF AGENCY TO PRE-

(i) DUTY
PARE.The

Agency shall prescribe a brief

model disclosure a financial institution may use to comply with subparagraph (A), which shall not exceed 30 words. (ii) USE
OF MODEL NOT RE-

QUIRED.No

provision of this paragraph

shall be construed as requiring a financial institution to use any such model form prescribed by the Agency. (iii) COMPLIANCE
USING MODEL.A

financial institution shall be deemed to be in compliance with subparagraph (A) if the financial institution uses any such model form prescribed by the Agency, or the financial institution uses any such model form and rearranges its format.. (B) by amending subsection (e) to read as follows:

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241 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (e) ACCURACY GUIDELINES

QUIRED. AND

REGULATIONS RE-

(1) GUIDELINES.The Agency shall, with respect to the persons or entities that are subject to its enforcement authority under section 621 (A) establish and maintain guidelines for use by each person that furnishes information to a consumer reporting agency regarding the accuracy and integrity of the information relating to consumers that such entities furnish to consumer reporting agencies, and update such guidelines as often as necessary; and (B) prescribe regulations requiring each person that furnishes information to a consumer reporting agency to establish reasonable policies and procedures or implementing the guidelines established pursuant to subparagraph (A). (2) CRITERIA.In developing the guidelines required by paragraph (1)(A), the Agency shall (A) identify patterns, practices, and specific forms of activity that can compromise the accuracy and integrity of information furnished to consumer reporting agencies;

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242 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (B) review the methods (including technological means) used to furnish information relating to consumers to consumer reporting agencies; (C) determine whether persons that furnish information to consumer reporting agencies maintain and enforce policies to ensure the accuracy and integrity of information furnished to consumer reporting agencies; and (D) examine the policies and processes that persons that furnish information to consumer reporting agencies employ to conduct reinvestigations and correct inaccurate information relating to consumers that has been furnished to consumer reporting agencies. (c) EQUAL CREDIT OPPORTUNITY ACT. (1) SECTION
701.Section

701 of the Equal

Credit Opportunity Act (15 U.S.C. 1691) is amended by striking Board each place such term appears and inserting Agency. (2) SECTION
702.Section

702(c) of the Equal

Credit Opportunity Act (15 U.S.C. 1691a) is amended to read as follows: (c) The term Agency means the Consumer Finan-

25 cial Protection Agency..

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243 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (3) SECTION

703.Section

703 of the Equal

Credit Opportunity Act (15 U.S.C. 1691b) is amended (A) by striking subsection (b); (B) by redesignating paragraphs (1), (2), (3), (4), and (5) of subsection (a) as subsections (a), (b), (c), (d), and (e), respectively; (C) in subsection (c) (as so redesignated) (i) by striking paragraph (2) and inserting subsection (b); and (ii) by striking such paragraph and inserting such subsection; (D) in subsection (d) (as so redesignated) (i) by striking subsection and inserting section (ii) by striking Act and inserting title; and (iii) by striking this paragraph and inserting this subsection; and (E) by striking Board each place such term appears in such section and inserting Agency.

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244 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (4) SECTION

704.Section

704 of the Equal

Credit Opportunity Act (15 U.S.C. 1691c) is amended (A) in subsection (a) (i) in the matter preceding paragraph (1), by striking Compliance and inserting Subject to section 122 of the Consumer Financial Protection Agency Act of 2009, compliance; (ii) in paragraph (1)(A), by striking Office of the Comptroller of the Currency and inserting head of the agency responsible for chartering and regulating national banks; (iii) in paragraph (1)(B), by striking and after the semicolon; (iv) in paragraph (1)(C), by inserting and after the semicolon; (v) by inserting after subparagraph (C) of paragraph (1) the following new subparagraph: (D) savings associations and savings and loan holding companies by the Director of the Office of Thrift Supervision;; and

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245 1 2 3 4 5 6 7 8 (vi) by amending paragraph (2) to read as follows: (2) Subtitle E of the Consumer Financial Protection Agency Act of 2009, by the Agency.; (B) by striking subsection (c) and inserting the following new subsection: (c) OVERALL ENFORCEMENT AUTHORITY
ERAL OF

FED-

TRADE COMMISSION.Except to the extent that en-

9 forcement of the requirements imposed under this title is 10 specifically committed to some other Government agency 11 under subsection (a) and subject to section 102 of the 12 Consumer Financial Protection Agency Act of 2009, the 13 Federal Trade Commission shall enforce such require14 ments. For the purpose of the exercise by the Federal 15 Trade Commission of its functions and powers under the 16 Federal Trade Commission Act, a violation of any require17 ment imposed under this title shall be deemed a violation 18 of a requirement imposed under that Act. All of the func19 tions and powers of the Federal Trade Commission under 20 the Federal Trade Commission Act are available to the 21 Commission to enforce compliance by any person with the 22 requirements imposed under this title, irrespective of 23 whether that person is engaged in commerce or meets any 24 other jurisdictional tests in the Federal Trade Commission 25 Act, including the power to enforce any regulation pre-

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246 1 scribed by the Director under this title in the same man2 ner as if the violation had been a violation of a Federal 3 Trade Commission trade regulation rule.; and 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (C) in subsection (d), by striking Board and inserting Agency. (5) SECTION
704a.Section

704A(a)(1) of the

Equal Credit Opportunity Act (15 U.S.C. 1691c 1(a)(1)) is amended in by striking Board and inserting Agency. (6) SECTION
705.Section

705 of the Equal

Credit Opportunity Act (15 U.S.C. 1691d) is amended (A) in subsection (f), by striking Board each place such term appears and inserting Agency; and (B) in subsection (g), by striking Board and inserting Agency. (7) SECTION
706.Section

706 of the Equal

Credit Opportunity Act (15 U.S.C. 1691e) is amended (A) in subsection (e) (i) by striking Board each place such term appears and inserting Agency; and

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247 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (ii) by striking Federal Reserve System and inserting Consumer Financial Protection Agency; (B) in subsection (f), by striking two years each place such term appears and inserting 5 years; (C) in subsection (g) (i) by striking The agencies having, in the 1st sentence, and inserting The Agency and the agencies having (ii) by striking Each agency referred, in the 2nd sentence, and inserting The Agency and each agency referred; (iii) by striking Each such agency, in the 3rd sentence, and inserting The Agency and each such agency; and (iv) by striking whenever the agency in the 3rd sentence, and inserting whenever the Agency or an agency having responsibility for administrative enforcement under section 704; and (D) in subsection (k) (i) by striking Whenever an agency and inserting Whenever the Agency or an agency;

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248 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (ii) by striking the agency shall notify and inserting the Agency, or an agency referred to in any such paragraph, as the case may be, shall notify. (8) SECTION
707.Section

707 of the Equal

Credit Opportunity Act (15 U.S.C. 1691f) is amended by striking Board each place such term appears and inserting Agency. (d) FAIR DEBT COLLECTION PRACTICES ACT. (1) SECTION
803.Section

803 of the Fair

Debt Collection Practices Act (15 U.S.C. 1692a) is amended (A) by redesignating paragraphs (1), (2), (3), (4), (5), (6), (7), and (8) as paragraphs (2), (3), (4), (5), (6), (7), (8), and (9), respectively; and (B) by inserting before paragraph (2) (as so redesignated) the following new paragraph: (1) The term Agency means the Consumer Financial Protection Agency.. (2) SECTION
813.Section

813(e) of the Fair

Debt Collection Practices Act (15 U.S.C. 1692k(e)) is amended by striking Commission and inserting Agency.

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249 1 2 3 4 5 6 (3) SECTION

814.Section

814 of the Fair

Debt Collection Practices Act (15 U.S.C. 1692l) is amended (A) by striking subsection (a) and inserting the following new subsection: (a) FEDERAL TRADE COMMISSION.Subject to sec-

7 tion 122 of the Consumer Financial Protection Agency 8 Act of 2009, compliance with this title shall be enforced 9 by the Commission, except to the extent that enforcement 10 of the requirements imposed under this title is specifically 11 committed to another agency under subsection (b). For 12 purpose of the exercise by the Commission of its functions 13 and powers under the Federal Trade Commission Act, a 14 violation of this title shall be deemed an unfair or decep15 tive act or practice in violation of that Act. All of the func16 tions and powers of the Commission under the Federal 17 Trade Commission Act are available to the Commission 18 to enforce compliance by any person with this title, irre19 spective of whether that person is engaged in commerce 20 or meets any other jurisdictional tests in the Federal 21 Trade Commission Act, including the power to enforce the 22 provisions of this title in the same manner as if the viola23 tion had been a violation of a Federal Trade Commission 24 trade regulation rule.; 25 (B) in subsection (b)

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250 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (i) in the matter preceding paragraph (1), by striking Compliance and inserting Subject to section 122 of the Consumer Financial Protection Agency Act of 2009, compliance. (ii) in paragraph (1)(A), by striking Office of the Comptroller of the Currency; and inserting head of the agency responsible for chartering and regulating national banks; (iii) in paragraph (1)(B), by striking and after the semicolon; (iv) in paragraph (1)(C), by inserting and after the semicolon; (v) by inserting after subparagraph (C) of paragraph (1) the following new subparagraph: (D) savings associations and savings and loan holding companies by the Director of the Office of Thrift Supervision;; and (vi) by striking paragraph (2) and inserting the following new paragraph: (2) subtitle E of the Consumer Financial Protection Agency Act of 2009, by the Agency;; and

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251 1 2 3 (C) by striking subsection (d) and inserting the following new subsection:. (d) REGULATIONS.The Agency may prescribe reg-

4 ulations with respect to the collection of debts by any debt 5 collector.. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (4) SECTION
815.Section

815 (15 U.S.C.

1692m) is amended by striking Commission each place such term appears and inserting Agency. (5) SECTION
817.Section

817 (15 U.S.C.

1692o) is amended by striking Commission each place such term appears and inserting Agency. (e) ELECTRONIC FUND TRANSFER ACT. (1) SECTION
903.Section

903 of the Elec-

tronic Fund Transfer Act (15 U.S.C. 1693a) is amended (A) by striking paragraph (3) and inserting the following new paragraph: (3) the term Agency means the Consumer Financial Protection Agency;; and (B) in paragraph (6), by striking Board and inserting Agency. (2) SECTION
904.Section

904 of the Elec-

tronic Fund Transfer Act (15 U.S.C. 1693b) is amended by striking Board each place such term appears and inserting Agency.

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252 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (3) SECTION

905.Section

905 of the Elec-

tronic Fund Transfer Act (15 U.S.C. 1693c) is amended by striking Board each place such term appears and inserting Agency. (4) SECTION
906.Section

906(b) of the Elec-

tronic Fund Transfer Act (15 U.S.C. 1693d(b)) is amended by striking Board and inserting Agency. (5) SECTION
907.Section

907(b) of the Elec-

tronic Fund Transfer Act (15 U.S.C. 1693e(b)) is amended by striking Board and inserting Agency. (6) SECTION Electronic Fund
908.Section

908(f)(7) of the (15 U.S.C.

Transfer

Act

1693f(f)(7)) is amended by striking Board and inserting Agency. (7) SECTION Electronic Fund
910.Section

910(a)(1)(E) of the Act (15 U.S.C.

Transfer

1693h(a)(1)(E)) is amended by striking Board and inserting Agency. (8) SECTION Electronic Fund
911.Section

911(b)(3) of the Act (15 U.S.C.

Transfer

1693i(b)(3) is amended by striking Board and inserting Agency.

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253 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (9) SECTION

915.Section

915(d) of the Elec-

tronic Fund Transfer Act (15 U.S.C. 1693m(d)) is amended (A) by striking Board each place such term appears and inserting Agency; and (B) by striking Federal Reserve System and inserting Consumer Financial Protection Agency. (10) SECTION
917.Section

917 of the Elec-

tronic Fund Transfer Act (15 U.S.C. 1693o) is amended (A) in subsection (a) (i) by striking Compliance and inserting Subject to section 122 of the Consumer Financial Protection Agency Act of 2009, compliance; (ii) in paragraph (1)(A), by striking Office of the Comptroller of the Currency and inserting head of the agency responsible for chartering and regulating national banks; and (iii) by striking paragraph (2) and inserting: (2) subtitle E of the Consumer Financial Protection Agency Act of 2009, by the Agency;; and

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254 1 2 3 (B) by striking subsection (c) and inserting the following new subsection: (c) OVERALL ENFORCEMENT AUTHORITY
OF THE

4 FEDERAL TRADE COMMISSION.Except to the extent 5 that enforcement of the requirements imposed under this 6 title is specifically committed to some other Government 7 agency under subsection (a) and subject to section 122 8 of the Consumer Financial Protection Agency Act of 2009, 9 the Federal Trade Commission shall enforce such require10 ments. For the purpose of the exercise by the Federal 11 Trade Commission of its functions and powers under the 12 Federal Trade Commission Act, a violation of any require13 ment imposed under this title shall be deemed a violation 14 of a requirement imposed under that Act. All of the func15 tions and powers of the Federal Trade Commission under 16 the Federal Trade Commission Act are available to the 17 Commission to enforce compliance by any person subject 18 to the jurisdiction of the Commission with the require19 ments imposed under this title, irrespective of whether 20 that person is engaged in commerce or meets any other 21 jurisdictional tests in the Federal Trade Commission 22 Act.. 23 24 (11) SECTION
918.Section

918 of the Elec-

tronic Fund Transfer Act (15 U.S.C. 1693p) is

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255 1 2 3 4 5 6 7 8 9 10 11 amended by striking Board each place such term appears and inserting Agency. (12) SECTION
919.Section

919 of the Elec-

tronic Fund Transfer Act (15 U.S.C. 1693q) is amended by striking Board each place such term appears and inserting Agency. (13) SECTION
920.Section

920 of the Elec-

tronic Fund Transfer Act (15 U.S.C. 1693r) is amended by striking Board each place such term appears and inserting Agency. (f) AMENDMENTS
IN TO

HOEPA RELATING

TO THE

12 TRUTH

LENDING ACT.Section 158 of the Home

13 Ownership and Equity Protection Act of 1994 (15 U.S.C. 14 1601 nt.) (relating to hearings on home equity lending) 15 is amended 16 17 18 19 20 21 22 23 24 (1) in subsection (a), by striking Board of Governors of the Federal Reserve System, in consultation with the Consumer Advisory Council of the Board, and inserting Consumer Financial Protection Agency, in consultation with the Advisory Board to the Agency; and (2) in subsection (b), by striking Board of Governors of the Federal Reserve System and inserting Consumer Financial Protection Agency.

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256 1 (g) AMENDMENT

TO THE OF

FAIR

AND

ACCURATE
TO THE

2 CREDIT TRANSACTIONS ACT

2003 RELATING

3 FAIR CREDIT REPORTING ACT.Section 214(b)(1) of the 4 Fair and Accurate Credit Transactions Act of 2003 (15 5 U.S.C. 1681s3 nt.) is amended by striking The Federal 6 banking agencies, the National Credit Union Administra7 tion, and the Commission, with respect to the entities that 8 are subject to their respective enforcement authority under 9 section 621 of the Fair Credit Reporting Act and and 10 inserting The Consumer Financial Protection Agency, 11 with respect to a person subject to the enforcement au12 thority of the Agency, the Commodity Futures Trading 13 Commission, and. 14 15 16
SEC. 185. AMENDMENTS TO THE EXPEDITED FUNDS AVAILABILITY ACT.

(a) SECTION 605.Section 605(f)(1) of the Expe-

17 dited Funds Availability Act (12 U.S.C. 4004(f)(1)) is 18 amended by inserting , in consultation with the Director 19 of the Consumer Financial Protection Agency,after 20 Board. 21 (b) SECTION 609.Section 609(a) of the Expedited

22 Funds Availability Act (12 U.S.C. 4008(a)) is amended 23 by inserting , in consultation with the Director of the 24 Consumer Financial Protection Agency,after Board.

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257 1 2 3
SEC. 186. AMENDMENTS TO THE FEDERAL DEPOSIT INSURANCE ACT.

(a) SECTION 8.Section 8(t) the Federal Deposit In-

4 surance Act (12 U.S.C. 1818(t)) is amended by adding 5 at the end the following new paragraph: 6 7 8 9 10 11 12 13 14 15 16 17 (6) REFERRAL
TO CONSUMER FINANCIAL PRO-

TECTION COMMISSION.Each

appropriate Federal

banking agency shall make a referral to the Consumer Financial Protection Agency when the Federal banking agency has a reasonable belief that a violation of an enumerated consumer law, as defined in section 122(e)(2) of the Consumer Financial Protection Agency Act of 2009, by any insured depository institution or institution-affiliated party within the jurisdiction of that appropriate Federal banking agency.. (b) SECTION 43.Section 43 of the Federal Deposit

18 Insurance Act (12 U.S.C. 1831t) is amended 19 20 21 22 23 24 25 26

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(1) in subsection (c), by striking Federal Trade Commission and inserting Agency; (2) in subsection (d), by striking Federal Trade Commission and inserting Agency; (3) in subsection (e) (A) in paragraph (1), by striking Federal Trade Commission and inserting Agency; and
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258 1 2 3 4 5 (B) by adding at the end the following new paragraph: (5) AGENCY.The term Agency means the Consumer Financial Protection Agency.. (e) SECTION 43(f).Section 43(f) of the Federal De-

6 posit Insurance Act (12 U.S.C. 1831t(f)) is amended 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) by striking paragraph (1) and inserting the following new paragraph: (1) LIMITED
ENFORCEMENT AUTHORITY.

Compliance with the requirements of subsections (b), (c) and (e), and any regulation prescribed or order issued under such subsection, shall be enforced under the Consumer Financial Protection Agency Act of 2009 by the Agency with respect to any person (and without regard to the provision of a consumer financial product or service).; and (2) in paragraph (2), by striking subparagraph (C) and inserting the following new subparagraph: (C)
WHILE

LIMITATION

ON

STATE

ACTION

FEDERAL

ACTION

PENDING.If

the

Agency has instituted an enforcement action for a violation of this section, no appropriate State supervisory may, during the pendency of such action, bring an action under this section against any defendant named in the complaint

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259 1 2 3 4 5 of the Agency for any violation of this section that is alleged in that complaint..
SEC. 187. AMENDMENTS TO THE GRAMM-LEACH-BLILEY ACT.

(a) SECTION 504.Section 504(a)(1) of the Gramm-

6 Leach-Bliley Act (15 U.S.C. 6804(a)(1)) is amended 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) by striking The Federal banking agencies, the National Credit Union Administration, the Secretary of the Treasury, and inserting The Consumer Financial Protection Agency and; and (2) by striking , and the Federal Trade Commission. (b) SECTION 505. (1) Section 505(a) of the Gramm-Leach-Bliley Act (15 U.S.C. 6805(a)) is amended (A) in the matter preceding paragraph (1), by striking This subtitle and the regulations prescribed thereunder shall be enforced by and inserting Subject to section 122 of the Consumer Financial Protection Agency Act of 2009, this subtitle and the regulations prescribed under this title shall be enforced by the Consumer Financial Protection Agency,; and (B) by inserting after paragraph (7) the following new paragraph:

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260 1 2 3 4 5 6 7 8 9 10 11 12 13 (8) Under the Consumer Financial Protection Agency Act of 2009, by the Consumer Financial Protection Agency in the case of financial institutions and other covered persons subject to the jurisdiction of the Agency under that Act, but not with respect to the standards under section 501.. (2) Section 505(b)(1) of the Gramm-Leach-Bliley Act (15 U.S.C. 6805(b)(1)) is amended by inserting , other than the Consumer Financial Protection Agency, after described in subsection (a).
SEC. 188. AMENDMENTS TO THE HOME MORTGAGE DISCLOSURE ACT OF 1975.

(a) SECTION 303.Section 303 of the Home Mort-

14 gage Disclosure Act of 1975 (12 U.S.C. 2802) is amend15 ed 16 17 18 19 20 21 22 23 24 (1) by redesignating paragraphs (1), (2), (3), (4), (5), and (6) as paragraphs (2), (3), (4), (5), (6), and (7), respectively; and (2) by inserting before paragraph (2) (as so redesignated) the following new paragraph: (1) The term Agency means the Consumer Financial Protection Agency.. (b) UNIVERSAL AMENDMENT RELATING
CY.Except TO

AGEN-

as provided in subsections (c), (d), (e), and

25 (f), the Home Mortgage Disclosure Act of 1975 (12

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261 1 U.S.C. 280111) is amended by striking Board each 2 place such term appears and inserting Agency. 3 (c) SECTION 304.Section 304 of the Home Mort-

4 gage Disclosure Act of 1975 (12 U.S.C. 2803(h)) is 5 amended 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) in subsection (b) (A) by striking and after the semicolon at the end of paragraph (3); (B) by striking and gender in paragraph (4), and inserting age, and gender; (C) by striking the period at the end of paragraph (4) and inserting a semicolon; and (D) by inserting after paragraph (4) the following new paragraphs: (5) the number and dollar amount of mortgage loans grouped according to the following measurements: (A) the total points and fees payable at origination in connection with the mortgage as determined by the Agency, taking into account 15 U.S.C. 1602(aa)(4); (B) the difference between the annual percentage rate associated with the loan and a benchmark rate or rates for all loans;

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262 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (C) the term in months of any prepayment penalty or other fee or charge payable on repayment of some portion of principal or the entire principal in advance of scheduled payments; and (D) such other information as the Agency may require; and (6) the number and dollar amount of mortgage loans and completed applications grouped according to the following measurements: (A) the value of the real property pledged or proposed to be pledged as collateral; (B) the actual or proposed term in months of any introductory period after which the rate of interest may change; (C) the presence of contractual terms or proposed contractual terms that would allow the mortgagor or applicant to make payments other than fully-amortizing payments during any portion of the loan term; (D) the actual or proposed term in months of the mortgage loan; (E) the channel through which application was made, including retail, broker, and other relevant categories;

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263 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (F) as the Agency may determine to be appropriate, a unique identifier that identifies the loan originator as set forth in Section 1503 of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008; (G) as the Agency may determine to be appropriate, a universal loan identifier; (H) as the Agency may determine to be appropriate, the parcel number that corresponds to the real property pledged or proposed to be pledged as collateral; (I) the credit score of mortgage applicants and mortgagors in such form as the Agency may proscribe; and (J) such other information as the Agency may require.; (2) by striking subsection (h) and inserting the following new subsection: (h) SUBMISSION TO AGENCIES. (1) IN
GENERAL.The

data required to be

disclosed under subsection (b) shall be submitted to the Agency or to the appropriate agency for any institution reporting under this title, in accordance with regulations prescribed by the Agency.

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264 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (2) REGULATIONS. Notwithstanding the requirement of section 304(a)(2)(A) for disclosure by census tract, the Agency, in cooperation with other appropriate regulators, including (A) the head of the agency responsible for chartering and regulating national banks for national banks and Federal branches, Federal agencies of foreign banks, and savings associations; (B) the Federal Deposit Insurance Corporation for depository institutions insured by the Federal Deposit Insurance Corporation (other than members of the Federal Reserve System, Federal savings associations, and savings and loan holding companies) and insured State branches of foreign banks; (C) the Director of the Office of Thrift Supervision for Federal savings associations and savings and loan holding companies; (D) the National Credit Union Administration Board for credit unions; and (E) the Secretary of Housing and Urban Development for other lending institutions not regulated by an agency referred to in subparagraphs (A), (B), (C), or (D),

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265 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 shall develop regulations prescribing the format for such disclosures, the method for submission of the data to the appropriate regulatory agency, and the procedures for disclosing the information to the public. (3) REQUIRED
DISCLOSURES.The

regula-

tions prescribed under paragraph (2) shall require the collection of data required to be disclosed under subsection (b) with respect to loans sold by each institution reporting under this title, and, in addition, shall require disclosure of the class of the purchaser of such loans. (4) ADDITIONAL
DATA OR EXPLANATIONS.

Any reporting institution may submit in writing to the Agency or to the appropriate agency such additional data or explanations as it deems relevant to the decision to originate or purchase mortgage loans.; (3) in subsection (i), by striking subsection (b)(4) and inserting paragraphs (4), (5), and (6) of subsections (b); (4) in subsection (j) (A) by striking (as where such term appears in paragraph (1) and inserting (containing loan-level and application-level informa-

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266 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 tion relating to disclosures required under subsections (a) and (b) and as otherwise; (B) by striking in the format in which such information is maintained by the institution where such term appears in paragraph (2)(A), and inserting in such formats as the Agency may require; (C) by inserting credit score or similar measurement, after number, where such term appears in paragraph (2)(B)(i); and (D) by striking paragraph (3) and inserting the following new paragraph: (3) CHANGE
OF FORM NOT REQUIRED.A

de-

pository institution meets the disclosure requirement of paragraph (1) if the institution provides the information required under such paragraph in such formats as the Agency may require.; and (5) by striking paragraph (2) of subsection (m) and inserting the following new paragraph: (2) FORM
OF INFORMATION.In

complying

with paragraph (1), a depository institution shall provide the person requesting the information with a copy of the information requested in such formats as the Agency may require..

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267 1 (d) SECTION 305.Section 305 of the Home Mort-

2 gage Disclosure Act of 1975 (12 U.S.C. 2804) is amend3 ed 4 5 6 (1) by striking subsection (b) and inserting the following new subsection: (b) POWERS OF CERTAIN OTHER AGENCIES.Com-

7 pliance with the requirements imposed under this title 8 shall be enforced under 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) section 8 of the Federal Deposit Insurance Act, in the case of (A) national banks, and Federal branches and Federal agencies of foreign banks, by the head of the agency responsible for chartering and regulating national banks; (B) member banks of the Federal Reserve System (other than national banks), branches and agencies of foreign banks (other than Federal branches, Federal agencies, and insured State branches of foreign banks), commercial lending companies owned or controlled by foreign banks, and organizations operating under section 25 or 25(a) of the Federal Reserve Act, by the Board; (C) depository institutions insured by the Federal Deposit Insurance Corporation (other

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268 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 than members of the Federal Reserve System, Federal savings associations, and savings and loan holding companies) and insured State branches of foreign banks, by the Board of Directors of the Federal Deposit Insurance Corporation; and (D) Federal savings associations, and savings and loan holding companies, by the Director of the Office of Thrift Supervision; (2) subtitle E of the Consumer Financial Protection Agency Act of 2009, by the Agency; (3) the Federal Credit Union Act, by the Administrator of the National Credit Union Administration with respect to any credit union; and (4) other lending institutions, by the Secretary of Housing and Urban Development. The terms used in paragraph (1) that are not defined in this title or otherwise defined in section 3(s) of the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given to them in section 1(b) of the International Banking Act of 1978 (12 U.S.C. 3101).

23 The terms used in paragraph (1) that are not defined in 24 this title or otherwise defined in section 3(s) of the Federal 25 Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the

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269 1 meaning given to them in section 1(b) of the International 2 Banking Act of 1978; and 3 4 5 (2) by inserting at the end of section 305 the following new subsection: (d) OVERALL ENFORCEMENT AUTHORITY
OF THE

6 CONSUMER FINANCIAL PROTECTION AGENCY.Subject 7 to section 122 of the Consumer Financial Protection 8 Agency Act of 2009, enforcement of the requirements im9 posed under this title is committed to each of the agencies 10 under subsection (b). The Agency may exercise its authori11 ties under the Consumer Financial Protection Agency Act 12 of 2009 to exercise principal authority to examine and en13 force compliance by any person with the requirements 14 under this title.. 15 (e) SECTION 306.Subsection 306(b) of the Home

16 Mortgage Disclosure Act of 1975 (12 U.S.C. 2805(b)) is 17 amended to read as follows: 18 (b) The Agency may, by regulation, exempt from the

19 requirements of this title any State chartered depository 20 institution within any State or subdivision of any state if 21 the Agency determines that, under the law of such State 22 or subdivision, that institution is subject to requirements 23 substantially similar to those imposed under this title, and 24 that such law contains adequate provisions for enforce25 ment. Notwithstanding any other provision of this sub-

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270 1 section, compliance with the requirements imposed under 2 this subsection shall be enforced by the head of the agency 3 responsible for chartering and regulating national banks 4 under section 8 of the Federal Deposit Insurance Act in 5 the case of national banks and savings association the de6 posits of which are insured by the Federal Deposit Insur7 ance Corporation.. 8 (f) SECTION 307.Section 307 of the Home Mort-

9 gage Disclosure Act of 1975 (12 U.S.C. 2806) is amended 10 to read as follows: 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
SEC. 307. RESEARCH AND IMPROVED METHODS.

(a) ENHANCED COMPLIANCE

NER.

IN

ECONOMICAL MAN-

(1) IN

GENERAL.The

Director of the Con-

sumer Financial Protection Agency, with the assistance of the Secretary, the Director of the Bureau of the Census, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and such other persons as the Consumer Financial Protection Agency deems appropriate, shall develop or assist in the improvement of, methods of matching addresses and census tracts to facilitate compliance by depository institutions in as economical a manner as possible with the requirements of this title.

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271 1 2 3 4 5 6 7 8 9 (2) AUTHORIZATION

OF APPROPRIATION.

There is authorized to be appropriated such sums as may be necessary to carry out this subsection. (3) AUTHORITY
OF AGENCY.The

Director of

the Consumer Financial Protection Agency is authorized to utilize, contract with, act through, or compensate any person or agency in order to carry out this subsection. (b) RECOMMENDATIONS
TO THE

CONGRESS.The

10 Director of the Consumer Financial Protection Agency 11 shall recommend to the Committee on Financial Services 12 of the House of Representatives and the Committee on 13 Banking, Housing, and Urban Affairs of the Senate such 14 additional legislation as the Director of the Consumer Fi15 nancial Protection Agency deems appropriate to carry out 16 the purpose of this title.. 17 18 19
SEC. 189. AMENDMENTS TO DIVISION D OF THE OMNIBUS APPROPRIATIONS ACT, 2009.

(a) Section 626(a) of title VI of division D of the

20 Omnibus Appropriations Act, 2009 (15 U.S.C. 1638 nt.) 21 (as amended by the Credit Card Accountability Responsi22 bility and Disclosure Act of 2009) is amended 23 24 (1) by striking by paragraph (1) and inserting the following new paragraph:

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272 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) The Director of the Consumer Financial Protection Agency shall have authority to prescribe regulations with respect to mortgage loans in accordance with section 553 of title 5, United States Code. Such rulemaking shall relate to unfair or deceptive acts or practices regarding mortgage loans, which may include unfair or deceptive acts or practices involving loan modification and foreclosure rescue services. Any violation of a regulation prescribed under this subsection shall be treated as a violation of a regulation prohibiting unfair, deceptive, or abusive acts or practices under the Consumer Financial Protection Agency Act of 2009.; (2) by striking paragraph (2); (3) by striking paragraph (3); and (4) by striking paragraph (4) and inserting the following new paragraph: (2) The Director of the Consumer Financial Protection Agency shall enforce the regulations issued under paragraph (1) in the same manner, by the same means, and with the same jurisdiction, powers, and duties as though all applicable terms and provisions of the Consumer Financial Protection Agency Act of 2009 were incorporated into and made part of this section..

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273 1 (b) Section 626(b) of title VI of division D of the

2 Omnibus Appropriations Act, 2009 (15 U.S.C. 1638 nt.) 3 is amended 4 5 6 7 8 9 10 11 12 13 14 (1) by striking Federal Trade Commission and inserting Consumer Financial Protection Agency; (2) by striking the Commission and inserting the Consumer Financial Protection Agency; and (3) by striking primary Federal regulatory and inserting Consumer Financial Protection Agency.
SEC. 190. AMENDMENTS TO THE HOMEOWNERS PROTECTION ACT OF 1998.

Section 10 of the Homeowners Protection Act of

15 1998 (12 U.S.C. 4909) is amended 16 17 18 19 20 21 22 23 24 (1) in that portion of subsection (a) that precedes paragraph (1), subsection (a), by striking Compliance and inserting Subject to section 122 of the Consumer Financial Protection Agency Act of 2009, compliance; (2) in subsection (a)(2), by striking and after the semicolon at the end; (3) in subsection (a)(3), by striking the period at the end and inserting ; and;

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274 1 2 3 4 5 6 7 8 9 10 11 (4) by inserting after subsection (a)(3), the following new paragraph: (4) subtitle E of the Consumer Financial Protection Agency Act of 2009, by the Consumer Financial Protection Agency.; and. (5) in subsection (b)(2), by inserting , subject to section 122 of the Consumer Financial Protection Agency Act of 2009 before the period at the end.
SEC. 191. AMENDMENTS TO THE REAL ESTATE SETTLEMENT PROCEDURES ACT OF 1974.

(a) SECTION 3.Section 3 of the Real Estate Settle-

12 ment Procedures Act of 1974 (12 U.S.C. 2602) is amend13 ed by adding at the end the following new paragraph 14 15 16 (9) the term Agency means the Consumer Financial Protection Agency.. (b) SECTION 4.Section 4 of the Real Estate Settle-

17 ment Procedures Act of 1974 (12 U.S.C. 2603) is amend18 ed 19 20 21 22 23 24 25 (1) in subsection (a), by striking the first sentence and inserting the following: The Agency shall publish a single, integrated disclosure for mortgage loan transactions, including real estate settlement cost statements, which include the disclosure requirements of this title, in conjunction with the disclosure requirements of the Truth in Lending Act

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275 1 2 3 4 5 6 7 8 9 10 11 12 13 (15 U.S.C. 1601 note et seq.) that, taken together, may apply to transactions subject to both or either law. The purpose of such model disclosure shall be to facilitate compliance with the disclosure requirements of those titles, and to aid the borrower or lessee in understanding the transaction by utilizing readily understandable language to simplify the technical nature of the disclosures.; (2) by striking Secretary each place such term appears and inserting Agency; and (3) by striking form each place such term appears and inserting forms. (c) SECTION 5.Section 5 of the Real Estate Settle-

14 ment Procedures Act of 1974 (12 U.S.C. 2604) is amend15 ed 16 17 18 19 20 21 22 23 24 (1) by striking Secretary each place such term appears, and inserting Agency; and (2) by striking the first sentence of subsection (a), and inserting The Agency shall prepare and distribute booklets jointly complying with the requirements of the Truth in Lending Act (15 U.S.C. 1601 note et seq.) and the provisions of this title, in order to help persons borrowing money to finance the purchase of residential real estate better to un-

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276 1 2 3 derstand the nature and costs of real estate settlement services.. (d) SECTION 6.Section 6(j)(1) of the Real Estate

4 Settlement Procedures Act of 1974 (12 U.S.C. 2605(j)(1)) 5 is amended 6 7 8 9 10 11 (1) by striking Secretary and inserting Director of the Agency; and (2) by striking by regulations that shall take effect not later than April 20, 1991, and inserting by regulation,. (e) SECTION 7.Section 7 of the Real Estate Settle-

12 ment Procedures Act of 1974 (12 U.S.C. 2606) is amend13 ed by striking Secretary and inserting the Director of 14 the Agency. 15 (f) SECTION 8.Section 8 of the Real Estate Settle-

16 ment Procedures Act of 1974 (12 U.S.C. 2607) is amend17 ed 18 19 20 21 22 23 24 25 (1) in subsection (c)(5), by striking prescribed by the Secretary and inserting prescribed by the Director of the Agency; and (2) in subsection (d)(4) (A) by striking The Secretary, and inserting The Agency, the Secretary,; and (B) by adding at the end the following new sentence: However, to the extent that a Fed-

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277 1 2 3 4 5 6 7 eral law authorizes the Agency and other Federal and State agencies to enforce or administer the law, the Agency shall have primary authority to enforce or administer that Federal law in accordance with section 122 of the Consumer Financial Protection Agency Act of 2009.. (g) SECTION 10.Section 10(d) of the Real Estate

8 Settlement Procedures Act of 1974 (12 U.S.C. 2609(d)) 9 is amended by striking Secretary and inserting Agen10 cy. 11 (h) SECTION 16.Section 16 of the Real Estate Set-

12 tlement Procedures Act of 1974 (12 U.S.C. 2614) is 13 amended by inserting the Agency, before the Sec14 retary. 15 (i) SECTION 18.Section 18 of the Real Estate Set-

16 tlement Procedures Act of 1974 (12 U.S.C. 2616) is 17 amended by striking Secretary and inserting Agency. 18 (j) SECTION 19.Section 19 of the Real Estate Set-

19 tlement Procedures Act of 1974 (12 U.S.C. 2617) is 20 amended by striking Secretary each place where such 21 term appears and inserting Agency.

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278 1 2 3
SEC. 192. AMENDMENTS TO THE RIGHT TO FINANCIAL PRIVACY ACT OF 1978.

(a) AMENDMENTS

TO

SECTION 1101.Section 1101

4 of the Right to Financial Privacy Act of 1978 (12 U.S.C. 5 3401) is amended 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 (1) by striking paragraph (1) and inserting the following new paragraph: (1) financial institution means any bank, savings association, card issuer as defined in section 103(n) of the Truth in Lending Act, credit union, or consumer finance institution located in any State or territory of the United States, the District of Columbia, Puerto Rico, Guam, American Samoa, or the Virgin Islands;; and (2) in paragraph (7) (A) by redesignating subparagraphs (F), (G), (H), and (I) as subparagraphs (G), (H), (I), and (J), respectively; and (B) by inserting after subparagraph (E) the following new subparagraph: (F) the Consumer Financial Protection Agency;. (b) AMENDMENTS
TO

SECTION 1112.Section

24 1112(e) of the Right to Financial Privacy Act (12 U.S.C. 25 3412) is amended by striking and the Commodity Fu26 tures Trading Commission is permitted and inserting
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279 1 the Commodity Futures Trading Commission, and the 2 Consumer Financial Protection Agency is permitted. 3 (c) AMENDMENTS
TO

SECTION 1113.Section 1113

4 of the Right to Financial Privacy Act (12 U.S.C. 3413) 5 is amended by adding at the end the following new sub6 section 7 (r) DISCLOSURE
TO THE

CONSUMER FINANCIAL

8 PROTECTION AGENCY.Nothing in this chapter shall 9 apply to the examination by or disclosure to the Consumer 10 Financial Protection Agency of financial records or infor11 mation in the exercise of its authority with respect to a 12 financial institution.. 13 14 15 16
SEC. 193. AMENDMENTS TO THE SECURE AND FAIR ENFORCEMENT FOR MORTGAGE LICENSING ACT OF 2008.

(a) SECTION 1503.Section 1503 of the Secure and

17 Fair Enforcement for Mortgage Licensing Act of 2008 (12 18 U.S.C. 5102) is amended 19 20 21 22 23 24 (1) by striking paragraph (9); (2) by redesignating existing paragraph (1) as paragraph (2), redesignating existing paragraph (2) as paragraph (1), and moving paragraph (2) (as so redesignated) and inserting such paragraph after paragraph (1) (as so redesignated);

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280 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 (3) by redesignating paragraphs (1), (2), (3), (4), (5), (6), (7), (8), (10), (11), and (12), as so redesignated by paragraph (2), as paragraphs (2), (4), (5), (6), (7), (8), (9), (10), (11), (12), and (13), respectively; (4) by inserting before paragraph (2), as so redesignated by paragraph (3), the following new paragraphs: (1) AGENCY.The term Agency means the Consumer Financial Protection Agency.; and (5) by inserting after paragraph (2), as so redesignated by paragraph (3), the following new paragraph: (3) DIRECTOR.The term Director means the Director of the Agency.. (b) UNIVERSAL AMENDMENTS RELATING
CY.The TO

AGEN-

Secure and Fair Enforcement for Mortgage Li-

18 censing Act of 2008 (12 U.S.C. 5101 et seq.) is amend19 ed 20 21 22 23 24 (1) by striking a Federal banking agency each place such term appears (other than in connection with a reference that is specifically amended by another provision of this section) and inserting the Agency;

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281 1 2 3 4 5 6 7 8 9 10 (2) by striking Federal banking agencies each place such term appears (other than in connection with a reference that is specifically amended by another provision of this section) and inserting Agency; and (3) by striking Secretary each place such term appears (other than in connection with a reference that is specifically amended by another provision of this section) and inserting Director. (c) SECTION 1507.Section 1507 of the Secure and

11 Fair Enforcement for Mortgage Licensing Act of 2008 (12 12 U.S.C. 5106) is amended 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) in subsection (a) (A) by striking paragraph (1) and inserting the following new paragraph: (1) IN
GENERAL.The

Agency shall develop

and maintain a system for registering employees of a of a depository institution, employees of a subsidiary that is owned and controlled by a depository institution and regulated by a Federal banking agency, or employees of an institution regulated by the Farm Credit Administration, as registered loan originators with the Nationwide Mortgage Licensing System and Registry. The system shall be implemented before July 30, 2010.; and

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282 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) by striking appropriate Federal banking agency and the Farm Credit Administration where such term appears in paragraph (2) and inserting Agency; (2) in subsection (b), by striking Federal banking agencies, through the Financial Institutions Examination Council and the Farm Credit Administration, and inserting Agency; and (3) in subsection (c), by striking Federal banking agencies, and inserting Agency. (d) SECTION 1508. (1) IN
GENERAL.Section

1508 of the Secure

and Fair Enforcement for Mortgage Licensing Act of 2008 (12 U.S.C. 5107) is amended by adding at the end the following new subsection (f) REGULATIONS. (1) IN
GENERAL.The

Agency may prescribe

regulations setting minimum net worth or surety bond requirements for residential mortgage loan originators and minimum requirements for recovery funds paid into by loan originators. (2) FACTORS
TAKEN INTO ACCOUNT.Such

regulations shall take into account the need to provide originators adequate incentives to originate affordable and sustainable mortgage loans as well as

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283 1 2 3 4 5 6 7 8 9 10 the need to ensure a competitive origination market that maximizes consumers access to affordable and sustainable mortgage loans.. (2) CLERICAL
AMENDMENT.The

heading for

section 1508 of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 is amended by striking SECRETARY
DEVELOPMENT OF HOUSING AND URBAN FI-

and inserting CONSUMER

NANCIAL PROTECTION AGENCY.

(e) SECTION 1510.Section 1510 of the Secure and

11 Fair Enforcement for Mortgage Licensing Act of 2008 (12 12 U.S.C. 5109) is amended to read as follows: 13 14
SEC. 1510. FEES.

The Agency and the Nationwide Mortgage Licensing

15 System and Registry may charge reasonable fees to cover 16 the costs of maintaining and providing access to informa17 tion from the Nationwide Mortgage Licensing System and 18 Registry, to the extent that such fees are not charged to 19 consumers for access to such system and registry.. 20 (f) SECTION 1513.Section 1513 of the Secure and

21 Fair Enforcement for Mortgage Licensing Act of 2008 (12 22 U.S.C. 5112) is amended to read as follows: 23 24
SEC. 1513. LIABILITY PROVISIONS.

The Agency, any State official or agency, or any or-

25 ganization serving as the administrator of the Nationwide

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284 1 Mortgage Licensing System and Registry or a system es2 tablished by the Director under section 5109, or any offi3 cer or employee of any such entity, shall not by subject 4 to any civil action or proceeding for monetary damages 5 by reason of the good faith action or omission of any offi6 cer or employee of any such entity, while acting within 7 the scope of office or employment, relating to the collec8 tion, furnishing, or dissemination of information con9 cerning persons who are loan originators or are applying 10 for licensing or registration as loan originators.. 11 (g) SECTION 1514.The heading for section 1514

12 of the Secure and Fair Enforcement for Mortgage Licens13 ing Act of 2008 (12 U.S.C. 5113) is amended by striking 14 UNDER
HUD BACKUP LICENSING SYSTEM

and in-

15 serting BY THE AGENCY. 16 17

SEC. 194. AMENDMENTS TO THE TRUTH IN SAVINGS ACT.

(a) SECTION 263.Section 263 of the Truth in Sav-

18 ings Act (12 U.S.C. 4302) is amended in subsection (b) 19 by striking Board each place such term appears and 20 inserting Agency. 21 (b) SECTION 265.Section 265 of the Truth in Sav-

22 ings Act (12 U.S.C. 4304) is amended by striking 23 Board each place such term appears and inserting 24 Agency.

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285 1 (c) SECTION 266.Section 266(e) of the Truth in

2 Savings Act is amended (12 U.S.C. 4305) by striking 3 Board and inserting Agency. 4 (d) SECTION 269.Section 269 of the Truth in Sav-

5 ings Act (12 U.S.C. 4308) is amended by striking 6 Board each place such term appears and inserting 7 Agency. 8 (e) SECTION 270.Section 270 of the Truth in Sav-

9 ings Act (12 U.S.C. 4309) is amended 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) in subsection (a) (A) by striking Compliance and inserting Subject to section 122 of the Consumer Financial Protection Agency Act of 2009, compliance; (B) by striking subparagraph (A) of paragraph (1) and inserting the following new subparagraph: (A) by the head of the agency responsible for chartering and regulating national banks for national banks, and Federal branches and Federal agencies of foreign banks;; and (C) by adding at the end, the following new paragraph: (3) subtitle E of the Consumer Financial Protection Agency Act of 2009, by the Agency.; and

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286 1 2 3 (2) in subsection (c), by striking Board and inserting Agency. (f) SECTION 272.Section 272 of the Truth in Sav-

4 ings Act (12 U.S.C. 4311) is amended 5 6 7 8 9 10 11 (1) in subsection (a), by striking Board and inserting Agency; and (2) in subsection (b), by striking regulation prescribed by the Board each place such term appears and inserting regulation prescribed by the Agency. (g) SECTION 273.Section 273 of the Truth in Sav-

12 ings Act (12 U.S.C. 4312) is amended in the last sentence 13 by striking Board and inserting Agency. 14 (h) SECTION 274.Section 274 of the Truth in Sav-

15 ings Act (12 U.S.C. 4313) is amended 16 17 18 19 20 21 (1) in paragraph (2) by striking Board and inserting Agency; and (2) by striking paragraph (4) and inserting the following new paragraph: (4) AGENCY.The term Agency means the Consumer Financial Protection Agency..

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287 1 2 3 4
SEC. 195. AMENDMENTS TO THE TELEMARKETING AND CONSUMER FRAUD AND ABUSE PREVENTION ACT.

(a) SECTION 3.Section 3 of the Telemarketing and

5 Consumer Fraud and Abuse Prevention Act (15 U.S.C. 6 6102) is amended 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) in subsection (b), by inserting after the 2nd sentence In prescribing a regulation under this Act that relates to the provision of a consumer financial product or service that is subject to the Consumer Financial Protection Agency Act, including any enumerated consumer law thereunder, the Commission shall consult with the Consumer Financial Protection Agency regarding the consistency of a proposed regulation with standards, purposes, or objectives administered by the Consumer Financial Protection Agency.; and (2) in subsection (c), by adding at the end Any violation of any regulation prescribed under subsection (a) committed by a person subject to the Consumer Financial Protection Agency Act shall be treated as a violation of a regulation under section 131of the Consumer Financial Protection Agency Act regarding unfair, deceptive, or abusive acts or practices..

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288 1 (b) AMENDMENTS

TO

SECTION 4.Section 4(d) of

2 the Telemarketing and Consumer Fraud and Abuse Pre3 vention Act (15 U.S.C. 6103(d)) is amended by inserting 4 after Commission each place such term appears or the 5 Consumer Financial Protection Agency. 6 (c) AMENDMENTS
TO

SECTION 5.-Section 5(c) of

7 the Telemarketing and Consumer Fraud and Abuse Pre8 vention Act (15 U.S.C. 6104(c)) is amended by inserting 9 after Commission each place such term appears or the 10 Consumer Financial Protection Agency. 11 (d) AMENDMENT
TO

SECTION 6.Section 6 of the

12 Telemarketing and Consumer Fraud and abuse Preven13 tion Act (15 U.S.C. 6105) is amended by adding at the 14 end the following new subsection: 15 16 (d) ENFORCEMENT
TECTION BY

CONSUMER FINANCIAL PRO-

AGENCY.Except as otherwise provided in sec-

17 tion 3(d), 3(e), 4, and 5, this Act shall be enforced by 18 the Consumer Financial Protection Agency under subtitle 19 E of the Consumer Financial Protection Agency Act.. 20 21
SEC. 196. EFFECTIVE DATE.

The amendments made by sections 183 through 195

22 shall take effect on the designated transfer date.

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289 1 2 3 4 5 6

TITLE JIMPROVEMENTS TO THE FEDERAL TRADE COMMISSION ACT

SEC. 201. AMENDMENTS TO THE FEDERAL TRADE COMMISSION ACT.

(a) Section 5(a) of the Federal Trade Commission

7 Act (15 U.S.C. 45(a)) is amended by adding at the end 8 the following new paragraph: 9 10 11 12 13 14 15 16 17 (5) In any investigation or proceeding in which it appears to the Commission that an unfair or deceptive act or practice is being committed in connection with the marketing, sale, provision or delivery of a consumer financial product or service, the Commission shall consult and coordinate with the Consumer Financial Protection Agency, as the agencies deem to be appropriate.. (b) Section 5(m)(1)(A) of the Federal Trade Com-

18 mission Act (15 U.S.C. 45(m)(1)(A)) is amended 19 20 21 22 23 24 (1) by inserting this Act or after violates the first place such term appears; (2) by inserting a comma after Act and after section); and (3) by inserting a violation of this Act or is before prohibited.

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290 1 (c) Section 5 of the Federal Trade Commission Act

2 (15 U.S.C. 45) is amended by adding at the end thereof 3 the following new subsection: 4 (o) UNLAWFUL ASSISTANCE.It is unlawful for any

5 person, knowingly or recklessly, to provide substantial as6 sistance to another in violating any provision of this Act 7 or of any other Act enforceable by the Commission that 8 relates to unfair or deceptive acts or practices. Any such 9 violation shall constitute an unfair or deceptive act or 10 practice described in section 5(a)(1) of this Act.. 11 (d) Section 18 of the Federal Trade Commission Act

12 (15 U.S.C. 57a) is amended 13 14 15 16 17 18 19 20 21 22 23 24 (1) in subsection (a)(1)(B), by adding after pursuant to this section the following: or with regard to the marketing, sale, provision or delivery to an individual, for personal, family or household purposes, of a consumer financial product or service that is subject to the jurisdiction of the Consumer Financial Protection Agency under the Consumer Financial Protection Agency Act of 2009, other than a financial activity (as defined in that Act) issued or engaged in directly by a merchant or retailer or other person pursuant to subsection (a) or (b) of section 124 of such Act;

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291 1 2 3 (2) by amending subsection (b) to read as follows: (b) PROCEDURE APPLICABLE.When prescribing a

4 rule under subsection (a)(1)(B) of this section, the Com5 mission shall proceed in accordance with section 553 of 6 Title 5 (without regard to any reference in such section 7 to sections 556 and 557 of such title).; 8 9 10 11 12 13 14 15 16 17 18 19 20 (3) by striking subsections (c), (d)(1), (d)(2), (f), (i), and (j), and redesignating subsections (e), (g) and (h) as (d), (e) and (f); (4) by redesignating paragraph (d)(3) as subsection (c); and (5) in subsection (e) (A) in paragraph (1)(B), by striking the transcript required by subsection (c)(5) of this section,; (B) in paragraph (2), by striking everything following error); and (C) in paragraph (5), by striking subparagraph (C).

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BOARD OF GOVERNORS
OF THE

FEDERAL RE:SE:RVE: SYSTEM

WASHINGTON, 0. C. 20551
SEN 5. BERNANKE CHAIRMAN

December 2, 2008

The Honorable Arlen Specter United States Senate Washington, D.C. 20510-3802 Dear Senator: . Thank you for giving me the opportunity to respond to the concerns you raised about the Troubled Asset Relief Program (TARP), most recently op November 14. I believe that the Congress acted appropriately in October in passing the Emergency Economic Stabilization Act of 2008 (EESA). As you know, in order to combat the financial crisis over the past year, the Administration, the Federal Reserve, and other financial regulators had already employed many of the tools at our disposal, including substantial adjustments to the stance of monetary policy, provision of large volumes of liquidity through extraordinary means, and, where possible, the orderly resolution of troubled financial institutions in a manner that was intended to avoid exacerbating systemic financial strains and the adverse consequences of those strains on our economy. However, the available tools were inadequate to deal with the full range of severe stresses on the system. In these circumstances, the mounting pressures on large financial institutions and deteriorating conditions in financial markets over the course of September threatened the stability of our broader financial system and indicated strongly that additional tools would be necessary to promote stability. In this context, Secretary Paulson and I both believed that the T ARP would be a valuable tool to strengthen financial institutions and thus to promote such stability. I commend the Congress for its prompt action to pass EESA. Recently, Secretary Paulson has decided that the further intensification of financial strains over the past several weeks could be best addressed by the use of the TARP ~o directly purchase capital shares in financial institutions; this action was viewed as providing strong support for systemically important financial institutions and thereby enhancing their ability to provide credit to households and firms. I fully supported the Secretary's decision.

The Honorable Arlen Specter Page Two

You noted that the Congress is now considering the possibility of providing financial aid to the automakers. I agree that this is a very serious matter, with potentially , important economic and fiscal consequences, and it deserves very careful and deliberate consideration by the Congress. I hope these comments are helpful. Please let me know if I can be of further assistance.

Not Responsive - Internal Emails Between Federal Reserve Staff

"Crooks, Christina" <Christina.Crooks

To

@mail.house.gov> 09/25/2009 05:38 PM

<Brian.J.Gross@frb.gov> cc <Laricke.D.Blanchard@frb.gov> Subject Request from Rep. Castle regarding CFPA

Attached, please find a request from Rep. Castle regarding the preemption language from the proposed Consumer Financial Protection Agency. Please let me know if you have any questions. Thank you, Christina Christina Crooks Legislative Assistant Office of Congressman Michael N. Castle (DE) 1233 Longworth LHOB Washington, D.C. 20515 (b) (6) (See attached file: FED Section D Request Letter.pdf)(See attached file:

Section D CFPA.pdf)

MICHAEL N. CASTLE
D ELAWARE, AT-lARGE

1233 LONGWORTH H OUSE OFF ICE BUILDI NG WASHINGTON, OC 20515-0801 (202) 225-4165 DISTRICT OFFICES

COMMITTEES;

FINANCIAL SERVICES EDUCATION AND LABOR

RAN~ING MEMBER: SUBCOMMITTEE ON EAALY CHILOHOOO, ELEMENTARY, AND SECONDARY EDUCATION

<tongrrss of the tinitnt ~tatcs

illousc of 'Rcprtsrntatiuts
Da.shington, 'll<t 20515-osoJ
September 25, 2009

201 NORTH WAl NUT STREET SUITE 107 WILMINGTON, DE 19801-3970 (302} 428-1902
300 SOUTH NEW STREET SUITE DoVER,

2005 DE 19904

(302) 736-1666 (KENT) (302) 856-3334 (Sussex) www.cas11e.house.gov/

The Honorable Ben S. Bemanke Chairman Board of Governors of the Federal Reserve System 20th Street and Constitution Avenue, NW Washington, DC 20551 Dear Chairman Bemanke: Attached, please find a section from the proposed Consumer Financial Protection Agency Act of2009 entitled "Preservation of State Law." Recently, concerns have been raised that this particular section would have a negative impact on banks and the credit card industry. I would appreciate your comments on this section as soon as possible.

Michael N. Castle Memberof Congress MNC:CC

PR1NTEO ON RECYC LE D PAPER

F:\JMW\FS Ill \HR3126\MARK_003.XML

99
1

tion to the Agency, as required by this title, an enn nwrclted eommmer law, or pursuant to the auth ol'i-

2 3 4 5
6

ties transferred by subtitles F and II, or any reg11lation prescribed or order issu ed by the Direetor this title m pursuant to any such authority; or
(3) to knowingly or recklessly provide substan-

tial assistance to another person in violation of the pnnisions of section 131, or any regu lation prescribed or order issued under such section, and any such person shall be deemed to be in violation of that section to the same ext ent as the person to
whom such assistance is provided.

8
9

10 11
12

13 SEC. 139. EFFECTIVE DATE.

14

This subtitle shall take effect on the clesig11ated

15 transfer de1te.

16

17
18

SubtitleD-Preservation of State Law

SEC.141. RELATION TO STATE LAW.

19
20
21

(a)

I;.;-

GEXElU.L. (W

(1) H.CLE

CONSTIUTCTIOK.-This title shall

not be construed as annulling, altering, or affecting, or exempting any person subject to the provisions of this title from complying with, the laws, regulations, orders, or interpretations, in effect in any State, except t o the extent that such statute, regulation,

22 23 24 25

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100
1 2 3 order, or interpretation is inconsistent with the provisions of this title and then onl~ to the extent of the inconsistency.
(2)
GlU:.A'l'EH PIWTECTH>::\ t :.'\Dlm ST.A'l'E

4
5 6 7 8 9

LAW.-For the purposes of this subsection, a statute, regulation, order , or interpretation in effect in any State is not inconsistent with the provisions of tllis title if the protection such statute, regulation, order, or interpretation affords consumers is gr eater than the protection prmicled under
thi~-;

10
11 12 13

title. A de-

termination regarding vvhether a Btatute, regulation, order, or interpretation in effect in any State is inconsistent with the provisions of this title may be made by the Ageney on itf.> own 1notion or in respouse to a nonfrivolom; petitim1 initiat ed terested person.
(b)
REL..\'1'10~ TO OTIIEH PJ{()\"1~10::\~ <W E.'\L\IEHb~ e:m~

14
15

in-

16
17

18 ATED CONSVl\JEH

lJA\\'S 1'11.\T REL.\TE TO ST.\TE I.J.\W.-

19 No provision of this title, exeept as prm-ided iu section

20 175, shall he eom;trued as 21 seding the operation of
modif~ing)

limiting, or superof an enumerated

<:lll.'. prmi~ion

22 consumer law that relateB to the application of a lavv in 23 effect in any State with r eRped to su~h Federal law.

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101
1 SEC. 142. PRESERVATION OF ENFORCEMENT POWERS OF

STATES.

3
4 5 6 7 8 9 10 11 12 13 14 15 16 17

(a)

I:\"

GE:\"Eli...\.L.-

(1) ACTIO:'\ BY STATE.-.AJ.1y State attorne~'

general may bring a civil action in the name of such State, aR parens patriae on behalf of natural persons re.siding in such State, in any district court of the United States or State court having jurisdiction of the defendant, to secure monetary or equitable relief for Yiolation of any provisions of this title or regulaticms issued thereunder. (2)
R.CLI~ CW

CONSTRUCTIO:\".-No pruvision of

this title shall be construed as modifying, limiting, or superseding the operation of any provision of an ennmerated consumer law that relates to the authority of a State attorney general or State regulator to enfDl'ee sneh J1-,ederal law.

19 20 21 22 23 24 25 26
f:\VHLC\092409\092409.2B1.xml September 24, 2009 (10:00 p.m.)

(1) NOTICE.-

(A) l:\" GE:\'EI-L\L.-Before initiating any aetion in a eourt or other administrative or regulatm-y proceeding against any covered person to enforce any provision of this title, including any regulation prescribed by the Director under this title, a State attorney general or State regulator shall timely provide a copy of the com(44987119)

F:'JMW\FSlll\HR3126\MARK_003.XML
10~

1
2

plete complaint to be filed and \ITitten notice describing such action m proceeding to the Agency, or the Agency's designee.
(B) E:\IE.HGEXCY ,\J'TIOX.-If prior notice

3
4 5

is not practicable, the State attorney general or State regulator shall prmide a cop:T of the complete complaint and the notice to the Agency immediately upon instituting the action or proceeding.
(C) CONTENTS OF

6
7

8 9

10
11

XOTICE.-rrhe notifica-

tion required under this seetion shall, at a minimum, describe(i) the identity of the parties; (ii) the alleged facts underlying the proceeding; and (iii) whether there may he a need to coordinate the prosecutl011 of the proceeding so as not to interfere with m1:T action, including: an:T rulemaking, undertaken

12
13
14

15 16
17

18
19

20
21
22

bv the Director m Aoemv or another Fedv

~

eral agency.
(2) AGENCY RESPO:\SE.-ln any action de-

23
24 25

scribed in paragTaph (1), the Agency may(A) intervene in the action as a party; (B) upon intervening-

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F:\JMW\FS Ill \HR3l26\MARK_003.XML

10:3 1
2
(i) remove the action to the appro-

priate United States district court, if the action and (ii) be heard on all matters ansmg m the action; and (C) appeal any order or judgment to the same extent as any other party in the proceeding may. (c) REcn:LATIONS.-rrhe Director shall prescribe regIYclS

not originally brought there;

4
5 6 7 8 9
10

11 ulations to implement the requirements of this section

12 and, from time to time, provide guidance in order to fur13 ther coordinate actions with the State attorneys general 14 and other regulators. 15 16 (d) PRE0EH\'Nl'IO?\
thi~-; ~-;edion

OP

STATE CLAIMS.- Nothing in

shall be eonstruecl as limiting the authority

17 of a State attorney general or State regulator to bring an 18 netion m other regula tory proceeding arising solely under 19 the law of that State. 20 21 22 23
SEC. 143. STATE LAW PREEMPTION STANDARDS FOR NA TIONAL BANKS AND SUBSIDIARIES CLARIFlED.

(a) I?\ GE?\EHAL.-Chapter one of title ll..XII of the

24 Revised Statutes of the United States (12 U.S.C. 21 et

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104
1 seq.) is amended by inserting nfler section 51:3(-)B the fol2 lowing nevi' section:

3 4

"SEC. 5136C. STATE LAW PREEMPTION STANDARDS FOR NATIONAL BANKS AND SUBSIDIARIES CLARIFlED.

5
6

"(a) DEF'INITIONS.-For 1mrposes of this section, the

7 follmving definitions shall apply:

8 "(1)
NATIOXAL BA:\K.-1 he
1

term 'national

9 10 11
12

bank' includes-

"(A) any bank organized under the laws of

the United States; "(B) any affiliate of cl national bank; "(C) any snbsidiar) of n national bank;
and
"(D) anY Federal branch established in ac-

13
14

15

16
17
18

cordance vvith the IntPJ'H<ltimwl B;mking Aet of 1978.

"(2) 0THEH
DEI'INITION~.-The

terms 'affil-

19 20
21 22

iate', 'subsidiary', 'indndes', Hml

'im~lnding'

haYe the

same meaning as in seeti011 ;} of the :B1 ederal Deposit

Insurance Act.
"(3) STATE CO:\~L\IEli L.\W.-'rhe term ' State

23
24

consumer law' means any hnY of a State that"(A) accords rights to or protects the

25

rights of its citizens in financial transactions

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F:VMW\FSIII\HR3126\MARK_003.XML

lOS
1
2

eoneernmg negotiation, sales, solicitation, diselosure, terms and conditions, advice, and remedies; or "(B) prel'ents counterparties, successors,
and assigns of financial contracts frmn engag-

3 4
5

6
7

ing in unfair or deceptive acts and practices.

"(b) S'L\TE Co;-.;sc\mn l ..Aws OP
C.Nrrox.~Not11ithstanding

GEXERAL APPLI-

any other provision of Federal

9 law and except as provided in subsection (d), any con-

10 sumer protection provision in State consumer laws of gen11 eral application, including any law relating to unfair or

12 deceptive acts or practices, any consumer fraud law and

13 reposf->ession, forecl<mure, and collection law, shall apply to

14 any national bank. 15

16

(( ( C')

STXJ'E BAXKIXG

I ;A\VS

ENACTED P1iH81JAi\''l' TO

FEDEH.\L h\\Y.~Notwithstanding

any other pro>.ision of

an~'

17 Fed end )my and except 1-1 s prmrided in subsection (d),

18 State coHsumer law

that~

19 20 21 22 23 24

"(1 ) is applicable to State banks; and

"(2)

IYi:li-i

enacted pursuant to or in accordance

11ith, and if> not inconsistent with, an Act of Congress, ineluding the Gramm-I;each-Bliley Act, the Consumer Credit Protection Act, and the Real Estate Settlement Procedures Act, that explicitly or by

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106
1

implication, permits States to exreed or supplement the requirements of any comparable Federal
lcl'iY,

3 shall apply to any national bank.

4 "(d) EXCEPTIONS."(1) IN GENERAL.-Subsed.ionf-> (b) and (c)

5 6 7 8 9 IO II
12

shall not apply with respect to law if-

Hll~'

State consumer

"(A) the State consumer law discriminates

against national banks; or "(B) the State eommmer law is inconsistent with provisions of Federal law other than this title, but only to the extent of the inconsistency (as determined in accordance with the provision of the other Federal law).
"(2)
R.eLE FOH DETEIOIININ<i INCONSIST-

13

14

I5
16 I7
18
19

ENC'Y.-For purposes of paragTaph (l)(B), a State consumer le:T\Y is not inconsistent 1\ith Federal law if the protection the State eommmer
h1YI'

affords con-

sumers is greater than the prote<:tion prm1.ded under Federal law as determined
b~,

20
21

the Diredor.

"(e) NO NEGATIVE hiPLICATIONS l 'Cm APPLICAIjA ws.-

22 BILITY (W OTI-IEH STATE

N o provision of this

23 section shall be construed as altering or affecting the ap24 plicability, to national banks, of any State law which is 25 not described in this section.

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107

2 State commmer la\\ applicable to a transaction at the in3 ception of the tnmsaetion may not be preempted under

4 Federal law solel.'T because a national bank subsequently

5 acquires the asset or instrument that is the subject of the

6 transaction.
7
"(g) DE::\1.:\.L oP PRI~EMPTION Norr A DEPliiVATIO?\

cw

CrYIL Rwrrr.-The preemption of any provision of

9 the law of an.'' State with respect to any national bank

10 shall not be treated as a right, privilege, or immunity for

11 purposes of section 1979 of the Revised Statutes of the

12 United States (42 U.S.C. 1983).".
13 (b) CLEHICAL ...<i...\'!END.:VIENT.-The table of sections

14 for chapter one of title l.J.XII of the Revised Statutes of

15 the United Statek js amended by inserting after t he item 16 relating to section 51:3 GB t he following new item:
".) 1:lli('. Ht<ttl l;m ]ll'< 'Plltptioll stmu lan Is for u nt.ional bcnt ks all! I snhsidimi<'s <hu-it!Pd ....

17 SEC. 144. VISITORIAL STANDARDS.

18

Sectio11 51:3GC of the Re'i'ised Statutes of the United

19 StateH (nH added b.' Heetion 143) is amended by adding 20 at the end the following new subsections: 21 22 23 24 "(h) VI SITOH.L\.L POWEHS."(1) Rt: LE CH" CO::\STRU CTIOX .-No prov1swn

of this title which r elates to visitorial powers or otherwise limits or restricts the supervisory, examina(44987119)

f:\VHLC\092409\092409.281.xml September 24, 2009 (1 0:00p.m.)

F:\JMW\FS!li\HR3126\MARK_003.XML

lOH
1
2

tion, or regulatory nnthority to

,,~bith ~m~~

national

bank is subjeet shall be (onf-:trned as limiting or restricting the

authorit~

3
4 5

of

m1~ nttol'Iw~

general (or

other chief law enforcerneut officer) of anv State to bring any action in tion"(A) to require a na tionnl bank to prodnee records relative to the investigation of \'iolations of State consumer law, or l~ederal consumer laws;
"(B) to enforce any applicable Federal or
an~

comt of npprop1iate jurisdie-

6
7 8 9
10

11

12 13
14
15 16

State law, as authorized b~ snch law; or

"(C) on behalf of residents of sud1 State,

to enforce any applicable provision of eral or State law
ng~1inst <1
an~

Fed-

national hank, as

authorized b~ sueh lmY, or to :-;eek relief and recover damages for snC'h rt:>sidents from lation of
an~ <m~

17

1io-

18
19 20 21 22

Hneh law by

<111~~

IHltiomll hank. gemral (or

"(2) COXSCLTATIO:'\.-The

nttonH:~~

other chief law enforcement officer) of any State shall consult ''ith the head of the ageue~ n;.;ponsible for chartering and regulating nntional banks before acting under paragraph (1). "(i) ENFORCEMEXT ACTIO:\'t;.-The abilit~' of the

23
24

25 head of the agency responsible for chartering and regu-

f:\ VH LC\092409\092409.281.xml September 24, 2009 (10:00 p.m.)

(44987119)

F:\JMW\FS!ll\HR3126\MARK_003.XML

109
1 lating national banks to bring an enforcement action
2 under this title or section rs of the Federal Trade Commis3 sion Act shall not be construed as precluding p1in1te par4 ties from enfordng rights gnmted under Federal or State

5 law in the courts.". 6

7
SEC. 145. CLARIFICATION OF LAW APPLICABLE TO NONDEPOSITORY INSTITUTION SUBSIDIARIES.

Section 5186C of the Revised Statutes of the United

9 States is amended by inserting after subsection (i) (as

10 added h:' seetion 144) the folluwing ne-vv subsection:

11
"(j) CLARII<'IC'ATION OF LA.\V APPLICABLE TO NON-

12 DEPOSITORY INSTITUTION SUBSIDIARIES AND AI<'F'ILI-

13
14 15

Nl'ES OF

NATIONAL BANKS."(1) DEFI:\ITI0:\8.-For purposes of this sec-

tion, the following definitions shall apply:

''(A)
SIDL\HY,

16 17

DEPOSITOEY

II\"STITFTION,

SCB-

.\I'FILL\TE.-The terms 'depository in-

18
19 20

stitution', 'f.lub8idiary', and 'affiliate' have the same meanings as in section 8 of the Federal Deposit Immranee Act. "(B) NC):\DEPOSITORY INS'l'I'IT'l'ION.-1'he term 'nondepository institution' means any entity that is not a depository institution.

21 22 23 24 25

"(2)

I~ GE~ERAL.-No

provision of this title

shall be construed as annulling, altering, or affecting

f:\VHLC\092409\092409.281.xml September 24, 2009 (10:00 p.m.)

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110
1

the applicability of State law to

a11~ nondepositm~

2
3

institution, subsidia.ry, other affiliate, or agent of a national bank.".

4 SEC. 146. STATE LAW PREEMPTION STANDARDS FOR FED-

5 6
7

ERAL SAVINGS ASSOCIATIONS AND SUBSIDIARIES CLARIFIED.

(a) IN GENERAL.-The Home Owners' l.Joan Act {12

b~

8 U.S.C. 1461 et seq.) is amended

9 5 the following new section:

inserting after section

10 "SEC. 6. STATE LAW PREEMPTION STANDARDS FOR FED-

11

ERAL SAVINGS ASSOCIATIONS CLARIFIED.

12

"(a) DI<JF'INITION.-For purposes of this section-

13
14

"(1) the terms 'ineludes' and 'including' have

the same meaning as in seetion :3(t) of the Federal Deposit Insurance Act. "(2) the term 'State commmer hrw' means le:rw of a State that: "(A) accords rights to or proterts the rights of its citizens in fimmeial transactions concerning negotiation, sales, solicitation, disclosure, terms and conditionH, advice, and remedies; or "(B) prevents counterparti es, successors, and assig11s of financial contraets from engaging in unfair or deceptive acts and practices.
(m~

15

16
17
18 19

20
21

22 23
24
25

f:\VH LC\092409\092409.28 1.xml September 24, 2009 (1 0:00p.m.)

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Ill

"(b) STxrE

Co~sL\IEH

h\ws cw

GE~ERAL APPLI-

2 ('. YriO~ .-Not"ithstanding an~ other provision of Federal 3

hl\Y

and exeept as lH'OYided in subsection (c), any con-

4 snmer proteetion prcnision in State consumer laws of gen5 eral applieatiou, ineluding
an~

law relating to unfair or

6 deceptive clds or praetices, any consumer fraud le:lw and 7 repossession, foreelosure, and collection law, shall apply to 8
an~'

Federal s<:wings ass()(:iation.

"(c)
EXCEP'l'IO~S.-

9 10
11
12

"(1) I~ GEXEHAL.-Subsection (h) shall not

appl~r

"ith respect to any State la:w if"(A) the State law discriminates against

13
14 15 16 17 18

1-i'ederal Havings associations; or

"(B) the State consumer lmv is incon-

sistent with provisions of Federal law other th<:m this Aet, lmt
(onsisteue~ onl~

to the eC\.i.ent of the in-

(as determined in accordanee with

the proYision of the other Federal law).

''(2)

19
20 21 22 23 24

Rt-LE

I'<m

DJ~TErnnNING

INCO~SIST-

E~CY .-For

purpo::-;es of paragntph (1 )(B), a State

eonsmner law is not ineonsi.stent with Federal law if the proteetion the State consumer law affords consumer.s i.s gTeater than the protection provided under
Fec~eral

law, as determined by the Director.

f:\VHLC\092409\092409.281.xml September 24, 2009 (10:00 p.m.)

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112

2
3
4
5

PUH8CAXT TO

FEDERAL L~\.\\'.<m~

"(1) I:-; GE::\ERAL.-Notwithstanding

other

provisiOn of Federal law <md exeept as lH'O\rided in paragTaph (2), any State law that-

6
7 8
9

"(A) is applicable to Statt> smrings assoewtions (as defined in sed.ion 8 of the Federal Deposit Insurance Act); and "(B) was enacted pursuant to or in accordance -vvith, and is not inconsistent with, an Act

10 11
12

of CongTess, including the Gnmnn-J.Jeach-Bliley

Act, the Consumer Credit Protection Act, and the Real Estate Settlement Procedures Act, that explicitly or by implication, permits States to exceed or supplement the requirements of any comparable Fed end lcm, shall apply to any Federal
"(2)
smiu~rs

13

14
15 16 17
18

<lSSoeiation. (]) :'->hall not

EXCEPTIOX~.-PmagT<lph

19
20
21 22 23 24 25

apply \Vith respect to any St<lte law if-

"(A) the State lmY dislriminntes against

Federal smrings assoei<ltions; m "(B) the State consumer law is inconsistent with prm1.sions of Federal h-rw other than this Act, but
onl~T

to the extent of the in-

consistency (as determined in accordance with

f:\VHLC\092409\092409.281.xml September 24, 2009 (1 o:oop.m.)

(44987119)

F:VMW\FSIII\HR3126\MARK_003.XML

11:3
1
the prmision of the other Federal law). For this purpose, a Stnte consumer hrw is not inconsistent 1vith Federal Ic-nv if the protection the State eonsnmet law affords consumers is gTeater than the protection pro1rided under Federal law, as determined by the Director.
"(e) NO NE(L\.TlVE L\IPLICATIONS 1-<'0H APPLICAOF

2
3

4 5
6 7

8 BILITY

0TIIEH STATE I1.A\VS.-No provision of this

9 section shall be construed as altering or affecting the ap-

10

plieabilit~',

to Federal smrings associations, of any State

11 law which is not described in this section.

12

"(f) EI,'I,'ECT oF TH...:\.NsFEn. oF 'rRANsAcTION.-

13 State consumer law applicable to a transaction at the in14 ception of the transaetion may not be preempted under
15 Federal law solely because a Federal savings association

16 subse(}Uent.ly <teqnires the asset or instrument that is the

17 subjt.et of the tnms<1C'tion.
18
"(g) DE.\:L\L <W Pmm:'IIPTIO:'\ NOT .A DEPRIVATION
<W .\

19

CI\"IL 1\.IWIT.-The preemption of any prcnrision of

20 the law of au: Ntnte 11ith respect to any Federal s<:rvrings

21 asf.>ociation shall not be treated as a right, privilege, or 22 immunity for purposes of section 1979 of the Re,risecl 23 Statutes of the United States ( 42 U .S.C. 1983 ).". 24
(b) CLERICAL A.IIE.\:Dl\JE.\:T.-The table of sections

25 for the Home Owners' I.Joan Act (12 U.S.C. 1461 et seq.)

f:\VHLC\092409\092409.281.xml September 24, 2009 (10:00 p.m.)

(44987119)

F:\JMW\FS Ill \HR3126\MARK_003.XML

114

1 is amended by striking the item relating to sertion G and

2 inserting the following new item:
"G. Stall' hn,
P~"l'l'lll]ltion

standaYds foy FPdPnd smingc; CJsstwiatimts ;nttl snhsidi-

mies c-lmifil'd. ".

3
4

SEC. 147. VISITORIAL STANDARDS.

Section G of the Home Owners' lJmm Art (as added

b~

5 by section 146 of this title) is amended

<Hiding at the

6 end the follmving new subsections:

7 "(h)
VISITOliJ,:\Jj POWERS.~

8
9

"(1) IK

GENERAL.~No IH'OYl:->1011 of
01'

this Act

shall be construed as limiting

restricting the au-

10

thority of any attorney general (or other ehief law enforcement officer) of any State to bring any action in any court of appropriate jurisdiction~ "(A) to require a Federal saYings assoewtion to produce reeords relatiYe to the inYestigation of 1i.olatious of State eousmm1 hnv, or Federal eommmer laws; "(B) to enforce
em~

11
12

13
14

15

16
17

applil'a hie Federal m sueh lmv; or

18

State la1v, as authorized

b~

19
20
21

" (C) on behalf of rc,sidents of f.>uch State,

to enforce
an~

applicable prmision of <my Fed-

eral or State law against a Federal saYings association, as authorized by such law, or to seek
relief and recover damages for such residents

22

23

f:\VHLC\092409\092409.281.xml September 24, 2009 (1 0:00p.m.)

(44987119)

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115
1
2

from an.v Yiolation of any such law by a.ny Federal s<cnrings af-lsoeiation. "(2) Co::\:-wur.\.TIOX.-The attorney general (or other chief hrw enforcement officer) of any State shall consult ''ith the Director or any s11ccessor agency before acting under paragTaph (1).
"(i) E::\I'OHCE:\IE.:\T ACTIOXS.-The ability of the Diau~'

3
4

5
6
7

8 rector or

successor officer or agency to bring an en-

9 forcement action under this Act or section 5 of the Federal

10 Trade Commission Act shall not be construed as pre11 eluding private parties from enforcing rights gTanted

12 under Federal or State le:rw in the courts.".

13
14
15
SEC. 148. CLARIFICATION OF LAW APPLICABLE TO NONDEPOSITORY INSTITUTION SUBSIDIARIES.

Seetion () of the IIome Owners' !.Joan Act is amended

b~

16

adding after subseetion (i) (as added by section 147)

17 the foll<mring ne" snbseetion:

18 19

"(j)

CLM~H'H'.\'1'10::\

<W

h\W APPLICABLE

TO NO?\-

DEPOSITOI-lY IxsTI'JTTIO::\ <W l~EDEHAL

Sn-1SIDI.ARIES

A.:\D AI'PILI-

20 ATES

8.\ \"1::\GS ASSOCIA'l'I0::\8.-

21 22
23
24

"(1) DEI'I.:\ITIO::\S.- For purposes of this sec-

tion, the follm,ing definitions shall apply:

" (~-:1. 1\)
SIDIARY,

D EPOSITORY .

. . INSTITUTION,

SUB-

AFFILIATK-The terms 'depository in-

25

stitution', 'subsidiary', and 'affiliate' have the

f:\VHLC\092409\092409.281.xml September 24, 2009 (1 o:oop.m.)

(449871 J9)

F:\JMW\FS Ill \HR3126\MARK_003.XML

lHi

1 2 3 4

same meanings as in section :1 of the Federal Deposit Insurance Act. "(B)

NO?\DE:POSITOHY I:\STI'JTTIO:\.~The
<m~

term 'nondepository institution) means ty that is not a depository institution. "(2)

l?\ GENERAL.~N o

enti-

5
6
7

prmision of this title

shall be construed as preempting the applicability of State law to any

nondepositm~

8
9

institution, sub-

sicliary, other affiliate, or agent of a Federal s<wings association.".

SEC. 149. EFFECTIVE DATE.

10

11 12

This subtitle shall take effect on the designated

13 transfer elate. 14 15
16

Subtitle E-Enforcement Powers

SEC. 151. DEFINITIONS.

For purposes of this subtitle, the followiug definitions

17 shall apply:

18 19 20 21 22 23 24 25

(1) CnrL
l\IAND.~The

L\YENTWATI\.E

DK\L\.\:D .\.\:D

DE-

terms "ciYil investig;ntiYe dem<mcr ' and

Agenc~.

"demand" mean any demand issued hy the

(2)

AGE?\CY

I:\\' ENTwxrH >=" .~'rhe

term

''Agency investigation" means any i11quiry conducted by an Agency investigator for the purpose of ascertaining whether any person is or lm;:.; been engaged in any conduct that violates this title, any

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  30

Thanks for your willingness to provide a witness for our 10/20 full committee hearing and your patience while my many bosses pin down exactly what need to be covered during the hearing. At 2:00 on 10/20 there will be a full committee hearing based on discussion drafts of the systemic risk, prudential, resolution authority and securitization titles of the administration's reg. reform proposal. If I haven't missed one, those topics are covered by Titles I, II, III, VI, VIII, IX E, XII & XIII in the original text. I hope to be able to include the discussion draft language when sending witness invitations on Tues./Weds. of next week. The hearing will have a 4 witness regulator panel and a consumer/industry panel with 8-9 witnesses. While everyone has helpfully confirmed their ability to provide a witness on the 20th, we've not heard back regarding specific, proposed witnesses. If you've not already done so, please forward the name, title, mailing address & email of your proposed witness sometime before noon on Tuesday the 13th so that witness invitation letter can be prepared & sent early next week. I hope this message clears up some of the ambiguity surrounding the hearing details and focus. If you've any questions or need further information, please email or feel free to call over the weekend (202.251.2749). Thanks again for your help. Tom

************************************************************************ **** Thomas M. Glassic Counsel, Committee on Financial Services United States House of Representatives 2129 Rayburn House Office Building Washington, DC 20515 (b) (6) tom.glassic@mail.house.gov ************************************************************************ ****

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. .. ....
SOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

WASHINGTON , D . C. 2055 1
BEN 5 . BE:RNANKE: CHAIRMAN

October 16, 2009

The Honorable Jack Reed United States Senate Washington, D.C. 20510-3903 Dear Senator: Thank you for your letter of September 21, 2009, in which you requested our views about the future role and structure of the Federal Reserve System. In that letter, you specifically. asked for our views on consumer protection, transparency, and systemic risk, as well as governance of the system as a whole. Enclosed are the responses to your questions. Please let me know if I can be of further assistance.

Enclosure

Responses to Senator Jack Reed October 16, 2009

Consumer Protection
I regard the Board's statutory responsibility for implementing the federal consumer laws as a critical part of its overall mission. In the past several years, the Board has taken several actions under the Home Ownership and Equity Protection Act (HOEPA) 1 to respond to various consumer protection concerns that have arisen in the mortgage marketplace since HOEP A was enacted in 1994. The Federal Reserve initially published rules to implement HOEPA in 1995. In response to the increase in the number of subprime loans, the Board held a series of public hearings in 2000 focused on the abusive lending practices occurring at that time and the need for additional rules. The information surfaced in those hearings formed the basis for the revisions to the HOEPA rules issued by the Board in December 2001, which strengthened consumer protection, applied HOEPA's protections to more loans and addressed practices occurring in the marketplace at that time. These amendments lowered HOEPA's rate trigger for first-lien homeequity loans to extend HOEPA's protections to a larger number ofhigb-cost loans. The 2001 rules also strengthened HOEPA's prohibition on unaffordable lending by requiring that creditors generally document and verify consumers' ability to repay a high-cost HOEPA loan. In addition, the amendments addressed concerns that high-cost HOEP A loans were "packed" with credit life insurance or other similar products that increased the loan's cost without commensurate benefit to consumers. The Board also used the rulemaking authority in HOEPA that authorizes the Board to prohibit practices that are unfair, deceptive, or associated with abusive lending. Specifically, to address concerns about "loan flipping" the Board prohibited a HOEPA lender from refinancing one of its own loans with another HOEP A loan within the first year unless the new loan is in the borrower's interest. The December-2001 final rule addressed other issues as well. During the summer of 2006, shortly after I became Chairman, the Board conducted a series of public hearings in four cities to gather information about new lending practices, the effectiveness of its HOEPA rules and the impact of the state predatory lending laws. In response, in March 2007, the Board and other federal financial regulatory agencies published proposed interagency guidance addressing certain risks and emerging issues relating to subprime mortgage lending practices, particularly adjustable-rate mortgages. The agencies finalized this guidance in June 2007. Also in June 2007, the Board held another hearing to consider ways in which the Board might use its HOEP A rulemaking authority to further curb abuses in the home mortgage market, including the subprime sector. This became the basis for the new rules that the Board proposed in December 2007 and finalized in July 2008. Among other things, the Board's 2008 fmal rules adopt the same standard for subprime mortgage loans that the statute previously required for high cost HOEPA loans--a prohibition on making loans without regard to borrowers' ability to repay
1

HOEPA was enacted as an amendment to TILA.

- 2-

the loan from income and assets other than the home's value. The July 2008 final rule also requires creditors to verify the income and assets they rely upon to determine borrowers' repayment ability for subprime loans. In addition, the final rules restrict creditors' use of prepayment penalties and require creditors to establish escrow accounts for property taxes and insurance. The rules also address deceptive mortgage advertisements and unfair practices related to real estate appraisals and mortgage servicing. The Board has also improved its efforts to enforce compliance with these and other consumer laws. Because statutory authority to enforce compliance with the consumer laws is divided among general agencies, and many of the abuses regarding subprime lending occurred in significant part outside the banking system, the Federal Reserve worked with the Federal Trade Commission (FTC), the Office of Thrift Supervision, and various state agencies to commence a pilot consumer protection compliance review program in 2007 directed at non-depository subprime mortgage lenders. Consumer compliance reviews and enforcement at these nondepository lenders, including those that were nonbank subsidiaries ofbank holding companies, historically were viewed within the regulatory province of the FTC, the Department of Housing 2 and Urban Development (HUD) and state regulators. Under this pilot project, the agencies coordinated consumer protection compliance reviews at selected entities with significant subprime mortgage operations. These reviews included targeted evaluations of mortgage underwriting standards, risk management strategies, and compliance with certain consumer protection laws.
In recent years, the Federal Reserve has also adopted strong consumer protection measures in the mortgage and credit card areas, and we are committed to strengthening our consumer protection program to more effectively respond to market changes and emerging issues that pose risks. For example, in December 2008, the Federal Reserve issued far-reaching rules to enhance protections for consumer credit card accounts. These rules are the most comprehensive changes to regulations that govern consumer credit cards ever adopted by the Board. They affect nearly all aspects of consumer credit card accounts, including marketing and advertising, disclosures given with applications and at account opening, billing statements, and issuers' ability to change account terms. These rules formed the basis for the recently enacted Credit CARD Act of2009. Earlier this year, we issued a comprehensive proposal under TILA that includes not only re-designed disclosures, but also substantive protections that prohibit payments to a mortgage broker or a loan officer that are based on the lo~n's interest rate or other terms and prohibit a mortgage broker or loan officer from "steering" consumers to transactions that are not

Provisions of the Gramm-Leach-Bliley Act (GLBA) of 1999 placed new limitations on the ability of the Federal Reserve to examine nonbank subsidiaries of bank holding companies for consumer compliance purposes. The GLBA allows the Federal Reserve to examine nonbank subsidiaries to monitor compliance with law only if the Board has "specific jurisdiction to enforce" the law against the subsidiary. See 12 U.S.C. 1844(c)(2)(iii). Many federal lending-related consumer laws provide the FTC or the Department of Housing and Urban Development authority to enforce the law against most nonbank entities, including nonbank subsidiaries of a bank holding company. In 2006, the Board determined that federal law also could be interpreted to provide the Board specific jurisdiction for the Board to enforce a number of consumer protection statutes.

-3in their interest in order to increase mortgage broker or loan officer compensation. In both of these cases, we expanded our use of consumer testing to promote the effectiveness of the new rules. As Congress continues its review of consumer protection authorities, let me assure you that in the meantime we will continue to carry out our responsibilities in the interest of all consumers. Transparency We are continually striving to provide the public with detailed information about our supervisory policies and procedures, rulemaking activities, and legal actions. For example, the Federal Reserve Bank Holding Company Supervision Manual and Commercial Bank Examination Manual are located on our public website and provide thorough guidance regarding Federal Reserve examination policies and procedures. In addition, Supervision and Regulation Letters (SR letters), which address significant policy and procedural matters related to the Federal Reserve supervisory responsibilities, are made publicly available on our website. This is in addition, of course, to the ongoing transparency we follow as required by the Administrative Procedure Act in our rulemakings. This process provides adequate public notice and comment, as well as due consideration of comments received, before issuing a final rule. Moreover, the Federal Reserve provided significant information throughout the recently completed Supervisory Capital Assessment Program (SCAP), which included a forward-looking, cross-fmn, aggregate analyses of capital needs of 19 of the largest bank holding companies. We released a white paper on April24 ofthis year describing the process and methodology. On May 6, we provided more information on the measures used to size the required capital buffer, as well as a preview of the information that would be disclosed. The final release of results included the supervisory-determined indicative loss rates that were used in evaluating firm submissions and, most importantly, aggregate and firm-specific estimates for losses, loss rates, resources to absorb losses, and the resulting capital buffer needs. Because of the unique nature ofthe SCAP, we published and included on our website a series of documents detailing the process, methodology, and results that took into account legitimate supervisory and firm confidentiality concerns.
In addition, a substantial amount of work has been undertaken to increase both the type and the amount of information that we disclose concerning our actions during the fmancial crisis--including a recently created section of our website that offers detailed information about our policy programs and financial activities. We have added more reporting data on the Federal Reserve's liquidity programs, credit facilities and balance sheet that provides more detailed and timely information on our lending, the associated collateral, and other facets of programs established to fight the financial crisis. We have also made public the significant contracts that we have entered into with private sector vendors. Moreover, the public has access to detailed information on our website regarding our supervisory policies and procedures, reporting requirements, rulemaking activities, and legal actions. The Federal Reserve remains committed to transparency and will continue to look for ways to promote understanding of our responsibilities, rulemakings, and supervisory actions. We recognize that our actions must be accompanied by additional transparency so that the Congress and the public can be assured that

- 4-

we are exercising the best possible stewardship of the resources and responsibilities that have been entrusted to us. Systemic Risk Oversight Your question regarding improving the way we identify and mitigate systemic issues raises critical issues that all supervisors should consider. Numerous studies across the globe evaluated contributing factors to the crisis, and many of these--including the Federal Reserve's own internal lessons-learned work--have underscored the importance of considering systemic risks in the supervisory process. Improvements in this area will require supervisors to better anticipate, measure, and respond to risks that involve multiple relationships among a number of institutions, and our supervisory actions should be designed to mitigate adverse consequences from interconnections and spillover effects between firms and markets. The Federal Reserve has already begun to make changes that will improve both our micro-prudential and macro-prudential oversight. First, the Board issued guidance in October 2008 that calibrates our supervision of consolidated holding companies more directly to the systemic significance of individual institutions and business lines, such as core clearing and settlement activities and activities in critical financial markets. Second, drawing on the SCAP experience, we have increased our emphasis on horizontal examinations, which focus on particular risks or activities across a group of banking organizations and supports consideration of systemic implications of fmancial stress under alternative economic scenarios. Third, we are developing an enhanced quantitative surveillance program for large critical institutions that will incorporate supervisory information, firm-specific data analysis, and market-based indicators in an effort to identify developing strains and imbalances that may affect multiple institutions, as well as emerging risks to specific firms. These efforts will also incorporate periodic scenario analysis to enhance our understanding of the consequences of shocks to the economic environment, for both individual firms and for the fmancial system more broadly. This program will draw on the resources of multiple divisions within the Board and will be distinct from the activities of on-site examination teams. This institutional separation will provide an independent supervisory perspective, as well as complement the sources of information available to those teams. As we consider the future evolution of our system, policymakers have focused on approaches to reduce the systemic risk of our financial system. These include strengthening the financial infrastructure in a manner that should increase resiliency and reduce the frequency and severity of bouts of financial instability in the future. One example of this bas been the collaborative effort with the private sector and other regulators to improve arrangements for clearing and settling trades in credit default swaps and other OTC derivatives which can have the potential to affect not only an institution, but the financial system more broadly. This work aims to reduce the systemic risk profile of the OTC derivatives market. All of the above efforts will benefit from a multi-disciplinary approach, involving close collaboration among our supervisors, economists, accountants, attorneys, and consumer affairs experts. The Federal Reserve is particularly well suited for a collaborative approach, as our broad responsibilities allow us to leverage insights gained from the macroeconomic analyses associated with the formulation of monetary policy and to benefit from the familiarity with

. - 5financial markets derived from our open market operations and payments systems responsibilities. Finally, traditional bank regulatory reports have proven to be insufficiently comprehensive or timely to meet the needs of continuous monitoring and analysis for the largest, most complex organizations, which have dynamic and diverse business activities. Reporting requirements for the largest firms should include systematic, frequent and consistently reported information on material fmn-wide exposures, funding and liquidity profiles, as well as operating performance. Therefore, we are coordinating with other federal banking agencies in an effort to develop more timely and comprehensive data reporting. fu. your letter, you asked how the Federal Reserve would incorporate the views of other regulators in its work to monitor and respond to risks across the financial system. I believe we profited from the SCAP exercise in many ways, not least through the close collaboration it engendered with other banking agencies to make it a rigorous and comprehensive assessment. As I have mentioned in recent testimony, a broad-based agenda for regulatory reform should include an oversight council with participation from all federal agencies and departments involved in financial supervision and regulation. The council should have the mandate to monitor and identify emerging risks to financial stability across the entire financial system, to identify regulatory gaps, and to coordinate the agencies' responses to potential systemic risks. fu. its role as fmancial holding company supervisor, the Federal Reserve has for a number of years had ongoing discussions, information-sharing, and cooperation with the other banking agencies, and with the functional regulators of other financial entities within financial holding companies. One example of such communication and cooperation is the regular cross-sector meetings of senior level banking, securities, and insurance regulators involved in the supervision of diversified financial organizations that the Federal Reserve has hosted since the passage of the Gramm-Leach-Bliley Act. These meetings have proven to be excellent opportunities to meet and exchange information on important regulatory initiatives and emerging issues that cut across financial sectors. The Board and the other federal banking agencies have for years worked closely together on domestic and international policy initiatives and rulemakings. As we implement plans to increase the use of horizontal examinations, we expect to continue and broaden our cooperation with the other federal banking agencies.

Federal Reserve System

The unique structure of the Federal Reserve System has proven to be a strength during the financial crisis, and we do not believe it will impede our efforts to address the lessons of the crisis. Our combination of public and private entities was not the cause of the crisis or of any missteps the Federal Reserve may have made. fu.deed, our structure has provided the Federal Reserve access to a wide range of information and perspectives from throughout our diverse economy and has allowed us to react quickly on a nationwide basis. fu. creating the Federal Reserve System, the Congress combined a Washington-based Board of Governors with regional Reserve Banks across the United States for this purpose.

- 6While our structure includes a number of parts, responsibility and accountability for bank and bank holding company supervision is vested, by statute, in the Board of Governors, which is composed of individuals appointed by the President and confirmed by the Senate. The Board of Governors has sole responsibility for establishing the rules and regulations governing bank holding companies, state member banks, and the other banking organizations under our supervisory jurisdiction. Although the Board has delegated authority to the Reserve Banks to conduct the day-to-day supervision of banking organizations, the Board of Governors establishes the guidelines and procedures that must be followed by the Reserve Banks in their examination and supervision and by the banks and bank holding companies subject to supervision. Moreover, the Board of Governors engages in oversight and monitoring of the Reserve Banks to ensure adherence of Board policies and consistency across districts. These policies are made publicly available to aid understanding by the banking industry and the public about our supervisory standards. The boards of directors of the Reserve Banks are not involved in any way in the supervision and regulation ofbanking organizations. The success of the SCAP, which relied on the expertise of both staff of the Board of Governors and staff of the Reserve Banks as well as staffs of the other federal banking agencies to analyze 19 complex banking firms located throughout the United States, is one recent illustration of the supervisory strength of the Federal Reserve System. I want to assure you that we continue to endeavor to improve the functioning of the Federal Reserve System. In addition to the steps outlined above that are designed to improve and enhance our supervisory efforts, we currently are conducting a comprehensive.review of the System's policies regarding directors to promote consistency across the System, to update these policies to reflect changes in the financial system, and to ensure that these policies continue to protect the public interest.

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Not Responsive - Internal Emails Between Federal Reserve Staff

From: FSDWebUpdate [Press-2003@MAIL.HOUSE.GOV] Sent: 10/28/2009 02:15 PM AST To: FSC-WEBUPDATE-BA31@LS1.HOUSE.GOV Subject: Witness List for Tomorrow's Hearing on Systemic Regulation

For Immediate Release: October 28, 2009

Witness List for Tomorrows Hearing on Systemic Regulation

Washington, DC The House Financial Services Committee will hold a hearing titled Systemic Regulation, Prudential Matters, Resolution Authority and Securitization on Thursday, October 29, at 9:30 a.m.

What: and When: Where:

Who: House Financial Services Committee Hearing on Systemic Regulation, Prudential Matters, Resolution Authority Securitization Thursday, October 29, 2009 9:30 a.m. 2128 Rayburn House Office Building

Witness List Panel one

z

The Honorable Timothy F. Geithner, Secretary, U.S. Department of the Treasury

Panel two
z

The Honorable Sheila Bair, Chairman, Federal Deposit Insurance Corporation

z z z z

The Honorable John C. Dugan, Comptroller, Office of the Comptroller of the Currency The Honorable Daniel K. Tarullo, Governor, Board of Governors of the Federal Reserve System Mr. John E. Bowman, Acting Director, Office of Thrift Supervision The Honorable Thomas R. Sullivan, Insurance Commissioner of the State of Connecticut on behalf of the National Association of Insurance Commissioners

Panel three
z

Mr. Richard Trumka, President, American Federation of Labor and Congress of Industrial Organizations z The Honorable Richard Baker, President and Chief Executive Officer, Managed Funds Association z The Honorable Phillip Swagel, Visiting Professor, McDonough School of Business Georgetown University z Mr. Scott Talbott, Senior Vice President for Government Affairs, The Financial Services Roundtable z Mr. Steven A. Kandarian, Executive Vice President and Chief Investment Officer, Metropolitan Life Insurance Company z Mr. R. Michael S. Menzies, Sr., President and Chief Executive Officer, Easton Bank and Trust, Co. on behalf of the Independent Community Bankers of America z Mr. Peter Wallison, Arthur F. Burns Fellow in Financial Policy Studies, The American Enterprise Institute z Ms. Jane DArista, Americans for Financial Reform z Mr. Edward L. Yingling, President and Chief Executive Officer, American Bankers Association z Mr. T. Timothy Ryan, President and Chief Executive Officer, Securities Industry and Financial Markets Association ###

BOARD OF GOVERNORS
OF THE

FECERAL RESERVE SYSTEM

WASHINGTON. 0. C. 20551
SEN 5. 9RNANK CHAIRMAN

October 30, 2009

The Honorable Bob Corker United States Senate Washington, D.C. 20510 Dear Senator: Thank you for your call earlier this week. You asked for a definition of systemic risk. Systemic risks are developments that threaten the stability of the financial system as a whole and consequently the broader economy, not just that of one or two institutions. Examples of systemic risks are risk exposures (such as exposures to subprime mortgages) that are correlated across many institutions; significant, systemwide increases in leverage that could lead to broad-based financial stress in a downturn; the possibility that the failure of a single, interconnected firm may lead to breakdowns in key markets, such as short-term funding markets, or the failure of a number of other firms; or significant gaps in risk management or regulatory oversight that may arise in the course of financial change and innovation. The Federal Reserve believes that, for purposes of both effectiveness and accountability, the consolidated supervision of an individual firm, whether or not it is systemically important, is best vested in a single agency. However, the broader task of monitoring and identifying systemic risks that might arise from the interactions of different types of financial institutions and markets--both regulated and unregulated--may exceed the capacity of any individual supervisor. We therefore recommend marshalling the collective expertise and information of all financial supervisors to help identify and coordinate responses to developments that threaten the stability of the system as a whole. I am enclosing for your consideration a more complete discussion of these issues that is included in Congressional testimony given this week by my colleague, Governor Dan Tarullo. Please do not hesitate to contact either of us directly if you have any questions. Sincerely,

/.)-~
Enclosure

For release on delivery 9:30 a.m. EDT October 29, 2009

Statement of Daniel K. Tarullo Member Board of Governors of the Federal Reserve System before the Committee on Financial Services U.S. House of Representatives October 29, 2009

Chairman Frank, Ranking Member Bachus, and other members of the Committee, thank you for the invitation to testify this morning on systemic regulation, prudential matters, resolution authority, and securitization. The financial crisis was the product of many factors, including the tight integration of lending activities with the issuance, trading, and financing of securities; gaps in the financial regulatory structure; widespread failures of risk management across a range of financial institutions; and, to be sure, significant shortcomings in financial supervision. More fundamentally, though, it demonstrated that the regulatory framework had not kept pace with far-reaching changes in the financial sector, and the concomitant growth of new sources of risk to both individual institutions and the financial system as a whole. Because the roots of the crisis reached so deeply into the very nature of the financial system, a broad program of reform is required. Much can be, and needs to be, done by supervisors--under their existing statutory authorities--to contain systemic risk generally and the too-big-to-fail problem in particular. As the discussion draft released by Chairman Frank recognizes, there is also a clear need for the Congress to provide significant additional authority and direction to the regulatory agencies. Essential elements of this legislative agenda include: ensuring that all financial institutions that may pose significant risk to the financial system are subject to robust consolidated supervision; establishing a systemic risk oversight council to identify, and coordinate responses to, emerging risks to financial stability; directing all financial supervisors to take account of risks to the broader financial system as part of their normal oversight responsibilities; establishing a new special resolution process that allows the government to wind down in an orderly way a failing financial institution that threatens the entire financial system while also creating a credible process for imposing losses on the firms shareholders and

-2creditors and assuring that the financial industry, not taxpayers, ultimately bears any additional costs associated with the resolution process; providing for consistent and robust prudential supervision of key payment, clearing, and settlement arrangements; and addressing weaknesses in the securitization process that came to light during the crisis. Chairman Franks discussion draft addresses each of these areas and, in the Boards view, provides a strong framework for achieving a safer, more stable financial system. In addition to addressing these areas for legislative change, I will discuss some of the actions the Federal Reserve and our supervisory colleagues are taking under existing authorities to strengthen the supervision and regulation of financial institutions--particularly large, complex institutions--and to prevent regulatory arbitrage. Consolidated Supervision of Systemically Important Financial Institutions The current financial crisis has clearly demonstrated that risks to the financial system can arise not only in the banking sector, but also from the activities of other large, interconnected financial firms--such as investment banks and insurance companies--that traditionally have not been subject to the type of mandatory prudential regulation and consolidated supervision applicable to bank holding companies. Chairman Franks discussion draft would close this important gap in our regulatory structure by providing for all financial institutions that may pose significant risks to the financial system to be subject to the framework for consolidated prudential supervision that currently applies to bank holding companies. As I will discuss shortly, it also provides for these firms to be subject to enhanced standards, reflective of the risk they pose to the financial system. These provisions should prevent financial firms that do not own a bank--but that nonetheless pose risks to the overall financial system because of the size,

-3risks, or interconnectedness of their financial activities--from avoiding comprehensive supervisory oversight. In one sense, a requirement that all systemically important firms be subject to prudential supervision would not lead to a major change in our regulatory system. During the financial crisis, a number of very large financial firms became bank holding companies. Thus, the Federal Reserve has already become the consolidated supervisor of most of the nations large, interconnected financial institutions. Yet a critical part of a reform agenda directed at systemic risk and the too-big-to-fail problem is ensuring that other financial firms that may pose a systemic threat also are subject to robust consolidated supervision. Such a measure would allow the regulatory system to adapt if activities migrate from supervised institutions to other firms, leading those firms to become very large and interconnected, or in response to other developments in the financial system. Moreover, such a provision would serve as a kind of insurance policy against the possibility of a firm that opted for the benefits of being a bank holding company during the financial crisis deciding to exit that status during calmer times. The discussion draft also would require the development of enhanced regulation and supervision, including robust capital, liquidity, and risk-management requirements, to address and mitigate systemic risks. Enhanced requirements, particularly for large, interconnected firms, are needed not only to protect the stability of individual institutions and the financial system as a whole, but also to counteract any incentive for financial firms to become very large in order to be perceived as too big to fail. This perception can materially weaken what should be the normal market incentive of creditors to monitor the firms risk-taking and appropriately price these risks in their transactions with the firm. When this incentive is weakened, moral hazard increases, allowing the firm to raise funds at a price that may not fully reflect the firms risk profile. As a

-4result, the firm is likely to choose a level of risk that is excessive both for itself and, potentially, for society at large. Moreover, this distortion creates a playing field that is tilted against smaller firms not perceived as having the same degree of government support. Development of a mechanism for the orderly resolution of nonbank financial firms that threaten financial stability, which I will discuss later, is an important additional tool for addressing the too-big-to-fail problem. The discussion draft would reinforce the changes in supervision already under way at the Federal Reserve and the other banking agencies. As already announced, we have strengthened capital requirements for trading activities and securitization exposures. We continue to work with other regulators to strengthen the capital requirements for other types of on- and offbalance-sheet exposures and to improve the quality of capital overall.1 Beyond these generally applicable capital requirements, we must develop capital standards and other supervisory tools addressed specifically to the systemic risks of large, interconnected firms. One possible approach is a special charge--possibly a special capital requirement--that would adjust based on the risks posed by the firm to the financial system. Ideally, this requirement would be calibrated to become more stringent as the firms systemic risks increase, although developing a metric for such a requirement would be highly challenging. Another potentially promising option is to require that selected financial institutions issue specified amounts of contingent capital. Such capital could take the form of debt instruments that convert to common equity during times of macroeconomic stress or when losses erode the institutions capital base. Such instruments would pre-position capital on the balance sheets of each of these institutions, ready to be converted into the form that provides the best loss1

See Bank for International Settlements (2009), Basel II Capital Framework Enhancements Announced by the Basel Committee, press release, July 13; and Basel Committee on Banking Supervision (2009), Enhancements to the Basel II Framework (Basel, Switzerland: Basel Committee, July).

-5absorption capacity precisely when that capacity is most needed. And, if well devised, it would inject an additional element of market discipline into large financial firms, because the price of those instruments would reflect market perceptions of the stability of the firm. The financial crisis also highlighted weaknesses in liquidity risk management at major financial institutions, including an overreliance on short-term funding. To address these issues, the Federal Reserve helped lead the development of revised international principles for sound liquidity risk management, which have been incorporated into new interagency guidance now out for public comment.2 Together with our U.S. and international counterparts, we are also considering quantitative standards for liquidity exposures similar to those for capital adequacy, with the goal of ensuring that internationally active firms can fund themselves even during periods of severe market instability. With supervisory encouragement, large banking organizations have, for the most part, already significantly increased their liquidity buffers and are strengthening their management of liquidity risks. Beyond modifying applicable rules and standards, the Federal Reserve is revamping its approach toward supervising the largest financial institutions. In doing so, we have drawn on our experience earlier this year in conducting the special Supervisory Capital Assessment Program (SCAP), which involved forward-looking, cross-firm, aggregate analyses of 19 of the largest bank holding companies. While the SCAP itself was an extraordinary exercise for an extraordinary time, we are incorporating into our ongoing supervisory process the essential SCAP approach of bringing firm-specific assessments of on-site examiners together with

See Basel Committee on Banking Supervision (2008), Principles for Sound Liquidity Risk Management and Supervision (Basel: Basel Committee, September). Information about the proposed guidance is available at Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Office of Thrift Supervision, and National Credit Union Administration (2009), Agencies Seek Comment on Proposed Interagency Guidance on Funding and Liquidity Risk Management, joint press release, June 30, www federalreserve.gov/newsevents/press/bcreg/20090630a htm.

-6systematic analyses of industry experience, economic trends, and possible stress scenarios. Thus, we have increased our emphasis on horizontal examinations, which focus on particular risks or activities across a group of banking organizations, and we have broadened the scope of the resources we bring to bear on these reviews. For example, we currently are conducting a horizontal assessment of internal processes for evaluating capital adequacy at the largest U.S. banking organizations, focusing in particular on how shortcomings in fundamental risk management and governance for these processes could impair firms abilities to estimate capital needs. This exercise is central to the goal of having each firm maintain adequate capital to provide a buffer against possible losses associated with its particular set of activities and exposures. Using findings from these reviews, we will work with firms over the next year to bring their processes into line with supervisory expectations. Supervisors will use the information provided by firms about their processes as one factor in the assessment of the adequacy of firms overall capital levels. For instance, if a firm cannot demonstrate a strong ability to estimate capital needs, then supervisors will place less credence on the firms own internal capital evaluation and may demand higher capital cushions, among other things. As part of this overall approach to large institution supervision, we are creating an enhanced quantitative surveillance program for large, complex organizations that would use supervisory information, firm-specific data analysis, and market-based indicators in an effort to identify emerging risks to specific firms as well as to the industry as a whole. This work will be performed by a multidisciplinary group composed of our economic and market researchers, supervisors, market operations specialists, and other experts within the Federal Reserve System. In addition, periodic scenario analysis will be used to enhance our understanding of the

-7consequences of changes in the economic environment for both individual firms and for the broader system. Finally, to support and complement these initiatives, we are working with the other federal banking agencies to develop more-comprehensive and more-frequent informationreporting requirements for the largest firms. The crisis also has highlighted the potential for compensation practices at financial institutions to encourage excessive risk-taking and unsafe and unsound behavior--not just by senior executives, but also by other managers or employees who have the ability, individually or collectively, to materially alter the risk profile of the institution. Bonuses and other compensation arrangements should not provide incentives for employees at any level to behave in ways that imprudently increase risks to the institution, and potentially to the financial system as a whole. Last week, the Federal Reserve issued proposed guidance on incentive compensation practices to promote the prompt improvement of incentive compensation practices throughout the banking industry.3 This guidance, which is consistent with the international principles and standards issued by the Financial Stability Board earlier this year, will be supplemented by supervisory initiatives to spur and monitor the industrys progress toward the implementation of safe and sound incentive compensation arrangements, identify emerging best practices, and advance the state of practice more generally in the industry. 4 One of these initiatives involves a special horizontal review of incentive compensation practices at 28 large, complex banking organizations under the Federal Reserves supervision.
See Board of Governors of the Federal Reserve System (2009), Federal Reserve Issues Proposed Guidance on Incentive Compensation, press release, October 22, www federalreserve.gov/newsevents/press/bcreg/20091022a htm. 4 See Financial Stability Forum (2009), FSF Principles for Sound Compensation Practices, April, available on the Financial Stability Boards website at www financialstabilityboard.org/publications/r 0904b.pdf . (The Financial Stability Forum has subsequently been renamed the Financial Stability Board.) Also see Financial Stability Board (2009), FSB Principles for Sound Compensation Practices: Implementation Standards, September, www financialstabilityboard.org/publications/r 090925c.pdf.
3

-8To be fully effective, consolidated supervisors must have clear authority to monitor and address safety and soundness concerns and systemic risks in all parts of an organization, working in coordination with other supervisors wherever possible. As the crisis has demonstrated, large firms increasingly operate and manage their businesses on an integrated, firmwide basis, with little regard for the corporate or national boundaries that define the jurisdictions of individual functional supervisors, and stresses at one subsidiary can rapidly spread within the consolidated organization. A consolidated supervisor thus needs the ability to understand and address risks that may affect the risk profile of the organization as a whole, whether those risks arise from one subsidiary or from the linkages between depository institutions and nondepository affiliates. Chairman Franks proposal would make useful modifications to the provisions added to the law by the Gramm-Leach-Bliley Act in 1999 that limit the ability of a consolidated supervisor to monitor and address risks within an organization and its subsidiaries on a groupwide basis. Systemic Risk Oversight For purposes of both effectiveness and accountability, the consolidated supervision of an individual firm, whether or not it is systemically important, is best vested with a single agency. However, the broader task of monitoring and identifying systemic risks that might arise from the interaction of different types of financial institutions and markets--both regulated and unregulated--may exceed the capacity of any individual supervisor. Instead, we should seek to marshal the collective expertise and information of all financial supervisors to identify and respond to developments that threaten the stability of the system as a whole. The discussion draft released by Chairman Frank would advance this objective in two important ways. First, it would establish an oversight council--composed of representatives of the agencies and departments involved in the oversight of the financial sector--that would be

-9responsible for monitoring and identifying emerging systemic risks across the full range of financial institutions and markets. In addition, the council would have the ability to coordinate responses by member agencies to mitigate identified threats to financial stability. And, importantly, the oversight council would have the authority to recommend that its member agencies, either individually or collectively, adopt heightened prudential standards for the firms under the agencies supervision in order to mitigate potential systemic risks. Examples of such risks could include rising and correlated risk exposures across firms and markets; significant increases in leverage that could result in systemic fragility; and gaps in regulatory coverage that arise in the course of financial change and innovation, including the development of new practices, products, and institutions. The council also would identify those financial firms that should be subjected to enhanced prudential standards and supervision on a consolidated basis.5 Second, the discussion draft would reinforce the authority of individual financial agencies to take macroprudential considerations into account in exercising their supervisory and regulatory functions. A macroprudential outlook, which considers interlinkages and interdependencies among firms and markets that could threaten the financial system in a crisis, provides an important complement to the current microprudential focus of financial supervision and regulation. Each supervisors participation in the oversight council would greatly strengthen that supervisors ability to see and understand threats to financial stability and craft appropriate responses for the institutions and markets under their supervision. The Federal Reserve already has begun to incorporate a systemically focused approach into our supervision of large, interconnected firms. Doing so requires that we go beyond

To fulfill these responsibilities, the discussion draft would provide the council access to a broad range of information from its member agencies regarding the institutions and markets that the agencies supervise and, when the necessary information is not available through that source, the authority to collect such information directly from financial institutions and markets.

- 10 considering each institution in isolation and pay careful attention to interlinkages and interdependencies among firms and markets that could threaten the financial system in a crisis. For example, the failure of one firm may lead to runs by wholesale funders of other firms that are seen by investors as similarly situated or that have exposures to the failing firm. These efforts are reflected, for example, in the expansion of horizontal reviews and the quantitative surveillance program I discussed earlier. Improved Resolution Process Another critical element of an agenda to contain systemic risk is the creation of a new regime that would allow financial firms to fail without posing risks to the broader financial system or the economy. In most cases, the federal bankruptcy laws provide an appropriate framework for the resolution of nonbank financial institutions. However, the bankruptcy code does not sufficiently protect the publics strong interest in ensuring the orderly resolution of a nonbank financial firm whose failure would pose substantial risks to the financial system and to the economy. Indeed, after the Lehman Brothers and AIG experiences, there is little doubt that we need an alternative to the existing options of bankruptcy and bailout for such firms. The discussion draft released by Chairman Frank would provide the government with important new tools to restructure or wind down a failing firm in a way that passes on losses to shareholders and creditors of the firm while mitigating the risks to financial stability and the economy. For example, it would allow the government to sell assets, liabilities, and business units of the firm; transfer the systemically significant operations of the firm to a new bridge entity that can continue these operations with minimal disruptions; and repudiate contracts of the firm, subject to appropriate recompense.

- 11 This proposal would not guarantee the survival of any financial firm, nor is it designed to aid shareholders or creditors of a failing firm. To the contrary, the proposal would establish the expectation that shareholders and creditors of the firm will bear losses as a result of the firms failure. And any assistance provided in the course of the resolution process to prevent severe disruptions to the financial system would be repaid by the firm or the financial services industry. Establishing credible processes for imposing losses on the shareholders and creditors of a failing firm is essential to restoring a meaningful degree of market discipline and addressing the too-bigto-fail problem. Indeed, restoring discipline through changes directed at the behavior of investors and counterparties would be an important complement to the regulatory and supervisory changes that I discussed earlier, which seek to address the too-big-to-fail problem through actions directed at the firms themselves. Financial firms of any size should be resolved under the bankruptcy code whenever possible. Thus, this new regime should serve only as an alternative to the bankruptcy code, available when needed to address systemic concerns, and its use should be subject to high standards and checks and balances. The discussion draft would allow the new regime to be invoked with respect to a particular firm only with the approval of multiple agencies, and only upon a determination that the firms failure and resolution under the bankruptcy code or otherwise applicable law would have serious adverse effects on financial stability and the U.S. economy. These standards, which are similar to those governing the use of the systemic risk exception to least-cost resolution in the Federal Deposit Insurance Act, appear appropriate and should help ensure that these new powers are invoked only when circumstances dictate their use. The discussion draft provides that the ultimate costs of any assistance needed to facilitate the orderly resolution of a large, highly interconnected financial firm be recouped through the

- 12 sale or dissolution of the troubled firm, supplemented by assessments on financial firms over an extended period of time if necessary. We believe this approach provides a path to resolution for financial firms in a way that both mitigates risk to the financial system and protects taxpayers. The availability of a workable resolution regime with appropriate funding would eliminate the need for the Federal Reserve to use its emergency lending authority under section 13(3) of the Federal Reserve Act to prevent the disorderly failure of specific failing institutions. It is important, however, that the Federal Reserve, as the nations central bank, retain our long-standing authority to address broader liquidity needs within the financial system under section 13(3) when necessary to maintain financial stability. During the recent crisis, our ability to establish broad-based liquidity facilities proved critical in containing the severe pressures that threatened the financial system as a whole and in reopening key financial markets. We used this authority only when the need for action was evident to both the Federal Reserve and the Treasury, a practice that could be formalized by the Congress. Payment, Clearing, and Settlement Arrangements As I mentioned at the outset, in revising the financial regulatory system, we must look beyond the causes of the current crisis and seek to address areas of potential systemic risk in the future. Such areas include critical payment, clearing, and settlement arrangements, which are the foundation of the nations financial infrastructure. These arrangements include centralized market utilities for clearing and settling payments, securities, and derivatives transactions, as well as the decentralized activities through which financial institutions clear and settle such transactions bilaterally. While these arrangements can create significant efficiencies and promote transparency in the financial markets, they also may concentrate substantial credit, liquidity, and operational risks. In addition, many of these arrangements have direct and indirect

- 13 financial or operational linkages and, absent strong risk controls, can themselves be a source of contagion in times of stress. Thus, it is critical that systemically important payment, clearing, and settlement systems and activities be subject to strong and consistent prudential standards designed to ensure the identification and sound management of credit, liquidity, and operational risks. Unfortunately, the current regulatory and supervisory framework for systemically important payment, clearing, and settlement arrangements is fragmented, creating the potential for inconsistent standards to be adopted or applied. In light of the increasing integration of global financial markets, it is important that these arrangements be viewed from a systemwide perspective, and that they be subject to strong and consistent prudential standards and supervisory oversight. The Federal Reserve has direct supervisory responsibility for some of the largest and most critical systems in the United States and has a role in overseeing several other systemically important systems. But a coherent framework for supervision of these systems does not exist, and our current authority depends to a considerable extent on the specific organizational form of these systems. Chairman Franks discussion draft would provide the Federal Reserve with additional authorities to ensure that appropriate standards and oversight are applied to systemically important payment, clearing, and settlement arrangements. Improving the Securitization Process The financial crisis revealed a number of significant shortcomings in the securitization process that contributed importantly to the stresses experienced by the markets as well as to the outsized losses some firms faced once markets began to deteriorate. The ability of brokers and lenders to readily securitize and sell to third parties loans that they were making, regardless of

- 14 their risks, contributed to the overall decline in underwriting standards in the years leading up to the crisis. Moreover, capital requirements failed to provide adequate incentives for firms to maintain capital and liquidity buffers sufficient to absorb extreme systemwide shocks without taking actions that could tend to amplify the effects of the shocks. In addition, institutional investors of all sorts--including financial institutions, pension funds, and overseas investors--put excessive reliance on the rating agencies assessment of the risks associated with a range of structured products. In part, investors reliance on ratings reflected the lack of transparency of many structured products, which made independent assessments of risk difficult. However, it subsequently became clear that the rating agencies had not themselves understood the extent of the risks associated with complex structured instruments, particularly those related to subprime mortgages. Once those risks were realized, the ratings of many of these securities were downgraded sharply, with investors taking very large and unexpected losses. Addressing these weaknesses will require action on several fronts. As I noted earlier, the Basel Committee has announced improvements to bank capital standards for securitizationrelated exposures, thereby better aligning these standards with the risks presented by securitizations. Improved transparency regarding the individual loans backing a securitization, as well as regarding the originators of such loans, also is needed to reduce the opacity that has impeded effective discipline in the market for asset-backed securities (ABS) and encouraged undue reliance on credit rating agencies. Chairman Franks discussion draft would advance this goal by authorizing the Securities and Exchange Commission (SEC) to develop enhanced disclosure requirements for ABS, including loan-level information and information identifying

- 15 the originators or brokers of the underlying loans.6 Using authority granted by the Congress in 2006, the SEC already has adopted or proposed several rules to improve the transparency, quality, and integrity of the credit rating process for securitizations and other structured finance products.7 Requiring that originators or securitizers of loans packaged for securitization retain some exposure to the credit risk associated with the loans also could help restore confidence in the securitization market and encourage the application of sound underwriting criteria to all loans, including those intended for securitization. The details of such a requirement are probably best left to rulemaking by the implementing agencies. Complexities are created by the broad range of assets that are, or may be, securitized, as well as by the different approaches that may be taken to securitization. A credit exposure retention requirement may thus need to be implemented somewhat differently across the full spectrum of securitizations in order to properly align the interests of originators, securitizers, and investors without unduly restricting the availability of credit or threatening the safety and soundness of financial institutions. Charter Conversions and Regulatory Arbitrage Finally, I am pleased to note that one potential gap, which I know is of interest to this Committee, already has been addressed by the joint efforts of the banking agencies. The dual banking system and the existence of different federal supervisors create the opportunity for insured depository institutions to change charters or federal supervisors. While institutions may engage in charter conversions for a variety of sound business reasons, conversions that are
6

Encouraged by the Federal Reserve and others, the American Securitization Forum already has taken important steps along these lines, developing model disclosures for residential mortgage-backed securities that would provide investors standardized loan-level information. 7 Increased transparency regarding the pricing of ABS also can support enhanced market discipline by providing investors important signals regarding other market participants assessments of the quality of individual issues. Along these lines, the Financial Industry Regulatory Authority recently proposed including ABS in its post-trade reporting system, a step that deserves the support of policymakers.

- 16 motivated by hopes of escaping current or prospective supervisory actions by the institutions existing supervisors undermine the efficacy of the prudential supervisory framework. Accordingly, the Federal Reserve welcomed and immediately supported an initiative led by the Federal Deposit Insurance Corporation to address such regulatory arbitrage. This initiative resulted in a recent statement of the Federal Financial Institutions Examination Council reaffirming that a charter conversion or other action by an insured depository institution that would result in a change in its primary supervisor should occur only for legitimate business and strategic reasons.8 Importantly, this statement also provides that conversion requests should not be entertained by the proposed new chartering authority or supervisor while serious or material enforcement actions are pending with the institutions current chartering authority or primary federal supervisor. In addition, it provides that the examination rating of an institution and any outstanding corrective action programs should remain in place when a valid conversion or supervisory change does occur. Conclusion In closing, let me reiterate the importance of moving ahead with the elements of the administrative and legislative reform agenda that I have discussed. These reforms, taken together, will enhance financial stability, increase market discipline in transactions involving large financial firms, and reduce both the probability and severity of future crises. The Federal Reserve looks forward to continuing work with the Congress and the Administration as the legislative process moves forward.

See Federal Financial Institutions Examination Council (2009), FFIEC Issues Statement on Regulatory Conversions, press release, July 1.

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CHRISTOPHER J . 0000, CONNECTICUT, CHAIRMAN TIM JOHNSON, SOUTH DAKOTA JACK REED. RHODE ISLAND CHARLES E. SCHUMER. NEW YORK EVAN BAYH, INDIANA ROBERT MENENDEZ. NEW JERSEY DANIEL K. AKAKA, HAWAII SHERROD BROWN, OHIO JON TESTER, MONTANA HERB KOHL. WISCONSIN MARK WARNER, VIRGINIA JEFF MERKLEY, OREGON MICHAEL BENNET, COLORADO RICHARD C. SHELBY, ALABAMA ROBERT F. BENNETT, UTAH JIM BUNNING, KENTUCKY MICHAEL CRAPO, IDAHO MEL MARTINEZ, FLORIDA BOB CORKER. TENNESSEE JIM DMINT, SOUTH CAROLINA DAVID VITTER, LOUISIANA MIKE JOHANNS, NEBRASKA KAY BAILEY HUTCHISON, TEXAS

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COMM ITIEE ON BANKING, HOUSING, AND URBAN AFFAIRS WASHINGTON, DC 20510- 6075

EDWARD SILVERMAN , STAFF DIRECTOR WILLIAM 0 . DUHNKE . REPUBLICAN STAFF DIRECTOR AND COUNSEL

December 8, 2009

The Honorable Ben Bemanke Chairman Board of Governors of the Federal Reserve System 20 1h Street and Constitution A venue, NW Washington, DC 20551 Dear Chairman Bemanke: Thank you for testifying before the Committee on Banking, Housing, and Urban Affairs on December 3, 2009. In order to complete the hearing record, we would appreciate your answers to the enclosed questions as soon as possible. Please repeat the question, then your answer, single spacing both question and answer. Please do not use all capitals. Send your reply to Ms. Dawn L. Ratliff, the Committee' s Chief Clerk. She will transmit copies to the appropriate offices, including the committee's publications office. Due to current procedures regarding Senate mail, it is recommended that you send replies via e-mail in a MS Word, WordPerfect or .pdf attachment to Dawn Ratli ff@banking.senate.gov.

If you have any questions about this letter, please contact Ms. Ratliff at (202)224-3043.
Sincerely,

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CHRISTOPHER J . DODD Chairman CJD/dr

Nomination Hearing for The Honorable Ben Bemanke December 3, 2009

Questions for The Honorable Ben Bernanke, Chairman, Board of Governors of the Federal Reserve System, from Senator Bayh:

The United States Mint recently issued a report that concluded that its State Quarters Program honoring each state with a quarter bearing symbols emblematic of that state on its reverse side had realized $6.3 billion dollars in profit to the government from seigniorage. [Seigniorage occurs when coins are taken out of circulation by collectors and the government realizes the difference between the coin's face value and the per unit production cost- a profit of more than 23 cents per quarter.] This profit was realized because the Federal Reserve provided adequate supplies of each new quarter to its member banks so that the public could easily obtain and collect those coins. Because of diminished demand during the recession, the Fed has reduced the volume of their purchases from the Mint. But, more importantly, the Fed has also refused to make coins available by design. In other words, they will not allow member banks to order specific coins (such as the Guam quarter) to make them available to their customers. This combination of policies has greatly reduced the availability of individual coins to the collecting public. A new series honoring the nation's national parks will begin in 2010. If the Federal Reserve continues its policies, it will reduce the availability of these new quarters to everyday collectors. This in turn will jeopardize the potential profit to the government, resulting in nowhere near the $6.3 billion generated for the Treasury by its predecessor, the state quarter. Question: While it is the U.S: Treasury that reaps the benefits of seigniorage, not the Federal Reserve, the Fed is in a position to greatly improve the profit that can be realized by the government for the new national parks quarters to be released in 2010. Would the Fed consider making each of these coins available by design for an initial period after their release? In this way, the public would have the ability to obtain and collect these coins from circulation, providing much greater distribution than will be achieved by the Mint alone.

Nomination Hearing for The Honorable Ben Bernanke December 3, 2009

Questions for The Honorable Ben Bemanke, Chairman, Board of Governors of the Federal Reserve System, from Senator Menendez:

1. The measures you have taken to put the fmancial system back on track have left a handful of banks larger than they were prior to the crisis, and those banks are still unwilling to lend money, and apparently still engaging in some ofthe same risky investing behavior that led to the mess we're in. If they were too big to fail this time around, they will be even bigger in the event of a future calamity. The current situation only encourages reckless speculation by the major banks who have been assured that they will never be held accountable for their actions. What will you do to reduce the incentives of these banks to engage in reckless behavior if they think taxpayers will always bail them out? 2. Banking supervision, consumer protection, and monetary policy are all very different jobs. There is a real danger that all of these important functions could detract from one another if they are all given to the Fed. Given the Fed' s many significant monetary policy responsibilities, can the Fed really take on significant responsibilities in other areas as well, such as supervision of all systemically significant institutions, even those that are not banks? Or more consumer protection authority than it has now? 3. The Fed has not succeeded on many consumer protection fronts, most notably in failing to regulate mortgages. Since 1994, the Fed has had the power- indeed the duty- under the Home Ownership and Equity Protection Act to prohibit loans that are "unfair, deceptive," or "otherwise not in the interest of the borrower." This sweeping power could have curtailed many of the abusive and predatory mortgage lending tactics that triggered a massive wave of foreclosures on subprime and Alt-A mortgages, but it was not invoked until 2008, long after the foreclosure crisis became apparent. When did you first encourage the Board of Governors to invoke this law? Has the Board of Governors conducted any assessment of its failure to invoke the law before it did? Why should we believe that the Fed will exhibit a better track record on consumer protection than it has in the past? Shouldn't we give those responsibilities to an independent Consumer Financial Protection Agency that is focused on protecting American consumers as its primary mission?

In the wake of the Fed's failure to act in this crucial area, why has the Fed remained neutral when it comes to the creation of a Consumer Financial Protection Agency?

Nomination Hearing for The Honorable Ben Bemanke December 3, 2009

Questions for The Honorable Ben Bernanke, Chairman, Board of Governors of the Federal Reserve System, from Senator Vitter:

1. The current policy of the Federal Reserve is keeping interest rates near zero. This is allowing banks to earn a lot of money by buying long term government bonds and using that money to recapitalize the banks- which is a good thing- but, if the Federal Reserve continues this policy for an extended time, why would banks lend to consumers when even the least risky consumer is far riskier than buying US Treasuries? Doesn't this Federal Reserve policy discourage the lending Washington policy makers say they're trying to promote?

2. In July, as part of your last appearance before this committee, you were asked if you plan to hold the Treasury and GSE securities on your books until maturity. You responded, "the evolution of the economy, the financial system, and inflation pressures remain subject to considerable uncertainty. Reflecting this uncertainty, the way in which various monetary policy tools will be used in the future by the Federal Reserve has not yet been determined. In particular, the Federal Reserve has not developed specific plans for its holdings of Treasury and GSE securities." Basically, you had no plan to unwind this swollen portion of the Fed balance sheet. Do you have a plan yet, Mr. Chairman? 3. Over the last year, the Federal Reserve has introduced $1 trillion into the banking system. The Federal Reserve continues to expand itspurchases of mortgage backed securities. Chairman Bemanke, in past testimony before this committee you have said that part of the plan to reign in this excess liquidity is to pay banks interest on reserves. What rate of interest will you have to pay in order to accomplish this and what will that do to the economy?

4. On Monday, the Dubai government said that it would not guarantee the debts of stateowned Dubai World. A senior finance official said, "Creditors need to take part of the responsibility for their decision to lend to the companies. They think Dubai World is part of the government, which is not correct." Dubai world has since offered to restructure $26 billion in debts. As a result, no great crisis has erupted in the markets. What lesson have you drawn from this?

5. Tuesday, a NY Times report highlighted the fact that on December 14, 2008, well after receiving an injection ofTARP money from the taxpayer, Citi announced $8 billion of financing for public sector entities in Dubai. Chairman Bemanke, did you know that Citi

Nonrination Hearing for The Honorable sen Bemanke December 3, 2009

made this investment with the help of taxpayer funds? What scrutiny did the Federal Reserve give this transaction given the fact that Citi was forced to take fens of billions of dollars ofTARP funds?

6. More than a year after the Federal Reserve bailed out the failing insurance giant; taxpayers deserve to know what the exit strategy is. Just this week the Federal Reserve Bank of New York bought two life insurance companies from AIG in exchange for reducing the debt the company owes the Fed by $25 billion. It seems like a positive step, but owning two life insurance companies is hardly an exit from the morass of AIG. Will taxpayers get their money back from AIG and how much can they reasonably expect to get back?

7. Mr. Chairman, as I'm sure you know by now, the recent report issued by the Special Inspector General of the Troubled Asset Relief Program on payments made to AIG counterparties says that "the Federal Reserve Bank New York's negotiating strategy to pursue concessions from counterparties offered little opportunity for success, even in light of the willingness of one counterparty to agree to concessions." How involved were you in the decision made by the Federal Reserve Board of New York to pay these counterparties at par?

8. In your last appearance before this committee, Mr. Chairman, you and I talked about the proposal for GAO audits of the Federal Reserve. As you know, I support full, delayed audits of the Federal Reserve. The argument you and others make in opposition to these audits is that they would compromise the ability of the Federal Reserve to make monetary policy independently. Yet, you now support audits of emergency, 13(3) facilities even though you said that, "because supporting economic growth when the economy has been adversely affected by various types of shocks is a key function of monetary policy, all of the facilities that are available to multiple institutions can be considered part of the Federal Reserve's monetary policy response to the crisis." How is it that you feel that some GAO audits of monetary policy are ok and others are not?

9. Mr. Chairman, in the House Financial Services Committee's consideration of the systemic regulation bill, it narrowly adopted an amendment that requires a 20 percent haircut for all secured creditors in the case of an institution identified as systemically important. The sponsors stated that the intent was to prevent secured lenders from requiring additional collateral as the institution failed. Also the FDIC, who supports, the amendment argues it would incentivize secured lenders to review secured borrowers more closely. It appears to me that the proposal would significantly increase cost of secured borrowing and be potentially disruptive of a number of secured lending markets

Nomination Hearing for The Honorable Ben Bemanke December 3, 2009

such as the repurchase agreements, advances from the Federal Home Loan Banks, and possibly some ofthe Fed's own activities. Also, it is my understanding that secured creditors spend significant resources today assessing the creditworthiness of the borrowers as well as the value of the pledged collateral. Have you had a chance to review the proposal and form an opinion on the impact it has on the institutions and the market?

10. Can you cite an example of when in its history the Federal Reserve was early about doing something on a looming banking crisis?

11. Chairman Bemanke, what share of the blame does the Federal Reserve bear for the catastrophe of last year?

12. Chairman Bemanke, what was the biggest mistake you made over the last year?

13. Given the benefit of hindsight, would you still bail out Bear Steams in the way that you did last year? What would you do differently?

14. On November 24, 2009, Reuters reported that the U.S. Federal Reserve asked banks that were part of its so-called "stress tests" to submit plans to repay government money lent to them under the Trouble Asset Relief Program (T ARP). Without going into specifics on individual financial institutions or naming names, do you foresee any financial institutions that will have trouble repaying their T ARP money? How will you handle companies that face challenges in repaying taxpayer money?

15. On December 3, 2009 the Wall Street Journal reported that the Bank of America is set to repay its TARP funds. Given that news, along with the Federal Reserve's request that financial institutions submit plans for repayment and the critical role that you played lobbying Congress for the creation ofTARP I am interested in your opinion on the need to continue the program. As you know the authority to purchase new troubled assets under T ARP expires on December 31, 2009 but that it can be extended for almost another year. Do you believe that the stability of our nation's financial system necessitates an extension of this bailout program?

Nomination Hearing for The Honorable Ben Bemanke December 3, 2009

16. The Wall Street Journal reported on some questions that different economists felt that you should answer. Let me borrow from some of those and I will credit them with their questions accordingly:

a. Anil Kashyap, University of Chicago Booth Graduate School of Business: With the unemployment rate hovering around 10%, the public seems outraged at the combination of three things: a) substantial TARP support to keep some firms alive, b) allowing these firms to pay back the TARP money quickly, c) no constraints on pay or other behavior once the money was repaid. Was it a mistake to allow b) and/or c)? b. Mark Thoma, University of Oregon and blogger: What is the single, most important cause of the crisis and what s being done to prevent its reoccurrence? The proposed regulatory structure seems to take as given that large, potentially systemically important firms will exist, hence, the call for ready, on the shelf plans for the dissolution of such firms and for the authority to dissolve them. Why are large firms necessary? Would breaking them up reduce risk?

c. Simon Johnson, Massachusetts Institute ofTechnology and blogger: Andrew Haldane, head of financial stability at the Bank of England, argues that the relationship between the banking system and the government (in the U.K. and the U.S.) creates a "doom loop" in which there are repeated boom-bust-bailout cycles that tend to get cost the taxpayer more and pose greater threat to the macro economy over time. What can be done to break this loop?

d. Brad Delong, University of California at Berkeley and blogger: Why haven't you adopted a 3% per year inflation target?

17. The Obama administration uses a phrase that, before the beginning of the year, I was not all that familiar with. They talk about jobs that are "created or saved." As an economist, can you define what a "saved" job is? How would one measure how many jobs are being saved? Do you know of any economist or federal agency that measures the number of jobs saved (if they do, please provide some detail as to when they decided to track that number and how they define it and measure it)?

Nomination Hearing for The Honorable Ben Bemanke December 3, 2009

Questions for The Honorable Ben Bernanke, Chairman, Board of Governors of the Federal Reserve System, from Ranking Member Shelby:
1. With respect to the failure of Lehman Brothers, you stated in a speech delivered on August

21 of this year that: "As the Federal Reserve cannot make an unsecured loan, and as the government as a whole lacked appropriate resolution authority or the ability to inject capital, the firm's failure was, unfortunately, unavoidable." However, in the case of American International Group (AIG), it was judged that the firm had assets that were adequate to secure an $85 billion line of credit. Would the Chairman provide any documents prepared by the Fed detailing or analyzing the adequacy of collateral in the case of Lehman Brothers and in the case of AIG? 2. Former New York Insurance Commissioner Eric Dinallo has testified that " the crisis for AIG did not come from its state regulated insurance companies." Does the Federal Reserve agree? 3. Former New York Insurance Commissioner Eric Dinallo has testified that "AIG life insurance companies would not have been insolvent" because oflosses related to AIG's securities lending program. Does the Federal Reserve agree? 4. It is often mentioned that large systemically important firms should face higher capital, liquidity, or other requirements to reflect risks that they pose to the system. How exactly could the systemic risks be measured and the special requirements be tailored to effectively internalize systemic externalities that might arise from such firms? If it had the authority, would the Federal Reserve impose any special systemic-risk-based requirements on any institution that it oversees today? 5. In September 2008, the Treasury created a new "supplemental financing account," which, at its inception, held $500 billion obtained by the Treasury from selling a special issue of Treasury bills to the public. What was the reason for this large injection of funds by the Treasury into the Federal Reserve? Did the Federal Reserve ask the Treasury to establish a new supplemental financing account?

Nomination Hearing for The Honorable Ben Bernanke December 3, 2009

Questions for The Honorable Ben Bernanke, Chairman, Board of Governors of the Federal Reserve System, from Senator Johnson:

1) Section 109 of the recently enacted "Credit Card Accountability, Responsibility and Disclosure Act of 2009" rightly requires card issuers to consider the ability of a consumer to make required payments on an account before opening the account or increasing an existing line of credit. Recently, the Fed released its proposed regulations to implement Section 109. Can you describe the process undergone by the Board in writing the proposed regulations to implement Section 109? What considerations were made when the Board decided to further define the "the ability of a consumer to make required payments"? Can you please describe the benefits associated with consideration of income instead of consideration of "ability to pay"? Can you also describe to the Committee the benefits associated with the consideration of a consumer's income or assets in connection with a credit card loan and compare them to the potential operational and other costs associated with such a requirement, such as reduced credit availability? Do you think your rule for Section 109 appropriately weighs the costs and benefits of this change?

Nomination Hearing for The Honorable Ben Bemanke December 3, 2009

Questions for The Honorable Ben Bernanke, Chairman, Board of Governors of the Federal Reserve System, from Senator Bunning:
I. Please provide: a. Unreleased transcripts of all F.O.M.C. meetings you participated in as a Governor or Chairman. b. Unreleased transcripts of all Board of Governors meetings you participated in as a Governor or Chairman. c. Transcripts and minutes of meetings of the board of the Federal Reserve Bank ofNew York during your tenure as Chairman of the Board of Governors. d. Details, including any unreleased administrative notices, on any exemptions granted or denied to Federal Reserve Act sections 23(a) and 23(b) during your tenure as Chairman. e. Details of all discount window transactions during your tenure as Chairman, including the date, amount, identity of the borrower, details of any collateral posted, explanation of the valuation of any collateral posted, any analysis of the health of the borrower at the time of the transaction, and any legal opinions regarding the transaction. f. Details of all transactions at facilities created under section 13(3) of the Federal Reserve Act during your tenure as Chairman, including the date, amount, identity of the borrower, details of any collateral posted, explanation of the valuation of any collateral posted, any analysis of the health of the borrower at the time of the transaction, and any legal opinions regarding the transaction. g. Copies of any swap or other agreements with foreign central banks, legal opinions related to those agreements, and any analysis of the agreements or the need for the agreements. h. Any economic analysis or policy materials regarding the need for or effectiveness of any Federal Reserve facilities created under Federal Reserve Act section 13(3). i. Any economic analysis or policy materials regarding the need for or effectiveness of unconventional monetary policy facilities or actions taken during your tenure as Chairman. j. Any transcripts, minutes, details, legal opinions, economic analysis, phone call logs, policy materials, or any other relevant information from the F.O.M.C., the Board of Governors, the Federal Reserve Bank ofNew York, or other relevant body not provided under the above requests regarding the use of Federal Reserve Act section 13(3) or actions and decisions regarding AIG, Bank of America, Citigroup, Bear Stearns, Lehman Brothers, General Motors, Chrysler, CIT, or GMAC. 2. Treasury published the names of banks that received T ARP funds without causing a panic. Why would disclosing the names of companies that borrow at the discount window or other Fed facilities be different, especially if only released after a time delay? 3. What was the involvement of the Board of Governors in each transaction by the New York Fed under Federal Reserve Act section 13(3)? Did the Board materially alter the terms of any such transaction? Did the Board approve each transaction before the New York Fed began negotiations? Please provide other relevant information and documentation.

Nomination Hearing for The Honorable Ben Bemanke December 3, 2009

4. Did anyone, including the White House or Treasury, request commitments from you surrounding your re-nomination? Did you make any commitments regarding your renomination? 5. We saw the crowding out of the private mortgage market caused by Freddie and Fannie's overwhelming control of mortgages during 2002 to 2006 period. Do you think there is a danger to allowing an extended public-controlled mortgage market? And what steps is the Fed taking to reestablish a private mortgage market? 6. Time and energy in macroeconomic analysis is spent attempting to measure business and consumer confidence. Confidence measures are part of macroeconomic forecasting and directly impact monetary policy decisions. Likewise, certain market m~vements reflect investor confidence or lack of confidence. Gold is at an all-time high because investors have lost confidence in policymakers' handling of fiat currencies. How is the Fed incorporating this market information into its analytical framework? Does the lack of confidence in fiat currencies have the potential to impact monetary policy? 7. Paul Krugman recently wrote about the problem policymakers will face in the future because of the public's lack of trust. The public backlash regarding what it sees as unwarranted bailouts of banks is well-known. What is the Fed doing to restore public confidence and what are the potential negative implications of this lack of trust on the Fed's ability to conduct monetary policy? 8. What are the limits on the ability of the Fed to engage in quantitative easing?

9. In 2002-2005 period, we learned that there is a cost to keeping interest rates too low for too long. And, we learned it is much more difficult to tighten policy/raise interest rates after a period oflow rates for a long time. Now, you have taken rates to unprecedented low levels and have also intervened in the mortgage market to produce historic low mortgage rates. If the US economy bounces back more strongly than currently anticipated, isn't the Fed going to have a very tough time raising interest rates without once again impacting asset prices, especially the housing market? 10. What is the Fed's current thinking about using asset price levels in monetary policy analysis? Does the Fed need to anticipate asset bubbles? How can the Fed incorporate asset prices into their analysis? 11. The Fed appears to have coordinated some of its actions in the past year or so with other policymakers globally. Does the Fed have an obligation to disclose any of these agreements or coordinated efforts? When the Fed engages in agreements with foreign policymakers, it has the potential to abrogate its authority. What procedures are in place to make sure this doesn't happen? What checks and balances are in place?

10

Nomination Hearing for The Honorable Ben Bemanke December 3, 2009

12. China is playing a larger and larger role in the growth trajectory of the global economy. And, China is one of the largest US creditors. Yet, the macroeconomic data from China is notoriously untrustworthy. How is the Fed conducting its analysis of the Chinese macroeconomic outlook without access to good data? 13. There are a number of macro trends at work that do not seem sustainable-- 1) the substantial accumulation of foreign exchange reserves by surplus/creditor nations, 2) the escalation of public debt levels in many of the developed market economies, and 3) excess and deficient savings ratios. These trends do not seem likely to reverse on their own. Rather, they require tough decisions and compromise on the part of governments around the world. What is the role of the Fed in this rebalancing process? 14. Please explain the legality of each version of the AIG bailout/loans. How were each of the loans to AIG collateralized? 15. The most recent changes to the AIG bailout give the New York Fed equity in AIG subsidiaries in exchange for loan forgiveness. Under what section of the Federal Reserve Act are those equity stakes permissible? Please provide any legal opinions on the subject. 16. The most recent changes to the AIG bailout give the New York Fed equity in AIG subsidiaries in exchange for loan forgiveness. Does that indicate that the original "loans" were not really collateralized loans at all, rather they were equity stakes? 17. When the first nine large banks received the initial 125 billion T ARP dollars, Secretary Paulson and you said those nine banks were healthy. Do you now agree with the T ARP Inspector General's finding that Citigroup and Bank of America should not have been considered healthy by you and Secretary Paulson? 18. In 2008, you came to Congress and warned of a catastrophic financial collapse if we did not authorize TARP. One major problem you predicted was that companies would not be able to sell commercial paper. However, the Fed has the authority to buy that same commercial paper and in fact, you created a lending facility to buy commercial paper the week after T ARP was approved. Did the Fed already have plans to implement this facility before you and Secretary Paulson came to Congress requesting T ARP? 19. When you came to Congress last September requesting Congress to pass T ARP, did you have any inclination that those funds would be used for something else besides buying toxic assets? 20. In your discussions with Ken Lewis about Bank of America's acquisition of Merrill Lynch, did you mention the consequences he could face regarding his employment if Bank of America did not go through with this deal?

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Nomination Hearing for The Honorable Ben Bemanke December 3, 2009

21.

Why was the SEC not notified of the Bank of America/ Merrill Lynch deal?

22. When was the first time you became aware of AIG's potential vulnerability? Did anyone raise any kind of red flag to you about AIG exploiting regulatory loopholes? 23. According to the TARP Inspector General, the Fed Board approved the New York Fed's decision to pay par on A.!. G.'s credit default swaps. What was your role in that decision, and why was it approved? 24. Did Fed regulators of Citi approve the $8 billion loan Citi made to Dubai in December of last year, which was well after the firm received billions of taxpayer dollars? Do you expect we will get that money back?

In response to a question posed by Chairman Dodd, you stated you can give instances 25. where the Fed's supervisory authority aided monetary policy. Please do so with as much detail as possible. In response to a question posed by Chairman Dodd, you stated ''we do not see at this 26. point any extreme mis-valuations of assets in the United States." Does that mean you believe the price of gold is not artificially inflated or out of line with fundamentals? If so, what does the rise in the gold price signify to you?
27. In response to a question posed by Senator Johnson, you indicated your concern about the GAO possibly gaining access to "all the policy materials prepared by staff'. What is your concern about Congress and the public having the same understanding of the issues surrounding monetary policy decisions as you and the rest of the Fed have? 28. In response to a question posed by Senator Corker, you stated "On the mortgage-backed securities, we have a longstanding authorization to do that. I do not think there is any legal issue." Please provide the Fed's legal analysis on the authority to purchase such securities, particularly those issued by Fannie Mae and Freddie Mac, which are not full-faith-and-credit obligations of the United States. 29. In response to question posed by Senator Johanns regarding an exit strategy, you said ''The next step at some point, when the economy is strong enough and ready, will be to begin to tighten policy, which means raising interest rates. We can do that by raising the interest rate we pay on excess reserves. Congress gave us the power to pay interest on reserves that banks hold with the Fed. By raising that interest rate, we will be able to raise interest rates throughout the money markets."

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Nomination Hearing for The Honorable Ben Bemanke December 3, 2009

In response to a written question I posed to you at the July 22 monetary policy hearing you said the Fed at that time had no plans to switch to using the new interest on reserves power as the means of setting the policy rate. However, in your response to Sen. Johanns you sound inclined to use the reserve interest rate as the policy rate. Is that correct, and if so, what has changed in the last few months? 30. In response to a question posed by Sen. Gregg, you stated "it would be worthwhile to consider, for example, whether regulators might prohibit certain activities. If a financial institution cannot demonstrate that it can safely manage the risks of a particular type of activity, for example, then it could be scaled back or otherwise addressed by the regulator". Do you have examples of such activities in mind? Aie there some activities that we should prohibit banks or other financial institutions from engaging in outright? 31. In response to a question posed by Sen. Corker, you mentioned you could provide more detail about problems at the Fed and the actions you are taking to correct them. What specific shortcomings have you identified and what specific steps have you taken to address them? 32. What was your role in including in the T ARP proposal the ability to purchase "any other financial instrument"? Was inclusion of such a provision your suggestion? 33. What was your role in the decision to make capital investments rather than toxic asset purchases with TARP funds? 34. As a general matter I do not think the Fed Chairman should comment on tax or fiscal policy, so please respond to this from the perspective of bank supervision and not fiscal policy. Aie there any provisions of the tax code that unwisely distort financial institutions' behavior that Congress should consider as part of financial regulatory reform? For example, the tax code allows deductions for the interest paid on debt, which may cause firms to favor debt over equity. Do you have concerns about that provision? Aie there other provisions that influence companies' behavior that concern you? 35. Do you think a cap on bank liabilities is appropriate? For example, do you think limiting a bank's liabilities to 2% ofGDP is a good idea? 36. AIG still has obligations to post collateral on swaps still in force. Will the Fed post collateral if the deteriorating credit conditions at AIG or general credit market issues require it? 37. IfTARP and other bailout actions were necessary because the largest financial firms were too big to fail, why have the largest few institutions actually been allowed to grow bigger than they were before the bailouts? Does it concern you that those few institutions write approximately half the mortgages, issue approximately two-thirds of the credit cards, and control approximately 40% of deposits in this country?

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Nomination Hearing for The Honorable Ben Bernanke December 3, 2009

38. On May 5, 2009, in front of the Joint Economic Committee, you said the following about the unemployment rate: "Currently, we don't think it will get to 10 percent. Our current number is somewhere in the 9s" . In November it hit 10.2%, and many economists predict it will go even higher. This is happening despite enormous fiscal and monetary stimulus that you previously said would help create jobs. What happened after your JEC testimony in May that caused your prediction to miss the mark?

In his questioning at your hearing, Sen. DeMint mentioned several of your predictions 39. about the economy that proved inaccurate. For example:
March 28, 2007: ''The impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained." May 17, 2007: "We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system." Feb. 28, 2008, on the potential for bank failures: "Among the largest banks, the capital ratios remain good and I don' t expect any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system." June 9, 2008: "The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so." July 16, 2008: Fannie Mae and Freddie Mac are "adequately capitalized" and "in no danger of failing."

I do not bring these up to criticize you for making mistakes. Rather, it is important to examine th~ reason for mistakes to learn from them and do better in the future. Have you or the Fed examined why those predictions were wrong? Have you or the Fed changed anything such as your models, forecasts, or data sets as a result? What has the Fed done to revamp its analytical framework to better anticipate potential macroeconomic problems?
40. Derivatives such as credit-default swaps played an important role in the financial crisis, and they are central to the financial reforms currently being contemplated. During the Senate Banking Committee's hearing in November 2005 to confirm you as Alan Greenspan's successor, you had the following exchange with Senator Paul Sarbanes: SARBANES: Warren Buffett has warned us that derivatives are time bombs, both for the parties that deal in them and the economic system. The Financial Times has said so far, there has been no explosion, but the risks of this fast growing market remain real. How do you respond to these concerns?

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Nomination Hearing for The Honorable Ben Bemanke December 3, 2009

BERNANKE: I am more sanguine about derivatives than the position you have just suggested. I think, generally speaking, they are very valuable. They provide methods by which risks can be shared, sliced, and diced, and given to those most willing to bear them. They add, I believe, to the flexibility of the financial system in many different ways. With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly. The Federal Reserve's responsibility is to make sure that the institutions it regulates have good systems and good procedures for ensuring that their derivatives portfolios are well managed and do not create excessive risk in their institutions. Do you still agree with that statement? If not, why do you think you were wrong? 41. An important factor in the financial crisis (and a large part of the ultimate cost to taxpayers) was the implicit government guarantee of the GSEs. In part because of decisions you made, there is now an explicit government guarantee of every large firm on Wall Street Has moral hazard increased or decreased over the past year? 42. Via the FDIC, the American public now explicitly guarantees the bonds of Wall Street firms where bonuses are surging and individual employees can be paid millions of dollars a year. What is your opinion on the morality of this guarantee? 43. The importance you place on the output gap is well known. You have often cited "excess slack" in the economy to justify loose monetary policy, arguing that a large output gap lowers the risk of inflation. But economists such as Allan Meltzer have noted that there are "lots of examples of countries with underutilized resources and high inflation. Brazil in the 1970s and 1980s". Moreover, in anew paper dated December 2009 and titled "Has the Recent Real Estate Bubble Biased the Output Gap?", researchers at the Federal Reserve Bank of St. Louis state "Because this (predicted) output gap is so large, several analysts have concluded that monetary policy can remain very accommodative without fear of inflationary repercussions. We argue instead that standard output gap measures may be severely biased by the bubble in real estate prices that, according to many, started around 2002 and burst in 2007." They conclude with a warning: "We offer a word of caution to policymakers: Policies based on point estimates ofthe output gap may not rest on solid ground." Please comment on 1) Allan Meltzer's point and 2) the St. Louis Fed's research paper. Why do you continue to put such a high priority on the output gap? 44. In a scenario in which unemployment remains uncomfortably high, but the dollar continues to fall and commodities including oil and gold continue to rise, what would the Fed do? At what point do market signals take priority over hard-to-measure statistics like the output gap?

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Nomination Hearing for The Honorable Ben Bemanke December 3, 2009

45. The Fed has a dual mandate: maximum employment and price stability. But unemployment is at its highest level in decades. And in early and mid-2008, with oil at $150 a barrel and prices of basic staples skyrocketing, opinion polls showed that inflation was the public's highest concern, even more so than jobs or the housing market. Why has the Fed failed so badly in its mandate? Is employment an appropriate objective for monetary policy? Should the Fed have a single mandate of price stability?

In February 2009, Janet Yellen, president of the San Francisco Fed, said that the Fed 46. needed to fight back against the argument that its liquidity efforts would eventually lead to higher inflation and higher interest rates, calling the notion "ludicrous". Since then, the dollar has fallen precipitously, oil has almost doubled in price, and gold has surged to all-time highs. Do you share your colleague's view on inflation?
47. What does the surge in gold mean to you? At what price level would it begin to worry you, if it doesn't already? Does gold have any impact on the Fed's policy deliberations? 48. Why does the Fed insist on waiting five years before it releases transcripts ofFOMC meetings to the public? 49. Has the Fed ever had an internal debate about how monetary policy contributes to geopolitical tensions via the rising oil prices caused by a falling dollar? 50. Before the fmancial crisis there was a widespread sense, especially on Wall Street trading desks, that the stock market was strangely resilient. This encouraged excessive risk-taking in various types of assets. Do you have direct or indirect knowledge of the Federal Reserve or any government entity or proxy ever intervening to support the stock market (or any individual stock) via futures or in any other way? If yes, who decides the timing of such intervention and with what criteria? How is it funded? Which Wall Street firm handles the orders, and who sees them before they are executed? 51. You have repeatedly stated your concern that an audit of the Fed will undermine the independence of the Fed in monetary policy. What do you fear influence from Congress will lead to, tighter or looser policy? 52. Do you believe our banking system is facing a future like Japan's system faced in the 1990s, with zombie banks as an obstacle to economic prosperity? Why or why not? 53. 54. Do you believe the Fed's policies are enabling banks to put off recognizing their losses? What was your rationale for letting Lehman fail?

16

Nomination Hearing for The Honorable Ben Bemanke December 3, 2009

55. Reportedly, the Fed is requiring banks to report their derivatives positions to the Fed. Does the Fed have the expertise and analytical capacity to understand and act on that information? 56. Given that some economic conditions have worsened beyond what was assumed in the "stress tests" earlier this year, do you still believe the stress tests to be useful or accurate representations of the institutions examined? 57. In your recent Washington Post op-ed, you recognized that the Fed "did not do all that it could have" under your leadership to prevent the financial crisis, why should the public have any confidence that the next time the Fed will do all it can? 58. Are you concerned that the debt to GDP ratio in this country is more than 350%? Do you believe a high debt to GDP ratio is reason for tightening Fed policy? Why or why not? 59. The FDIC is seeing significant losses on the mortgages of failed banks. Why shouldn't we assume the Fed will see similar losses on the mortgages on the Fed's balance sheet? How is the Fed valuing those assets? 60. I am concerned about the falling value of the dollar. China has disclosed that it has taken as much as a $350 billion loss on its dollar holdings since March, and believes it may take another $220 billion should the dollar fall a further 10%. Under what scenario do you see China continuing to buy our debt when your actions, along with Treasury's, wipe out half a trillion dollars of value in the assets purchased from us? 61. Some observers see a new asset bubble forming in the stock market. Does it concern you that under some measures the current price to earnings ratio on the S&P 500 is considerably higher than the ratio when Alan Greenspan gave his "irrational exuberance" speech? 62. According to the transcript of the June 24-25 FOMC meeting you said "Ambiguity has its uses but mostly in noncooperative games like poker. Monetary policy is a cooperative game. The whole point is to get financial markets on our side and for them to do some of our work for us. In an environment of low inflation and low interest rates, we need to seek ever greater clarity of communication to the markets and to the public." If you still believe that, why are you concerned about opening more information about monetary policy to the public eye through an audit or other means of increasing transparency? 63. Did you or anyone else at the Fed realize the extent to which bailing out AIG would benefit European barucs? 64. Did the effect of a failure of AIG on European banks in any way contribute to the decision to rescue AIG? If so, why did you not request European governments provide financial assistance as well?

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Nomination Hearing for The Honorable Ben Bemanke December 3, 2009

65. Why were the monoline insurers allowed to fail while AIG was rescued, when they had significant derivatives exposure just like AIG? In November 2009, the AIG bailout was revised to give the New York Fed ownership of 66. several AIG subsidiaries in exchange for a reduced balance owed on loans by the New York Fed. What was the valuation used by the Fed for these subsidiaries, and how was that valuation determined? Did the Fed or AIG try to sell the subsidiaries to private entities? If so, what was the result, and if not, why not? What is the Fed's plan to dispose of the equity stakes? 67. Have you recommended any candidates to fill the empty seats on the Board of Governors? If so, who? 68. Andrew Haldane, head of financial stability at the Bank of ;England, argues that the relationship between the banking system and the government (in the UK and the US) creates a "doom loop" in which there are repeated boom-bust-bailout cycles that tend to get cost the taxpayer more and pose greater threat to the macroeconomy over time. What can be done to break this loop? 69. Mervyn King, governor of the Bank ofEngland, argued in his recent Edinburgh speech that re-regulating the financial system will not effectively reduce its risks. And history suggests that Big Finance always gets ahead of even the most able regulators. Governor King insists instead that the largest banks should be broken up, so they are no longer "too big to fail." Paul Volcker and Alan Greenspan, in recent statements, have supported the same broad approach. Can you explain why you differ from Mervyn King, Paul Volcker, and Alan Greenspan on this policy prescription? 70. In the time between the bailout of Bear Steams and the failure of Lehman, should you or the Treasury have more clearly communicated that firms should not expect government assistance? Why do you think Lehman, AIG, and others continued to act like there would be such assistance? Are there any lessons we should learn from that period that are applicable to efforts to reform our financial regulation?

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Nomination Hearing for The Honorable Ben Bemanke December 3, 2009

Questions for The Honorable Ben Bernanke, Chairman, Board of Governors of the Federal Reserve System, from Senator Merkley:
Regulatory Approach 1) When people think of the Federal Reserve, they usually think of monetary policy. But under the system we have today, the Fed holds a central position in our bank regulatory system and is being asked by the Administration and the House of Representatives to hold a larger position. The Federal Reserve made a series of decisions that led directly to this crisis, including Refusing to provide basic consumer protections on mortgages, Fighting regulation of the over-the-counter derivatives market, Permitting regulated banks to use off-balance sheet vehicles to hold large amounts of assets, Permitting overreliance on short-term funding market ("repo"); Driving the development of risk-based capital, first Basel I which was too reliant on rating agencies and then Basel II, which the SEC applied to the investment banks and outsourced to the banks the evaluation of their own capital adequacy, and Permitting the rise of unregulated highly complex securitization - CDOs and CDOsquareds - which when combined with Basel I, were used by banks to game regulatory capital. Certainly not all of these were your decisions, but you were on the Board for a substantial period of the time while these decisions were made and in 2006,just before this very crisis, you spoke on record in favor of many of these regulatory approaches. Has your regulatory philosophy fundamentally changed because of this crisis, and if so, how? Systemic Risk - proprietary trading 2) Even as this economic crisis only begins to abate, I am particularly concerned that certain large banks engage in a substantial amount of proprietary trading even though they are guaranteed by the federal safety net. Even though banks are making billions trading on own accounts, it only takes a day or two of large losses to cause a failure. Moreover, I continue to hear about serious conflicts of interest between banks as client-oriented broker-dealers and hedge fund-like principal investors. I am pleased that Chairman Dodd' s discussion draft includes a vigorous GAO study on this issue, but we need to get ahead of the curve. What is to prevent another Long-Term Capital Management or Barings, where a large bank's trading positions get it jammed by an unexpected turn in the market?

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Nomination Hearing for The Honorable Ben Bemanke December 3, 2009

Consumer Protection - interest rates and state usury laws One of the defining features of our financial system in recent decades has been the spread 3) of financial products that carry extraordinarily high interest rates. I grew up in a working class family- my dad was a millwright. My parents and our neighbors worked hard to send their kids to good schools and to own their own homes, and it angers me when I see schemes and scams that seem almost exclusively geared towards unfairly stripping money out of the pockets of working families. When I was Speaker in the Oregon legislature, we capped the interest that payday lenders could charge- but we couldn't act in other areas because we were told its federal regulation that we couldn't touch. It's widely known that just in the payday lending industry, 7 5% of customers are repeat customers- they come in again and again because they are trapped in a cycle of high-interest debt that they simply cannot escape from. I am hopeful that we will see the creation of a strong Consumer Financial Protection Agency to police some of these products, but none of the proposals give the agency the power to set a national usury rate, nor does there seem to be much interest in giving states the power to set the usury rate for lending from national banks. Would you agree that interest rates on some financial products, such as payday loans and even some credit cards, are simply too high? Why not let states determine the highest rate of interest for consumers in their state, and if the citizens of a state wish to adopt policies that restrict their own credit, let that be the decision of that state?

Trade and Monetary Policy 4) For a long time, I've been concerned about the regulatory arbitrage inherent in international trade between countries with sound labor and environmental laws and those without, and how that affects our employment situation. More recently, I've also become concerned about how international trade imbalances affect our monetary policy. Failures in consumer protection turned the housing bubble into a foreclosure and financial crisis, but as you have noted, the existence of the housing bubble itself comes from the global savings glut, mostly emanating from trade imbalances coming from Asia. The challenge is that traditional monetary tools might not even address problems emanating from trade imbalances. Are you concerned about the monetary policy implications of global trade imbalances, and if so, what monetary tools do you have to deal with the imbalance going forward? Do you also think that we should reduce regulatory arbitrage in trade by requiring our trade agreements include stronger provisions to raise global labor and environmental rules?

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Nomination Hearing for The Honorable Ben Bemanke December 3, 2009

Federal Reserve Transparency
5) Many of my constituents are deeply angry with the way this financial crisis has unfolded. $30 billion in direct asset purchases were provided so JP Morgan could acquire Bear Steams. $300 billion in loan guarantees were provided to Citibank, and of course $80 billion in direct lending was provided to rescue AIG. And that is just from the Fed alone- not even counting TARP. All the while, banks have reduced lending and foreclosed on peoples' homes. While the Federal Reserve's actions kept the banking system from collapse, many people are deeply concerned that the Fed could deploy this amount money without any checks and balances and without any oversight. I recognize that GAO review of monetary policy would be unwise, but when the Fed is engaged in propping up failed institutions, that is not monetary policy: that's a bailout and should be subject to robust audit. For a democratic citizenry to have trust in its government, transparency is absolutely essential. You have stated your willingness to work with us, and I appreciate the receptivity that you have shown to my staff as we have worked on these issues. Are you ready to accept a robust audit of the Fed's actions relating to emergency bailouts, even as we acknowledge that legitimate monetary policy should remain independent?

Federal Reserve Governance

6) Although Chairman Dodd's legislations strips the Federal Reserve System of its role as a banking regulator, the Administration and the House have increased the responsibility of the Fed for oversight of bank holding companies and other systemically significant firms. While the Board of Governors in Washington is ultimately responsible for this supervision, the day-to-day supervision is by conducted by the Reserve Banks under the direction of each Reserve Bank president. Although the selection of each Reserve Bank's president is overseen by the Board of Governors, the boards of directors of the Reserve Banks, which are dominated by the member banks, play critical roles and effectively have veto power to prevent a regulator they see as too tough. If the Federal Reserve does maintain its regulatory authority, do you think it is time to change Reserve Bank governance or regulatory oversight structure so that the bankers do not have any say over who their primary regulator is?

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Nomination Hearing for The Honorable Ben Bemanke December 3, 2009

Mortgage-backed Securities Purchases
7) One of the more creative applications of monetary policy in this crisis is the Federal Reserve's purchases of agency mortgage-backed securities. By directly purchasing mortgage backed securities, the Fed has supported the availability of credit in the housing market. Only a few weeks ago, the Fed's purchases ofthese agency MBS topped $1 trillion, and the program was announced to remain in effect through March. Moreover, TALF, which supports the private label securitization markets, has been extended through June of2010. When will the housing and other securitization markets be strong enough to operate on their own? What risk is the Fed taking on in these purchases? Is this an appropriate type of monetary policy action over the long term, one that you expect to use again?

22

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BOARD OF GOVERNORS
OF' THE

FEDERAL RESERVE SYSTEM

WASHINGTON, 0 . C. 20551

......

January 13, 2010

BEN S. BERNANKE CHAIRMAN

The Honorable Christopher J. Dodd Chairman Committee on Banking, Housing, and Urban Affairs United States Senate Washington, D. C. 20510 Dear Chairman Dodd and Ranking Member Shelby:

The Honorable Richard C. Shelby Ranking Member Committee on Banking, Housing, and Urban Affairs United States Senate Washington, D.C. 20510

Strengthening our financial regulatory system in ways that take the appropriate lessons from the crisis is essential for the long-term economic stability of our country. To this end, as you know, the Banking Committee has compiled an extensive hearing record and has begun considering specific reform proposals. A number of your colleagues on the Committee have recently asked for the Board's views on the importance of the Federal Reserve's continued role in bank supervision and regulation. In response to these requests, I am enclosing for you and your colleagues a document that discusses (1) how the expertise and information that the Federal Reserve develops in the making of monetary policy enable it to make a unique contribution to an effective regulatory regime, especially in the context of a more systemic approach to consolidated oversight; and (2) how active involvement in supervising the nation's banking system allows the Federal Reserve to better perform its critical functions as a central bank. Please let me know if you have any questions or if I can be of assistance. I look forward to working with you in the days ahead as the Committee continues its consideration of regulatory reform proposals. Sincerely,

/2--PEnclosure cc: Members, Committeeon Banking,. Housing, and Urban Affairs

January 13, 2010 The Public Policy Case for a Role for the Federal Reserve in Bank Supervision and Regulation Like many other central banks around the world, the Federal Reserve participates with other agencies in supervising and regulating the banking system. The Federal Reserves involvement in supervision and regulation confers two broad sets of benefits to the country. First, the financial crisis has made clear that an effective framework for financial supervision and regulation must address both safety-and-soundness risks at individual institutions and macroprudential risks--that is, risks to the financial system as a whole. All individual financial institutions that are so large and interconnected that their failure could threaten the functioning of the financial system must be subject to strong consolidated supervision. Both effective consolidated supervision and addressing macroprudential risks require a deep expertise in the areas of macroeconomic forecasting, financial markets, and payments systems. As a result of its central banking responsibilities, the Federal Reserve possesses expertise in those areas that is unmatched in government and that would be difficult and costly for another agency to replicate. Second, the Federal Reserves participation in the oversight of the banking system significantly improves its ability to carry out its central banking functions. Most importantly, the Federal Reserves ability to effectively address actual and potential financial crises depends critically on the information, expertise, and powers that it gains by virtue of being both a bank supervisor and a central bank. In addition, supervisory information and expertise significantly enhance the safety and soundness of the credit the Federal Reserve provides to depository institutions by allowing the Federal Reserve to independently evaluate the financial condition of institutions that want to borrow from the discount window as well as the quality and value of the collateral pledged by such institutions. Finally, its supervisory activities provide the Federal Reserve information about the current state of the economy and the financial system that, particularly during periods of financial crisis, is valuable in aiding the Federal Reserve to determine the appropriate stance of monetary policy. These benefits of the Federal Reserves supervisory role proved particularly important during the financial crisis that emerged in 2007. We recognize, of course, that bank supervision, including ours, needs to be more effective than in the past, and we have reviewed our performance and are making improvements at multiple levels. The Federal Reserve is working with other supervisors here and abroad to improve capital and liquidity regulation. In addition, we have begun to make changes to our oversight of large banking organizations, including the development of an enhanced quantitative surveillance program, improving data collection, strengthening financial infrastructure, and implementing a new, centralized approach to supervision that better supports identification and analysis of interconnected risks. These changes are intended to ensure that we fully employ our expertise to implement a more systemic and effective approach to our supervisory activities going forward.

-2The Benefits to Effective Supervision of the Federal Reserves Unique Expertise Two important lessons learned from the current financial crisis are that all financial firms that are so large and interconnected that their failure could threaten the functioning of the financial system must be subject to strong consolidated supervision; and that supervision of financial firms must take account of systemic, or macroprudential risks as well as the more traditional safetyand-soundness risks affecting individual firms. Many of the large, complex, and interconnected financial firms whose collapse contributed importantly to the financial crisis avoided the more stringent consolidated supervision that is imposed on bank holding companies by the Federal Reserve. These firms--which included American International Group, Washington Mutual, Countrywide, Bear Stearns, and Lehman Brothers--were instead subject to consolidated supervision under statutory or regulatory schemes that were far less comprehensive than that applicable to bank holding companies. In addition, an unregulated shadow banking system (including, for example, unregulated mortgage brokers, structured investment vehicles, other asset-backed commercial paper conduits, and securities lenders) had emerged that generated mortgages for distribution, funded highly rated senior tranches of securitizations, and engaged in maturity transformation and other financial activities outside the view of any federal supervisor. The system for regulating bank holding companies was, in important ways, inadequate as well. One issue of concern was that the Federal Reserves consolidated supervision of such companies was, by statute, both narrowly focused on the safety and soundness of their bank subsidiaries and heavily reliant on functional supervisors of the bank and regulated nonbank subsidiaries of these companies; in turn, the functional supervisors themselves were statutorily focused only on the safety and soundness of the specific entities they regulated. None of the federal regulators had sufficient authority to focus on the systemic risk that large banking organizations posed. While it is clear that the framework for financial supervision must address macroprudential risks, the Federal Reserve cannot and should not be responsible for oversight of the financial system as a whole; no agency has the breadth of expertise and information needed to survey the entire system. However, by virtue of the combination of experience and expertise it has developed as consolidated supervisor of bank holding companies and state member banks and as a central bank, the Federal Reserve is well suited to contribute significantly to an overall scheme of systemic regulation, particularly in the areas of consolidated supervision and macroprudential supervision. It is especially important that consolidated supervision address both safety-and-soundness risks at individual institutions and macroprudential risks. Addressing safety-and-soundness risks requires the traditional skills of bank supervisors, including expertise in examinations and offsite surveillance of complex banking organizations. The Federal Reserve has acquired and maintained that expertise as the primary supervisor of banks of all sizes, including community

-3banks, regional banks, and large banks that are state-chartered member banks, as the consolidated supervisor of all U.S. bank holding companies, and as the supervisor of the U.S. operations of globally active foreign banks. With many nonbank financial firms having reorganized as bank holding companies during the crisis, the Federal Reserve already is quite familiar with the risk profiles of the vast majority of the large interconnected financial firms. Beyond traditional bank examination expertise, however, macroprudential supervision will require economic sophistication, including knowledge of the macroeconomic environment, as well as substantial expertise regarding money markets, capital markets, foreign exchange markets, and other financial markets. Expertise in these areas is essential for developing stress scenarios and identifying and addressing vulnerabilities to, and posed by, capital and other markets. The Federal Reserve has developed this expertise in the context of macroeconomic forecasting and monetary policymaking. Market knowledge is acquired through daily participation in financial markets to implement monetary policy and to execute financial transactions on behalf of the U.S. Treasury and foreign governments and central banks. Macroprudential supervision also requires extensive knowledge of payment and settlement systems to understand the interconnections between financial institutions and markets. The Federal Reserve has developed this expertise through its operation of some of the worlds largest payment and settlement systems (the Fedwire funds and securities transfer systems), its supervision of key providers of payment and settlement systems (the Depository Trust Company, the CLS Bank, and the government securities clearing banks), and its long-standing leadership role in the international Committee on Payment and Settlement Systems. The Supervisory Capital Assessment Program, or SCAP, also known as the stress test, was critical to restoring confidence in the banking system and was a watershed event for modern macroprudential supervision. The Federal Reserve, which took the lead on the SCAP, drew on its macroeconomic and markets expertise to model potential credit losses and revenues at the SCAP banks. These analyses were essential to assess the amount of capital the SCAP banks would need to absorb potential losses and continue to meet the needs of creditworthy borrowers in a more adverse economic scenario. In the future, macroprudential supervision should feature both increased use of cross-firm, horizontal exams to assess common exposures and vulnerabilities as well as forward-looking stress testing based on alternative projections for the macroeconomy. The Benefits of the Federal Reserves Supervisory Role for Its Other Central Banking Functions The Federal Reserves central banking functions significantly enhance its ability to conduct its supervisory role, and offer considerable benefits for macroprudential supervision going forward. In addition, the complementarity between narrow central banking activities and supervision creates advantages in the other direction. The Federal Reserves involvement in supervising

-4banking institutions of a variety of sizes generates information and expertise that significantly improve the Federal Reserves ability to effectively carry out its central-bank responsibilities and that cannot be obtained reliably through other means, such as relying on reports from other supervisors. Among the central-bank responsibilities that benefit from the Federal Reserves supervisory role are crisis management, providing liquidity to depository institutions, and monetary policy. Especially since the start of the crisis in the summer of 2007, the information and expertise that the Federal Reserve has had as a result of its supervisory activities have been essential to its successful performance of these responsibilities. Crisis Management The Federal Reserves supervisory authority has been of greatest importance to its management of financial crises. In particular, its ability to deal with diverse and hard-to-predict threats to financial stability depends critically on the information, expertise, and powers that it has by virtue of being both a bank supervisor and a central bank.1 An example of how the Federal Reserves supervisory role contributed to its management of a crisis came in the context of the October 19, 1987, stock market crash. During that chaotic period, banks began to pull back from lending to major securities firms. However, because of increased demand for financing from their customers and the differences in the timing of payments to and receipts from the exchanges clearing and settlement systems, those securities firms needed access to substantial bank credit in order to make payments and settle trades. As a result, the availability of bank credit was critical to the functioning of equity and securities markets as well as futures and options exchanges. A freezing up of these critical markets would have caused a deeper and more disruptive financial crisis, likely involving further declines in asset values and, ultimately, tighter credit conditions for households and businesses. To combat those risks, the Federal Reserve announced its willingness to serve as a source of liquidity to support the economic and financial system. Subsequently, Federal Reserve examiners on-site in major banking organizations assessed funding pressures and potential credit losses to help identify emerging problems. Armed with the resulting knowledge and with the benefit of existing supervisory relationships, senior Federal Reserve officials contacted the managements of the major banks and urged them to use liquidity from the discount window to provide loans to creditworthy securities firms. Bank credit was provided to securities firms as requested, allowing those firms in turn to make required payments to counterparties and clearing houses.
In addition to the examples discussed here, the Federal Reserve has taken steps to address strains at financial institutions and in financial markets on a number of other occasions in recent decades, including following the bankruptcy of the Penn Central Railroad in 1970, the collapse of a speculative boom in the silver market in 1980, the failure of Continental Illinois in 1985, and the global financial strains that followed the Russian default and the collapse of Long-Term Capital Management in 1998. See Andrew F. Brimmer (1989). Distinguished Lecture on Economics in Government: Central Banking and Systemic Risks in Capital Markets, Journal of Economic Perspectives, vol. 3 (Spring), pp. 3-16; and Ben S. Bernanke (2007), Central Banking and Bank Supervision in the United States, speech delivered at the Allied Social Science Association Annual Meeting, Chicago, Ill., January 5, www federalreserve.gov/newsevents/speech/bernanke20070105a.htm.
1

-5These actions allowed systemically critical stock, futures, and options exchanges to function normally, averting a more prolonged and deeper market crisis with its attendant adverse implications for the broader economy. A similar example emerged in the case of the failure of Drexel Burnham Lambert in February 1990. Drexels rapid collapse posed a risk of gridlock in the financial markets. Notably, because of their parents failure, Drexels solvent broker-dealer and government securities dealer subsidiaries experienced serious difficulties liquidating their positions. Because of its ongoing supervisory relationships with the banks that provided settlement services to Drexels subsidiaries and its knowledge of the payment and settlement systems infrastructure, the Federal Reserve had the access, contacts, and in-depth knowledge that enabled it to obtain the information it needed to evaluate this complex problem and formulate a plan to address it. The Federal Reserve understood the potential problems of Drexels counterparties and clearing banks and was able to work with the banks and securities firms to identify developing problems and fashion procedures that enabled an orderly winding down of Drexel without adverse effects on other market participants or further disruption to financial markets. In the aftermath of the September 11, 2001, terrorist attacks, supervisory information and supervisory powers to compel the provision of information allowed the Federal Reserve to understand the damage incurred by, and estimate the recovery time for, a large banking institution that played a major role in key financial markets. Following the attacks, Federal Reserve examiners were sent to the institutions contingency site. This on-site supervisory presence proved crucial in helping to obtain necessary information and clarify conflicting information in a highly confused and uncertain situation. Similarly, on-site Federal Reserve examiners at other key institutions proved to be valuable sources of information about the difficulties those institutions were facing. With this information in hand, senior Federal Reserve policymakers took the lead in assessing the damage to specific financial institutions and the implications for the government securities market and in taking remedial actions--including the provision of liquidity by the Federal Reserve--to restore financial market functioning relatively quickly. The ability of the Federal Reserve to respond promptly and effectively mitigated the adverse effects on broader financial conditions and the national economy of those tragic events. During the current crisis, the Federal Reserves supervisory role has not only given it timely access to information about the banking sector, payments systems, and capital markets, but also has been essential to its understanding of the emerging strains on financial firms and their possible implications for financial markets and the broader economy. This information has been critical to the Federal Reserves efforts to identify the difficulties facing depository institutions of all sizes and to take steps to address those problems. In particular, over the course of the crisis, the Federal Reserve has used supervisory information to monitor the liquidity needs of banking organizations in response to the disruptions in a range of short-term funding markets and mounting market pressures on firms perceived to be in a weak financial condition. This information allowed the Federal Reserve to take steps to address pressing liquidity needs with

-6monetary policy and lending programs, thereby avoiding larger dislocations in financial markets and an even greater deterioration in economic conditions--which the Federal Reserve continues to monitor. The Federal Reserves supervisory information also contributed importantly to the design of a number of Federal Reserve credit programs. In particular, the development of the Primary Dealer Credit Facility was greatly aided by the understanding of the triparty repurchase agreement (repo) market and the information regarding its functioning that the Federal Reserve had as a result of its supervision of the banking organizations that handle the clearing and settlement of such transactions. In addition, its understanding of the workings of the credit markets along with its involvement in the supervision of banking institutions helped motivate the Federal Reserves decision to implement the Term Asset-Backed Securities Loan Facility, which is a broad-based facility that provides liquidity to support auto lending, small business lending, credit card lending, student loans, and commercial real estate lending. The Federal Reserves credit programs provided significant support to key financial institutions and markets, easing the impact of the financial crisis on the economy. Liquidity Provision to Depository Institutions Supervisory information and expertise also contribute to the Federal Reserves management of the risks that it confronts in its role as liquidity provider to depository institutions, large and small--a critical central-bank function. Reserve Banks must be able to assess the financial condition of the institutions that want to borrow from the Federal Reserve and must be able to assess as well the quality and value of the collateral pledged by borrowing institutions. Active involvement in supervising financial institutions contributes significantly to such assessments because they require substantial knowledge of banking practices as well as the expertise gained from the hands-on review of loans and other assets at banking organizations. In addition, the Federal Reserves assessment of the condition of an institution or the quality of its collateral may differ from that of other supervisory agencies. Monetary Policy The information that the Federal Reserve obtains in its supervisory role has been useful for the making of monetary policy, especially in periods of financial stress. For example, in the early 1990s, the Federal Reserve recognized that elevated loan losses were putting pressure on bank balance sheets, thereby contributing to very weak bank lending that was weighing on spending by households and businesses. In this context, mounting evidence of tightened lending standards and credit concerns at banks, much of it gained through the supervisory process, contributed to the Federal Reserves decision to ease the stance of monetary policy more aggressively than it otherwise would have. Supervisory information has played a particularly important role in monetary policymaking since the outbreak of the financial crisis in the summer of 2007. As the crisis intensified, supervisory

-7information helped the policymaking Federal Open Market Committee (FOMC) to understand the extent of the dislocations in credit markets and led the Federal Reserves monetary policy response to the crisis to be more timely and decisive than it otherwise might have been. For example, Federal Reserve staff calculated estimates of potential aggregate credit losses under alternative economic scenarios and drew on supervisory information and expertise to evaluate implications for the health of the banking system. This work helped the FOMC to assess the risks to the financial system and the economy arising from worsening credit conditions and to take such risks into account in its policy decisions. More broadly, information and expertise obtained as a result of the Federal Reserves supervisory role have been reflected in FOMC meeting discussions of economic conditions and the outlook. Supervisory staff has attended these meetings during the crisis, and in these discussions there have been regular references to information about banking institutions gained both from examination staff and from industry contacts resulting from the Federal Reserves supervisory role. This information has contributed to the Committees understanding of likely loan losses, the effects of such losses and other factors on bank lending behavior, and their implications for economic activity. Moreover, given the global nature of the financial crisis, the Federal Reserves interactions with supervisors abroad, which reflect its role as a U.S. supervisor, have provided helpful information on the health of key foreign banking firms, allowing the FOMC to judge more accurately the likely strains on U.S. financial firms and markets emanating from outside the United States. The Federal Reserve faces challenging decisions regarding the timing and pace of the exit from the considerable monetary accommodation put in place during the crisis. These critical policy decisions will require particularly careful assessments of developments at financial institutions and in financial markets, and their resulting implications for the real economy. For example, losses on commercial real estate loans may continue to undermine some community and regional banks and will have uneven effects across different regions of the country. At the same time, however, the improving economy may strengthen the balance sheets of other banks and conditions in many financial markets may continue to improve. Information from the supervisory process will help policymakers to assess overall credit conditions and the stability of the financial sector, and so to time appropriately the shift to reduced policy accommodation. Could the Federal Reserve Obtain What It Needs from Another Supervisor? A natural question is whether the Federal Reserve could obtain the supervisory information and expertise it needs for its central-bank responsibilities from other agencies. While it seems clear that this is possible to some extent--indeed, the Federal Reserve obtains information regarding the firms to which it lends from their primary supervisors--elimination of the Federal Reserves role in supervision would severely undermine the Federal Reserves ability to obtain in a timely way and to evaluate the information it needs to conduct its central banking functions effectively.

-8First, active involvement in supervision ensures that the Federal Reserve will have experts on its staff with significant knowledge of banking practices and financial instruments gained from the hands-on review of banking organizations and their operations, practices, activities and balance sheets. This expertise is critical to making effective use of information about financial firms and cannot be quickly created when needed. For example, without staff expertise in bank lending practices and evaluating bank asset quality, the Federal Reserve would be unable to assess independently and rapidly the condition of borrowing institutions and the value of the collateral they pledge at the discount window. This capability has been especially valuable since the Federal Reserve began providing credit at longer maturities during the crisis. Indeed, in some cases, it has been necessary for the Federal Reserve to deploy supervisory experts to provide upto-date assessments of the condition of borrowing firms and to evaluate the collateral they were providing. Owing in part to the supervisory expertise it has been able to bring to bear in its discount window operations, the Federal Reserve has maintained its record of never bearing a loss on credit it has extended to depository institutions, despite the spike in such lending to more than $500 billion in early 2009. Second, obtaining information from another agency would be slower and more cumbersome than obtaining it directly from financial firms. Information provided by other supervisory agencies may be stale or incomplete, particularly in a crisis, when the condition of institutions and the value of collateral can deteriorate rapidly. An independent supervisor would have its own concerns and priorities on which its supervisory staff would naturally focus, slowing the Federal Reserves access to information in other areas. Even if the supervisory agencys staff were willing and able to provide assistance, the back-and-forth process in which the Federal Reserve must explain exactly what is needed, evaluate the information that is received, and return to the supervisor with clarifying questions and requests for additional information could slow the process appreciably. Finally, having the legal authority to directly obtain information--through on-site examinations or otherwise--can prove critical to understanding and responding quickly to a financial crisis. While in some cases financial institutions that the Federal Reserve does not supervise may be willing to provide information to the Federal Reserve on a voluntary basis, in other cases they have not been willing, and there is no guarantee that they will be willing in future crises. For example, senior managers with relevant knowledge about the nature of the problems facing an institution or arising in financial markets may well be focused on those problems and therefore might not want to meet with, or provide information to, the Federal Reserve in a timely manner unless the Federal Reserve had the supervisory authority to require them to do so. Also, an institution may not readily recognize or acknowledge the possible adverse effects of its actions for other market participants or the financial markets and economy more generally, or it may expect the authorities to deal with such adverse effects. In such cases, it can be essential for the Federal Reserve to have the ability to compel the disrupted institution to provide timely

-9information that would assist the Federal Reserve in addressing the crisis through its monetary policy, lending, and other policy and operational tools. Besides the experience at the Federal Reserve, international developments suggest that a centralbank role in supervision can be important. For example, many have suggested that the problems with Northern Rock in the United Kingdom were compounded by a lack of clarity regarding the distribution of powers, responsibilities, and information among the Bank of England, the U.K. Financial Services Authority, and the U.K. Treasury. In response, the Bank of England was given statutory responsibilities in the area of financial stability, its powers to collect information from banks were augmented, and many have called for it to be given increased supervisory authority. In the European Union, a new European Systemic Risk Board is being established under which national central banks and the European Central Bank will play a central role in efforts to protect the financial system from systemic risk. More broadly, in most industrial countries today the central bank has substantial bank supervisory authorities, is responsible for broad financial stability, or both. Steps the Federal Reserve Is Taking to Strengthen its Regulatory and Supervisory Performance Supervision by financial regulators, including the Federal Reserve, clearly had significant shortcomings in the period leading up to the financial crisis. Among other things, regulators did not insist on sufficiently strong and comprehensive risk management by private firms, and inadequate attention was paid to the risks that could arise from the interactions of firms and markets, such as the collective dependence of many firms on similar wholesale funding sources or hedging strategies. The Federal Reserve has been and continues to be engaged in an intensive self-examination of its supervisory functions with two objectives: to address weaknesses in its supervisory function that became apparent as a result of the financial crisis, and to become a better supervisor in an environment that requires supervisors to be attentive to macroprudential as well as individual-institution safety-and-soundness risks. The Federal Reserve is seriously engaged in measures to strengthen its regulatory and supervisory performance. For example, working through the Basel Committee on Bank Supervision and the Financial Stability Board, the Federal Reserve has played a key part in efforts to ensure that systemically critical financial institutions hold more and higher-quality capital and employ more robust liquidity management. The Federal Reserve also played a key role in international work to ensure that banks use compensation structures that provide appropriate performance and risk-taking incentives. Domestically, it has taken the lead in addressing flawed compensation practices, issuing proposed guidance that would require banking organizations to review their compensation practices to ensure that they do not encourage excessive risk-taking, are subject to effective controls and risk management, and are supported by strong corporate governance, including oversight by their boards of directors.

- 10 In the fall of 2008, the Federal Reserve updated its guidance on consolidated supervision, reaffirming the importance of such supervision, particularly for large complex firms, and emphasizing the importance of bringing a macroprudential perspective as well as an individualinstitution safety-and-soundness perspective to consolidated supervision. Of considerable importance, the Federal Reserve has taken steps to ensure that, when risk-management shortcomings are identified, its supervisors hold managers accountable and make sure that weaknesses receive proper attention at senior levels and are resolved promptly. This requires routinely and promptly communicating important supervisory concerns to the highest levels of bank management, including through more frequent involvement of senior bank managers and boards of directors and senior Federal Reserve officials. This approach proved especially effective during the SCAP and in other circumstances when clear expectations for prompt remediation were forcefully communicated to large banking organizations. The Federal Reserve has also begun to make fundamental changes to its supervision and regulation of large bank holding companies to include a macroprudential, as well as an individual-institution safety-and-soundness, perspective to supervision. For example, the Federal Reserve is developing a program of enhanced quantitative surveillance of large bank holding companies. Enhanced quantitative surveillance combines aggregate economic data, firm-level market-based indicators, and supervisory information to provide a fuller picture of the financial condition of firms, the risks they face, and their potential effects on the broader system. Examples of this approach are the indicative systemwide loss and pre-provision net revenue estimates that were developed for the SCAP and used in the subsequent analysis of Troubled Asset Relief Program redemption requests, and the firm-specific loss and revenue estimates that were developed by combining these systemwide estimates with supervisory information. The Federal Reserve is working with other domestic and international regulators and market participants to overcome the collective action problems that often plague efforts to strengthen market infrastructure. Since 2005, the Federal Reserve has been leading efforts by market participants and domestic and international regulators to strengthen the infrastructure of the credit derivatives and other over-the-counter derivatives markets. While further progress is needed, without the progress that was achieved since 2005, the failures of major dealers and defaults by some of the very largest names traded in the credit derivatives markets surely would have been far more disruptive than they were. Likewise, this year the Federal Reserve took the lead in organizing a private-sector group that is developing recommendations for cooperative measures to strengthen margin and settlement practices in the triparty repo markets. The Federal Reserve is also making changes designed to fully employ its expertise to effectively supervise large banking firms. The new supervisory framework will better accommodate a macroprudential orientation that goes beyond the traditional focus on individual institutions and better supports the identification and analysis of interconnected risks and sources of financial contagion. The new approach will implement a more centralized approach to the supervision of large, complex banks that are potentially systemically important.

- 11 In particular, strategic and policy direction for the supervision of large, complex financial institutions will be coordinated through a newly formed multidisciplinary committee led by senior officers representing various functions at the Board and Reserve Banks. Supervisors, economists, and market specialists, combined with officials responsible for quantitative surveillance activities, will define supervisory priorities and examination plans for large, complex banking organizations. Supervisory teams will be constructed around portfolios of firms with similar business lines and risks, and cross-firm examinations will consider interconnected risks, such as spillover and feedback effects. As in the SCAP, representatives of primary and functional supervisors will be fully integrated in the process, participating in the planning and execution of horizontal exams and consolidated supervisory activities. As was evident in the recent crisis, interconnected risks can span several operating entities. Subprime mortgage exposures, for example, were dispersed across mortgage banks, broker-dealers, and off-balance-sheet vehicles, as well as insured depositories. Effective supervision of complex holding company structures must involve greater coordination among consolidated and functional supervisors and an integrated assessment of risks across the holding company, including bank and nonbank subsidiaries. While supervisory authorities here and abroad are still developing the tools and instruments needed to fully implement a macroprudential approach to supervision, recent experience has shown that such an approach is critical to avoiding financial imbalances that can result in severe financial and economic dislocations. The Federal Reserve will continue to strengthen its supervisory efforts and to learn from events as they unfold, with the goal of doing all in its power to identify and address risks that may imperil the financial system.

January 2010

Federal Reserve System Monthly Report on

Credit and Liquidity Programs and the Balance Sheet

Board of Governors of the Federal Reserve System

Purpose
The Federal Reserve prepares this monthly report as part of its efforts to enhance transparency about the range of programs and tools that have been implemented in response to the nancial crisis and to ensure appropriate accountability to the Congress and the public. The Federal Reserves statutory mandate in conducting monetary policy is to foster maximum employment and stable prices. Financial stability is a critical prerequisite for achieving sustainable economic growth and price stability, and the steps taken since the summer of 2007 were necessary to support the liquidity of important nancial markets and institutions in light of the extraordinary strains in nancial markets.
Note: Financial information in this report has not been audited. Audited nancial data are prepared annually and are available at www.federalreserve.gov/monetarypolicy/bst_fednancials.htm.

This report provides detailed information on the policy tools that have been implemented since the summer of 2007. It also provides nancial reporting for 2009 through the third quarter. Figures for the full year of 2009 will be published following the release of the nancial statements of the Federal Reserve System. In fulllment of Section 129 of the Emergency Economic Stabilization Act of 2008, additional information on the status of certain credit facilities implemented in response to the nancial crisis is included as an appendix to this report. For prior editions of this report and other resources, please visit the Boards public website at www.federalreserve.gov/monetarypolicy/ bst_reports.htm.

Contents
Overview...............................................................................................................................................1
Recent Developments .............................................................................................................................1

System Open Market Account and Liquidity Arrangements with Foreign Central Banks .................4
System Open Market Account (SOMA).....................................................................................................4 Liquidity Swaps ....................................................................................................................................5

Lending Facilities to Support Overall Market Liquidity .....................................................................7

Lending to Depository Institutions............................................................................................................7 Lending to Primary Dealers.....................................................................................................................9 Commercial Paper Funding Facility (CPFF) .............................................................................................11 Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF)...............................12 Term Asset-Backed Securities Loan Facility (TALF)..................................................................................13

Lending in Support of Specic Institutions ........................................................................................17

Quarterly Developments ........................................................................................................................17 Bear Stearns and Maiden Lane LLC .......................................................................................................17 American International Group (AIG) .......................................................................................................18 Maiden Lane II LLC ............................................................................................................................20 Maiden Lane III LLC ...........................................................................................................................21 Citigroup ............................................................................................................................................23 Bank of America..................................................................................................................................23

Federal Reserve Banks Financial Tables ...........................................................................................24

Quarterly Developments ........................................................................................................................24 Combined Statement of Income and Comprehensive Income.......................................................................24 SOMA Financial Summary ....................................................................................................................24 Loan Programs Financial Summary.........................................................................................................26 Consolidated Variable Interest Entities (VIEs) Financial Summary ...............................................................27

Appendix.............................................................................................................................................28
Additional Information Provided Pursuant to Section 129 of the Emergency Economic Stabilization Act of 2008 ...........................................................................................................................................28

Tables and Figures

Overview...............................................................................................................................................1
Table 1. Assets, Liabilities, and Capital of the Federal Reserve System .........................................................1 Figure 1. Credit and Liquidity Programs and the Federal Reserves Balance Sheet...........................................2

System Open Market Account and Liquidity Arrangements with Foreign Central Banks .................4
Table 2. System Open Market Account (SOMA) Securities Holdings ............................................................4 Table 3. Amounts Outstanding under Dollar Liquidity Swaps ......................................................................5

Lending Facilities to Support Overall Market Liquidity .....................................................................7

Table 4. Discount Window Credit Outstanding to Depository Institutions ......................................................7 Table 5. Concentration of Discount Window Credit Outstanding to Depository Institutions ...............................7 Table 6. Lendable Value of Collateral Pledged by Borrowing Depository Institutions ......................................8 Table 7. Lendable Value of Securities Pledged by Depository Institutions by Rating ........................................8 Table 8. Discount Window Credit Outstanding to Borrowing Depository InstitutionsPercent of Collateral Used .................................................................................................................................9 Table 9. Credit Outstanding to Primary Dealers .........................................................................................9 Table 10. Concentration of Borrowing at the PDCF and TSLF ...................................................................10 Table 11. PDCF Collateral by Type ........................................................................................................10 Table 12. PDCF Collateral by Rating .....................................................................................................10 Table 13. TSLF Collateral by Type ........................................................................................................11 Table 14. TSLF Collateral by Rating ......................................................................................................11 Table 15. Concentration of CPFF Issuers ................................................................................................11 Table 16. CPFF Commercial Paper Holdings by Type ...............................................................................11 Table 17. CPFF Commercial Paper Holdings by Rating ............................................................................11 Table 18. AMLF: Number of Borrowers and Amount Outstanding ..............................................................12 Table 19. AMLF Collateral by Rating ....................................................................................................12 Table 20. TALF: Number of Borrowers and Loans Outstanding ..................................................................13 Table 21A. Issuers of Non-CMBS that Collateralize Outstanding TALF Loans .............................................14 Table 21B. Issuers of Newly Issued CMBS that Collateralize Outstanding TALF Loans .................................14 Table 21C. Issuers of Legacy CMBS that Collateralize Outstanding TALF Loans .........................................15 Table 22. TALF Collateral by Underlying Loan Type ................................................................................16 Table 23. TALF Collateral by Rating .....................................................................................................16

Lending in Support of Specic Institutions ........................................................................................17

Table 24. Fair Value Asset Coverage ......................................................................................................17 Table 25. Maiden Lane LLC Outstanding Principal Balance of Loans .........................................................17 Table 26. Maiden Lane LLC Summary of Portfolio Composition, Cash and Cash Equivalents, and Other Assets and Liabilities ...............................................................................................................17 Table 27. Maiden Lane LLC Securities Distribution by Sector and Rating Percent, as of September 30, 2009 ....18 Figure 2. Maiden Lane LLC Securities Distribution as of September 30, 2009...............................................18 Table 28. AIG Revolving Credit Facility .................................................................................................18

Figure 3. AIG Revolving Credit .............................................................................................................19 Table 29. Maiden Lane II LLC Outstanding Principal Balance of Senior Loan and Fixed Deferred Purchase Price .................................................................................................................................20 Table 30. Maiden Lane II LLC Summary of RMBS Portfolio Composition, Cash and Cash Equivalents, and Other Assets and Liabilities .........................................................................................................20 Table 31. Maiden Lane II LLC Securities Distribution by Sector and Rating ................................................21 Figure 4. Maiden Lane II LLC Securities Distribution as of September 30, 2009 ...........................................21 Table 32. Maiden Lane III LLC Outstanding Principal Balance of Senior Loan and Equity Contribution ..........22 Table 33. Maiden Lane III LLC Summary of Portfolio Composition, Cash and Cash Equivalents, and Other Assets and Liabilities .........................................................................................................22 Table 34. Maiden Lane III LLC Securities Distribution by Sector, Vintage, and Rating ..................................22 Figure 5. Maiden Lane III LLC Securities Distribution as of September 30, 2009 ..........................................22

Federal Reserve Banks Financial Tables ...........................................................................................24

Table Table Table Table 35. 36. 37. 38. Federal Reserve Banks Combined Statement of Income and Comprehensive Income ......................25 SOMA Financial Summary .....................................................................................................26 Loan Programs Financial Summary ..........................................................................................26 Consolidated Variable Interest Entities Financial Summary ..........................................................27

Overview
Recent Developments
Continued improvements in nancial market conditions have been accompanied by further declines in the amount of credit extended through many of the Federal Reserves liquidity programs. On January 12, 2010, the Federal Reserve Board announced preliminary unaudited results indicating that the Reserve Banks provided for payments of approximately $46.1 billion of their estimated 2009 net income of $52.1 billion to the U.S. Treasury. These payments represent an increase of $14.4 billion over the payments made in 2008, primarily due to increased earnings on securities holdings during 2009. The Reserve Banks securities holdings and other assets expanded signicantly during 2009 as a result of the Federal Reserves response to the severe economic downturn. On December 28, 2009, the Federal Reserve Board proposed amendments to Regulation D (Reserve

Table 1. Assets, Liabilities, and Capital of the Federal Reserve System

Billions of dollars Item Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected assets Securities held outright . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. Treasury securities1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal agency debt securities1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage-backed securities2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Memo: Term Securities Lending Facility3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Memo: Overnight securities lending3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Memo: Net commitments to purchase mortgage-backed securities4 . . . . . Lending to depository and other nancial institutions . . . . . . . . . . . . . . . . . . . . . . Primary, secondary, and seasonal credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Term auction credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Primary dealer and other broker-dealer credit . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Central bank liquidity swaps5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lending through other credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net portfolio holdings of Commercial Paper Funding Facility LLC6 . . . Term Asset-Backed Securities Loan Facility, net . . . . . . . . . . . . . . . . . . . . . . . Support for specic institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Credit extended to American International Group, Inc., net7 . . . . . . . . . . . . Net portfolio holdings of Maiden Lane LLC8 . . . . . . . . . . . . . . . . . . . . . . . . . . Net portfolio holdings of Maiden Lane II LLC8 . . . . . . . . . . . . . . . . . . . . . . . . Net portfolio holdings of Maiden Lane III LLC8 . . . . . . . . . . . . . . . . . . . . . . . Net portfolio holdings of TALF LLC9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preferred interests in AIA Aurora LLC and ALICO Holdings LLC10 . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected liabilities Federal Reserve notes in circulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deposits of depository institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. Treasury, general account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. Treasury, supplementary nancing account . . . . . . . . . . . . . . . . . . . . . . . . . . . Other deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current December 30, 2009 2,238 1,845 777 160 908 0 15 155 96 20 76 0 0 10 62 14 48 87 22 27 16 23 * 25 2,185 890 1,025 150 5 27 52 Change from November 25, 2009 28 61 +* 5 56 0 8 9 25 +* 25 0 0 16 2 1 3 23 23 +* * * +* 25 28 7 143 137 10 25 1 Change from December 31, 2008 4 1,349 301 140 908 172 6 155 509 74 374 37 24 543 272 320 48 26 17 * 4 4 +* 25 14 37 165 44 254 6 10

Note: Unaudited. Components may not sum to totals because of rounding. * Less than $500 million. 1. Face value. 2. Guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Current face value, which is the remaining principal balance of the underlying mortgages. Does not include unsettled transactions. 3. Securities loans under the Term Securities Lending Facility and the overnight facility are off-balance-sheet transactions. These loans are shown here as a memo item to indicate the portion of securities held outright that have been lent through these programs. 4. Current face value. These generally settle within 180 days and include commitments associated with outright transactions as well as dollar rolls. 5. Dollar value of the foreign currency held under these agreements valued at the exchange rate to be used when the foreign currency is returned to the foreign central bank. 6. Includes commercial paper holdings, net, and about $5 billion in other investments. 7. Excludes credit extended to Maiden Lane II and III LLCs. 8. Fair value, reecting values as of September 30, 2009. Fair value reects an estimate of the price that would be received upon selling an asset if the transaction were to be conducted in an orderly market on the measurement date. Fair values are updated quarterly. 9. As of December 30, 2009, TALF LLC had purchased no assets from the FRBNY. 10. Book value.

Credit and Liquidity Programs and the Balance Sheet

Figure 1. Credit and Liquidity Programs and the Federal Reserves Balance Sheet
Selected Assets of the Federal Reserve Billions of dollars Securities Held Outright Billions of dollars

3000
Total Assets Securities Held Outri9ht All Liquidity Facilities - - U.S. Treasury Securities - Federal Aaency Debt Securities - - - Mortgage.:Sacl<ed Securities

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Note: On a settlement basis rather than a commitment basis.

Credit Extended through Federal Reserve Liquidity Facilities Billions of dollars All Liquidi~ Facilities* Tenn Auct1on Credit Commercial Paper Funding Facility Central Bank Liquiditv SWaps Tenn Asset-Backed Securities Loan Facility

Selected Liabilities of the Federal Reserve Billions of dollars

1400 2000
Currency in Circulation Deposits of Depository Institutions Treasury Balance

1200 1000

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1000 600 400
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+ indicatss most recant data point. Data are shown through 1213012009. "All Liquidity Facilities includes: Term Auction credit; primary credit; seoondary credit; seasonal credit; Primary Dealer Credit Facility; Asset-Backed Commercial Paper Money Marlret Mutual Fund Liquidity Facility; Term Asset-Backed Securities Loan Facility; Commercial Paper Funding Facility; and cen1ral bank liquidity swaps.

January 2010

Requirements of Depository Institutions) that would enable the establishment of a term deposit facility. Under the proposal, Federal Reserve Banks would offer interest-bearing term deposits to eligible institutions through an auction mechanism. Term deposits are one of several tools the Federal Reserve could employ to drain reserves in order to support the effective implementation of monetary policy. This proposal is one component of a process of prudent planning on the part of the Federal Reserve and has no implications for monetary policy decisions in the near term. The Federal Reserve Bank of New York (FRBNY) on January, 11, 2010, published a revised policy regarding the administration of its relationships with primary dealers intended to provide greater transparency about the signicant business standards expected of primary dealers and to offer clearer guidance on the process to become a primary dealer. Substantive changes from the previous policy include: a more structured presentation of the business standards expected of a primary dealer; a more

formal application process for prospective primary dealers; an increase in the minimum net capital requirement, from $50 million to $150 million; a seasoning requirement of one year of relevant operations before a prospective dealer may submit an application; and a clear notice of actions the FRBNY may take against a noncompliant primary dealer. On December 23, 2009, the Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC) agreed to terminate the January 15, 2009, Master Agreement with Citigroup under which the government parties had agreed to provide certain loss protections and liquidity supports to Citigroup with respect to a designated pool of $301 billion of assets. In consideration for terminating the Master Agreement, the FRBNY received a $50 million termination fee from Citigroup. The Treasury reduced balances held in the Supplementary Financing Account at the Federal Reserve from $15 billion to $5 billion in order to preserve its exibility in the conduct of debt-management policy.

Credit and Liquidity Programs and the Balance Sheet

System Open Market Account and Liquidity Arrangements with Foreign Central Banks
System Open Market Account (SOMA) Recent Developments
The SOMA portfolio has continued to expand, although the pace of Federal Reserve purchases of securities under the large-scale asset purchase programs (LSAPs) has slowed compared to its pace last year. As of December 30, 2009, the Federal Reserve held about $160 billion in agency debt and $908 billion in agency-guaranteed mortgage-backed securities (MBS) under the Federal Open Market Committees (FOMCs) LSAPs.
Table 2. System Open Market Account (SOMA) Securities Holdings
Billions of dollars, as of December 30, 2009 Security type U.S. Treasury bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. Treasury notes and bonds, nominal . . . . . . . . . . . . . . U.S. Treasury notes and bonds, ination-indexed1 . . . . . Federal agency debt securities2 . . . . . . . . . . . . . . . . . . . . . . . . Mortgage-backed securities3 . . . . . . . . . . . . . . . . . . . . . . . . . . . Total SOMA securities holdings . . . . . . . . . . . . . . . . . . . . . Total par value 18 708 51 160 908 1,845

Background
Open market operations (OMOs)the purchase and sale of securities in the open market by a central bankare a key tool used by the Federal Reserve in the implementation of monetary policy. Historically, the Federal Reserve has used OMOs to adjust the supply of reserve balances so as to keep the federal funds rate around the target federal funds rate established by the FOMC. OMOs are conducted by the Trading Desk at the FRBNY, which acts as agent for the FOMC. The range of securities that the Federal Reserve is authorized to purchase and sell is relatively limited. The authority to conduct OMOs is granted under Section 14 of the Federal Reserve Act. OMOs can be divided into two types: permanent and temporary. Permanent OMOs are outright purchases or sales of securities for the SOMA, the Federal Reserves portfolio. Permanent OMOs have traditionally been used to accommodate the longer-term factors driving the expansion of the Federal Reserves balance sheet, principally the trend growth of currency in circulation. More recently, the expansion of SOMA securities holdings has been driven by LSAPs. The composition of the SOMA is shown in table 2. Temporary OMOs typically are used to address reserve needs that are deemed to be transitory in nature. These operations are either repurchase agreements (repos) or reverse repurchase agreements (reverse repos). Under a repo, the Trading Desk buys a security under an agreement to resell that security in the future; under a reverse repo, the Trading Desk sells a security under an agreement to repurchase that security in the future. A repo is

Note: Unaudited. Components may not sum to total because of rounding. Does not include investments denominated in foreign currencies or unsettled transactions. 1. Includes ination compensation. 2. Direct obligations of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. 3. Guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Current face value of the securities, which is the remaining principal balance of the underlying mortgages.

the economic equivalent of a collateralized loan; conversely, a reverse repo is the economic equivalent of collateralized borrowing. In both types of transactions, the difference between the purchase and sale prices reects the interest on the loan or borrowing. Each OMO affects the Federal Reserves balance sheet; the size and nature of the effect depend on the specics of the operation. The Federal Reserve publishes its balance sheet each week in the H.4.1 statistical release, Factors Affecting Reserve Balances of Depository Institutions and Consolidated Statement of Condition of Reserve Banks (www.federalreserve.gov/ releases/h41). The release separately reports securities held outright, repos, and reverse repos. The Federal Reserves approach to the implementation of monetary policy has evolved considerably since 2007, and particularly since late 2008. The FOMC has established a near-zero target range for the federal funds rate, implying that the very large volume of reserve balances provided through the various liquidity facilities is consistent with the FOMCs funds rate objectives. In addition, OMOs have provided increasing amounts of reserve balances. To help reduce the cost and increase the availability of credit for the purchase of houses, on November 25, 2008, the Federal Reserve announced that it would buy direct obligations of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, and MBS guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. The FOMC authorized purchases of up to $1.25 trillion of agency MBS and up to $200 billion of agency direct

January 2010

obligations. Subsequently, in November 2009, the FOMC announced that agency debt purchases would be about $175 billion. This amount, while somewhat less than the previously announced maximum of $200 billion, was consistent with the path of purchases and reected the limited availability of agency debt. The Federal Reserve determined that supporting the MBS dollar roll market promotes the goals of the MBS purchase program. Dollar roll transactions, which consist of a purchase of securities combined with an agreement to sell securities in the future, provide shortterm nancing to the MBS market. Because of principal and interest payments and occasional delays in the settlement of transactions, the Federal Reserve also holds some cash associated with the MBS purchase program. The FRBNY announced in August 2009 that it would streamline the set of external investment managers for the agency-guaranteed MBS purchase program, reducing the number of investment managers from four to two. The FRBNY announced in November 2009 that it would begin to use its own staff rather than external investment managers on select days to execute LSAP agency MBS purchases. These changes were not performance-related: the FRBNY had anticipated that it would adjust its use of external investment managers as it gained more experience with the program. In September 2009, the Federal Reserve began to purchase on-the-run agency securitiesthe most recently issued securitiesin order to mitigate market dislocations and promote overall market functioning. Prior to this change, purchases were focused on offthe-run agency securities. On September 23, 2009, the FOMC announced its intention to gradually slow the pace of its purchases of agency-guaranteed MBS and agency debt. In implementing this directive, the Trading Desk of the FRBNY announced that it would scale back the average weekly purchase amounts of agency MBS and reduce the size and frequency of agency debt purchases. The FOMC anticipates that these transactions will be executed by the end of the rst quarter of 2010. The Federal Reserves outright holdings of MBS are reported weekly in tables 1, 3, 10, and 11 of the H.4.1 statistical release. In addition, detailed data on all settled agency MBS holdings are published weekly on the FRBNY website (www.newyorkfed.org/markets/ soma/sysopen_accholdings.html). In March 2009, the FOMC announced that it would also purchase up to $300 billion of longer-term Treasury securities to help improve conditions in private credit markets. The Federal Reserve has purchased a range of securities across the maturity spectrum,

including Treasury Ination-Protected Securities (TIPS). The bulk of purchases have been in intermediate maturities. In August 2009, the FOMC announced that it decided to gradually slow the pace of these transactions in order to promote a smooth transition in markets as purchases of these Treasury securities are completed. The FOMC anticipated that the purchases would be completed by the end of October; the purchases were completed as planned. In December 2009, the FRBNY conducted a set of small-scale, real-value, triparty reverse repurchase transactions with primary dealers. Reverse repurchase agreements are a tool that could be used to support a reduction in monetary accommodation at the appropriate time. These transactions were conducted to ensure operational readiness at the Federal Reserve, the major clearing banks, and the primary dealers, and had no material impact on the availability of reserves or on market rates.

Liquidity Swaps Recent Developments

Use of the Federal Reserves foreign central bank dollar liquidity swaps has continued to decline. As shown in table 3, as of December 30, 2009, total dollar liquidity extended to foreign central banks had dropped to $10 billion. The Federal Reserve is working with its central bank counterparties to close its temporary liquidity swap arrangements by February 1, 2010.

Table 3. Amounts Outstanding under Dollar Liquidity Swaps

Billions of dollars Central bank Bank of Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . Banco de Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . European Central Bank . . . . . . . . . . . . . . . . . . . . Swiss National Bank . . . . . . . . . . . . . . . . . . . . . . . Bank of Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bank of England . . . . . . . . . . . . . . . . . . . . . . . . . . . Danmarks Nationalbank . . . . . . . . . . . . . . . . . . . Reserve Bank of Australia . . . . . . . . . . . . . . . . . Sveriges Riksbank . . . . . . . . . . . . . . . . . . . . . . . . . Norges Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserve Bank of New Zealand . . . . . . . . . . . . Bank of Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Banco Central do Brasil . . . . . . . . . . . . . . . . . . . Monetary Authority of Singapore . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amount as of 12/30/2009 0 3 7 0 1 0 0 0 0 0 0 0 0 0 10 Amount as of 12/31/2008 0 0 291 25 123 33 15 23 25 8 0 10 0 0 554

Note: Unaudited. Components may not sum to totals because of rounding.

Credit and Liquidity Programs and the Balance Sheet

Background
Because of the global character of bank funding markets, the Federal Reserve has worked with other central banks in providing liquidity to nancial markets and institutions. As part of these efforts, the FRBNY entered into agreements to establish temporary reciprocal currency arrangements (central bank liquidity swap lines) with a number of foreign central banks. Two types of temporary swap lines have been established dollar liquidity lines and foreign currency liquidity lines. The FRBNY operates the swap lines under the authority granted under Section 14 of the Federal Reserve Act and in compliance with authorizations, policies, and procedures established by the FOMC. On December 16, 2009, the Federal Reserve announced that it will be working with its central bank counterparties to close its temporary liquidity swap arrangements by February 1, 2010.

specied future date at the same exchange rate. The second transaction unwinds the rst. Because the swap transaction will be unwound at the same exchange rate used in the initial transaction, the recorded value of the foreign currency amounts is not affected by changes in the market exchange rate. At the conclusion of the second transaction, the FCB compensates the FRBNY at a market-based rate. When the FCB lends the dollars it obtained by drawing on its swap line to institutions in its jurisdiction, the dollars are transferred from the FCB account at the FRBNY to the account of the bank that the borrowing institution uses to clear its dollar transactions. The FCB remains obligated to return the dollars to the FRBNY under the terms of the agreement, and the FRBNY is not a counterparty to the loan extended by the FCB. The FCB bears the credit risk associated with the loans it makes to institutions in its jurisdiction. The foreign currency that the Federal Reserve acquires is an asset on the Federal Reserves balance sheet. In tables 1, 10, and 11 of the weekly H.4.1 statistical release, the dollar value of amounts that the foreign central banks have drawn but not yet repaid is reported in the line entitled Central bank liquidity swaps. Dollar liquidity swaps have maturities ranging from overnight to three months. Table 2 of the H.4.1 statistical release reports the maturity distribution of the outstanding dollar liquidity swaps.

Dollar Liquidity Swaps

On December 12, 2007, the FOMC announced that it had authorized dollar liquidity swap lines with the European Central Bank and the Swiss National Bank to provide liquidity in U.S. dollars to overseas markets. Subsequently, the FOMC authorized dollar liquidity swap lines with additional central banks. The FOMC has authorized through February 1, 2010, the arrangements between the Federal Reserve and each of the following central banks: the Reserve Bank of Australia, the Banco Central do Brasil, the Bank of Canada, the Bank of Japan, Danmarks Nationalbank, the Bank of England, the European Central Bank, the Bank of Korea, the Banco de Mexico, the Reserve Bank of New Zealand, Norges Bank, the Monetary Authority of Singapore, Sveriges Riksbank, and the Swiss National Bank. Swaps under these lines consist of two transactions. When a foreign central bank (FCB) draws on its swap line with the FRBNY, the FCB sells a specied amount of its currency to the FRBNY in exchange for dollars at the prevailing market exchange rate. The FRBNY holds the foreign currency in an account at the FCB. The dollars that the FRBNY provides are deposited in an account that the FCB maintains at the FRBNY. At the same time, the FRBNY and the FCB enter into a binding agreement for a second transaction that obligates the FCB to buy back its currency on a

Foreign Currency Liquidity Swap Lines

On April 6, 2009, the FOMC announced foreigncurrency liquidity swap lines with the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank. These lines are designed to provide the Federal Reserve with the capacity to offer liquidity to U.S. institutions in foreign currency should a need arise. These lines mirror the existing dollar liquidity swap lines, which provide FCBs with the capacity to offer U.S. dollar liquidity to nancial institutions in their jurisdictions. If drawn upon, the foreign-currency swap lines would support operations by the Federal Reserve to address nancial strains by providing liquidity to U.S. institutions in amounts of up to 30 billion (sterling), 80 billion (euro), 10 trillion (yen), and CHF 40 billion (Swiss francs). So far, the Federal Reserve has not drawn on these swap lines; it anticipates that they will be discontinued on February 1, 2010.

January 2010

Lending Facilities to Support Overall Market Liquidity

Lending to Depository Institutions Recent Developments
Credit provided to depository institutions through the discount window and the Term Auction Facility (TAF) has continued to decline, primarily reecting reductions in loans outstanding under the TAF. TAF auctions have been undersubscribed since the October 5, 2008, auction. Since then, the auction rate has been equal to the minimum bid rate, which has been 25 basis points since the January 12, 2009, auction. As of the January 11, 2010, TAF auction, the transition to a single 28-day auction cycle was completed. The Federal Reserve expects that amounts provided under the TAF will be scaled back over 2010. As indicated in table 6, total collateral pledged by depository institutions with discount window loans outstanding on December 30, 2009, was $286 billion, about three times the amount of credit outstanding.
Table 5. Concentration of Discount Window Credit Outstanding to Depository Institutions
For four weeks ending December 30, 2009 Rank by amount of borrowing Top ve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Next ve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of borrowers 5 5 235 245 Daily average borrowing ($ billions) 42 18 45 105

Note: Unaudited. Amount of primary, secondary, seasonal, and TAF credit extended to the top ve and next ve borrowers on each day, as ranked by daily average borrowing. Components may not sum to totals because of rounding.

amended. The general policies that govern discount window lending are set forth in the Federal Reserve Boards Regulation A. Depository institutions have, since 2003, had access to three types of discount window creditprimary credit, secondary credit, and seasonal credit. Primary credit is available to depository institutions in generally sound nancial condition with few administrative requirements. Secondary credit may be provided to depository institutions that do not qualify for primary credit, subject to review by the lending Reserve Bank. Seasonal credit provides short-term funds to smaller depository institutions that experience regular seasonal swings in loans and deposits. On August 17, 2007, in order to promote orderly market functioning, the Federal Reserve began to allow the provision of primary credit for terms as long as 30 days. On March 16, 2008, the Federal Reserve increased the maximum maturity of primary credit loans to 90 days. On November 17, 2009, in response to the improvement in nancial conditions, the Federal Reserve announced that the maximum maturity on primary credit loans would be reduced to 28 days effective January 14, 2010. In December 2007, the Federal Reserve introduced the TAF, which provides credit through an auction mechanism to depository institutions in generally sound nancial condition. All regular discount window loans and TAF loans must be fully collateralized to the satisfaction of the lending Reserve Bank, with an appropriate haircut applied to the value of the collateral. On September 24, 2009, the Federal Reserve announced that the TAF would be scaled back in response to continued improvements in nancial market conditions. The offering amount under the 28-day

Background
The discount window helps to relieve liquidity strains for individual depository institutions and for the banking system as a whole by providing a source of funding in times of need. Much of the statutory framework that governs lending to depository institutions is contained in Section 10B of the Federal Reserve Act, as
Table 4. Discount Window Credit Outstanding to Depository Institutions
Daily average borrowing for each class of borrower over four weeks ending December 30, 2009 Type and size of borrower Commercial banks3 Assets: more than $50 billion . . . . . . . . . . . Assets: $5 billion to $50 billion . . . . . . . . Assets: $250 million to $5 billion . . . . . . Assets: less than $250 million . . . . . . . . . . Thrift institutions and credit unions . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average number of borrowers1 9 33 99 69 35 245 Average borrowing ($ billions)2 30 60 10 * 4 105

Note: Unaudited. Includes primary, secondary, seasonal, and TAF credit. Size categories based on total domestic assets from Call Report data as of September 30, 2009. Components may not sum to totals because of rounding. * Less than $500 million. 1. Average daily number of depository institutions with credit outstanding. Over this period, a total of 504 institutions borrowed. 2. Average daily borrowing by all depositories in each category. 3. Includes branches and agencies of foreign banks.

Credit and Liquidity Programs and the Balance Sheet Table 7. Lendable Value of Securities Pledged by Depository Institutions by Rating
Billions of dollars, as of December 30, 2009 Type of security and rating U.S. Treasury, agency, and agency-guaranteed securities . Other securities AAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aa/AA1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Baa/BBB3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other investment-grade4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lendable value 155 183 44 50 21 52 504

auction will remain unchanged from its September level of $75 billion through January 2010. The auction amount for the 84-day auctions was reduced to $50 billion in October and to $25 billion in November. In addition, the maturity dates of the 84-day auctions were adjusted over time to align with the maturity dates of the 28-day auctions. As of the January 11, 2010, auction, all TAF auctions are on a 28-day cycle. In extending credit to depository institutions, the Federal Reserve closely monitors the nancial condition of borrowers. Monitoring the nancial condition of depository institutions is a four-step process designed to minimize the risk of loss to the Federal Reserve posed by weak or failing depository institutions. The rst step is monitoring, on an ongoing basis, the safety and soundness of all depository institutions that access or may access the discount window and the payment services provided by the Federal Reserve. The second step is identifying institutions whose condition, characteristics, or affiliation would present higher-thanacceptable risk to the Federal Reserve in the absence of controls on their access to Federal Reserve lending facilities and other Federal Reserve services. The third step is communicatingto staff within the Federal Reserve System and to other supervisory agencies, if and when necessaryrelevant information about those institutions identied as posing higher risk. The fourth step is implementing appropriate measures to mitigate the risks posed by such entities. At the heart of the condition monitoring process is an internal rating system that provides a framework for identifying institutions that may pose undue risks to the Federal Reserve. The rating system relies mostly on information from each institutions primary superviTable 6. Lendable Value of Collateral Pledged by Borrowing Depository Institutions
Billions of dollars, as of December 30, 2009 Type of collateral Loans Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities U.S. Treasury/agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Municipal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate market instruments . . . . . . . . . . . . . . . . . . . . . . . MBS/CMO: agency-guaranteed . . . . . . . . . . . . . . . . . . . . . MBS/CMO: other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset-backed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International (sovereign, agency, municipal, and corporate) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lendable value 63 3 15 18 5 17 19 22 12 77 37 286

Note: Unaudited. Lendable value for all institutions that have pledged collateral, including those that were not borrowing on the date shown. Lendable value is value after application of appropriate haircuts. Components may not sum to total because of rounding. 1. Includes short-term securities with A-1+ or F1+ rating or MIG 1 or SP-1+ municipal bond rating. 2. Includes short-term securities with A-1 rating or SP-1 municipal bond rating. 3. Includes short-term securities with A-2, P-2, A-3, or P-3 rating. 4. Determined based on a credit review by a Reserve Bank.

sor, including CAMELS ratings, to identify potentially problematic institutions and classify them according to the severity of the risk they pose to the Federal Reserve.1 Having identied institutions that pose a higher risk, the Federal Reserve then puts in place a standard set of risk controls that become increasingly stringent as the risk posed by an institution grows; individual Reserve Banks may implement additional risk controls to further mitigate risk if they deem it necessary.

Collateral
All extensions of discount window credit by the Federal Reserve must be secured to the satisfaction of the lending Reserve Bank by acceptable collateral. Assets accepted as collateral are assigned a lendable value deemed appropriate by the Reserve Bank; lendable value is determined as the market price of the asset, less a haircut. When a market price is not available, a haircut may be applied to the outstanding balance or a valuation based on an assets cash ow. Haircuts reect credit risk and, for traded assets, the historical volatility of the assets price and the liquidity of the market in which the asset is traded; the Federal Reserves haircuts are generally in line with typical market practice. The Federal Reserve applies larger haircuts, and thus assigns lower lendable values, to assets for which no market price is available relative to comparable assets for which a market price is available. A borrower may be required to pledge additional collateral if its nancial condition weakens. Collateral
1. CAMELS is a rating system employed by banking regulators to assess the soundness of depository institutions. CAMELS is an acronym that stands for Capital, Assets, Management, Earnings, Liquidity, and Sensitivity.

Note: Unaudited. Collateral pledged by borrowers of primary, secondary, seasonal, and TAF credit as of the date shown. Total primary, secondary, seasonal, and TAF credit on this date was $96 billion. The lendable value of collateral pledged by all depository institutions, including those without any outstanding loans, was $1,231 billion. Lendable value is value after application of appropriate haircuts. Components may not sum to total because of rounding.

January 2010

is pledged under the terms and conditions specied in the Federal Reserve Banks standard lending agreement, Operating Circular No. 10 (www.frbservices.org/ les/regulations/pdf/operating_circular_10.pdf). Discount window loans and extensions of credit through the TAF are made with recourse to the borrower beyond the pledged collateral. Nonetheless, collateral plays an important role in mitigating the credit risk associated with these extensions of credit. The Federal Reserve generally accepts as collateral for discount window loans and TAF credit any assets that meet regulatory standards for sound asset quality. This category of assets includes most performing loans and most investment-grade securities, although for some types of securities (including commercial mortgagebacked securities, collateralized debt obligations, collateralized loan obligations, and certain non-dollardenominated foreign securities) only AAA-rated securities are accepted. An institution may not pledge as collateral any instruments that the institution or its affiliates have issued. Additional collateral is required for discount window and TAF loans with remaining maturity of more than 28 daysfor these loans, borrowing only up to 75 percent of available collateral is permitted. To ensure that they can borrow from the Federal Reserve should the need arise, many depository institutions that do not have an outstanding discount window or TAF loan nevertheless routinely pledge collateral. Changes to the lending margins on discount window collateral took effect on October 19, 2009. The Federal Reserve periodically reviews its collateral valuation practices, and the new collateral margins reect the results of a broad-based review, which began before the current nancial crisis, of methodology and data sources. For more information on these changes to collateral margins, refer to the Discount Window and Payments System Risk public website (www.frbdiscountwindow.org). As shown in table 8, most depository institutions that borrow from the Federal Reserve maintain collateral well in excess of their current borrowing levels.
Table 8. Discount Window Credit Outstanding to Borrowing Depository InstitutionsPercent of Collateral Used
As of December 30, 2009 Percent of collateral used Over 0 and under 25 . . . . . . . . . . . . . . . . . . . . . . . 25 to 50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 to 75 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 to 90 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Over 90 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of borrowers 83 75 58 28 19 263 Total borrowing ($ billions) 17 33 27 16 2 96

Lending to Primary Dealers Recent Developments

There has been no borrowing at the Primary Dealer Credit Facility (PDCF) since mid-May 2009. As previously announced, the Federal Reserve anticipates that the PDCF will expire on February 1, 2010. Since mid-August, borrowing from the Term Securities Lending Facility (TSLF) has remained unchanged at zero. The January 7, 2010, TSLF Schedule 2 auction was the last auction scheduled prior to the anticipated expiration of the TSLF on February 1, 2010.

Background
On March 16, 2008, the Federal Reserve announced the creation of the PDCF, which is an overnight loan facility that provides funding to primary dealers and helps foster improved conditions in nancial markets more generally. PDCF credit is fully secured by collateral with appropriate haircutsthat is, the value of the collateral exceeds the value of the loan extended. Initially, eligible collateral was restricted to investmentgrade securities. On September 14, 2008, however, the set of eligible collateral was broadened to closely match the types of instruments that can be pledged in the tri-party repurchase agreement systems of the two major clearing banks. On September 21, 2008, and November 23, 2008, the Federal Reserve Board authorized the extension of credit to a set of other securities dealers on terms very similar to the PDCF. Credit extended under either program is reported weekly in table 1 of the H.4.1 statistical release as Primary dealer and other broker-dealer credit and is included in Other loans in tables 10 and 11 of the H.4.1 statistical release. On March 11, 2008, the Federal Reserve announced the creation of the TSLF. Under the TSLF, the Federal Reserve Bank of New York (FRBNY) lends Treasury securities to primary dealers for 28 days against eligible collateral in two types of auctions. For so-called Schedule 1 auctions, the eligible collateral consists of Treasury securities, agency securities, and agencyTable 9. Credit Outstanding to Primary Dealers
As of December 30, 2009 Number of borrowers 0 Borrowing under PDCF ($ billions) 0 Borrowing under TSLF ($ billions) 0

Note: Unaudited. Components may not sum to totals because of rounding.

Note: Unaudited. Borrowing gures represent total amounts of PDCF and TSLF credit extended as of the date shown. The total reported for the TSLF represents the par value of securities lent.

10 Table 10. Concentration of Borrowing at the PDCF and TSLF

As of December 30, 2009 Daily average borrowing ($ billions) 0 0 0 0

Credit and Liquidity Programs and the Balance Sheet Table 11. PDCF Collateral by Type
Billions of dollars, as of December 30, 2009 Type of collateral Rank by amount of borrowing Number of borrowers 0 0 0 0 Securities U.S. Treasury/agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Municipal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate market instruments . . . . . . . . . . . . . . . . . . . . . . . MBS/CMO: agency-guaranteed . . . . . . . . . . . . . . . . . . . . . MBS/CMO: other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset-backed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International (sovereign, agency, and corporate) . . . . Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lendable value 0 0 0 0 0 0 0 0 0 0 0

Top ve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Next ve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note: Unaudited.

guaranteed mortgage-backed securities (MBS). For Schedule 2 auctions, the eligible collateral includes Schedule 1 collateral plus highly rated private securities. In mid-2008, the Federal Reserve introduced the Term Securities Lending Facility Options Program (TOP), which offers options to primary dealers to draw upon short-term, xed-rate TSLF loans from the System Open Market Account (SOMA) portfolio in exchange for program-eligible collateral. The TOP is intended to enhance the effectiveness of the TSLF by offering added liquidity over periods of heightened collateral market pressures, such as quarter-end dates. The Federal Reserve Board has authorized the extension of credit from the TSLF through February 1, 2010. TSLF Schedule 1 and TOP auctions, however, were suspended effective July 2009 in light of considerably lower use of the facility. Furthermore, in September the Federal Reserve announced its intention to scale back the size of TSLF auctions held between October 2009 and January 2010. The size of TSLF auctions was reduced to $50 billion in October and $25 billion in November; offering amounts remained at $25 billion in December and January. On December 16, 2009, the Federal Reserve announced that it anticipates that the TSLF and PDCF will expire on February 1, 2010, consistent with the Federal Reserves announcement of June 25, 2009. The TSLF supports the liquidity of primary dealers and fosters improved conditions in nancial markets more generally. Securities lent through these programs are reported weekly in table 1A of the H.4.1 statistical release. In addition to the TSLF and TOP, the Federal Reserve has long operated an overnight securities lending facility as a vehicle to address market pressures for specic Treasury securities. Since July 9, 2009, this facility has lent housing-related government-sponsored enterprise (GSE) securities that are particularly sought after. Amounts outstanding under that program are, generally, fairly modest, and are also reported in table 1A of the H.4.1 statistical release.

Note: Unaudited. Collateral pledged by borrowers of PDCF and related credit to primary dealers as of the date shown. Borrowing on that date was zero. Lendable value is value after application of appropriate haircuts.

Collateral
Eligible collateral for loans extended through the PDCF includes all assets eligible for tri-party repurchase agreement arrangements through the major clearing banks as of September 12, 2008. The amount of PDCF credit extended to any dealer may not exceed the lendable value of eligible collateral that the dealer has provided to the FRBNY. The collateral is valued by the clearing banks; values are based on prices reported by a number of private-sector pricing services widely used by market participants. Loans extended under the PDCF are made with recourse beyond the collateral to the primary dealer entity itself. Breakdowns of PDCF collateral by asset type and credit rating are shown in tables 11 and 12, respectively. Transactions under the TSLF involve lending securities rather than cash: a dealer borrows Treasury securities from the Federal Reserve and provides another security as collateral. Eligible collateral is determined by the Federal Reserve. Currently, two schedules of collateral are dened. Schedule 1 collateral is Treasury, agency, and agency-guaranteed MBS. Schedule 2 collateral is investment-grade corporate, municipal,
Table 12. PDCF Collateral by Rating
Billions of dollars, as of December 30, 2009 Type of collateral U.S. Treasury/agency securities . . . . . . . . . . . . . . . . . . . . . . . Other securities Aaa/AAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aa/AA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A ................................................... Baa/BBB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ba/BB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B/B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Caa/CCC or below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrated securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lendable value 0 0 0 0 0 0 0 0 0 0 0

Note: Unaudited. Collateral pledged by borrowers of PDCF and related credit to primary dealers as of the date shown. Borrowing on that date was zero. Lendable value is value after application of appropriate haircuts.

January 2010 Table 13. TSLF Collateral by Type

Billions of dollars, as of December 30, 2009 Type of collateral Securities U.S. Treasury/agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Municipal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MBS/CMO: agency-guaranteed . . . . . . . . . . . . . . . . . . . . . MBS/CMO: other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset-backed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lendable value Rank by amount of commercial paper 0 0 0 0 0 0 0 Top ve issuers . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other issuers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11 Table 15. Concentration of CPFF Issuers

For four weeks ending December 30, 2009 Number of borrowers 5 3 8 Daily average borrowing ($ billions) 9 1 10

Note: Unaudited. Amount of commercial paper held in the CPFF that was issued by the top ve and other issuers on each day. Components may not sum to totals because of rounding.

Note: Unaudited. Collateral pledged by borrowers of TSLF as of the date shown. Borrowing on that date was zero. Lendable value is value after application of appropriate haircuts.

Table 16. CPFF Commercial Paper Holdings by Type

Billions of dollars, as of December 30, 2009 Type of commercial paper Unsecured commercial paper Issued by nancial rms . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issued by nonnancial rms . . . . . . . . . . . . . . . . . . . . . . . . Asset-backed commercial paper . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Value 2 0 7 9

Table 14. TSLF Collateral by Rating

Billions of dollars, as of December 30, 2009 Type of collateral U.S. Treasury, agency, and agency-guaranteed securities . Other securities Aaa/AAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aa/AA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A/A-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Baa/BBB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lendable value 0 0 0 0 0 0

Note: Unaudited. Components may not sum to total because of rounding; does not include $5 billion of other investments.

Table 17. CPFF Commercial Paper Holdings by Rating

Billions of dollars, as of December 30, 2009 Type of collateral Commercial paper with rating1 A-1/P-1/F1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Split-rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Downgraded after purchase . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Value 9 0 0 9

Note: Unaudited. Collateral pledged by borrowers of TSLF as of the date shown. Borrowing on that date was zero. Lendable value is value after application of appropriate haircuts.

mortgage-backed, and asset-backed securities, as well as Schedule 1 collateral. Haircuts on posted collateral are determined by the FRBNY using methods consistent with current market practices. Breakdowns of TSLF collateral by asset type and credit rating are shown in tables 13 and 14, respectively.

Commercial Paper Funding Facility (CPFF) Recent Developments

The amount of commercial paper held by the CPFF has continued to decline in recent weeks. Improvements in market conditions have allowed some borrowers to obtain nancing from private investors. This factor, combined with reduced funding needs, has contributed to the decreased usage of the facility. As previously announced, the Federal Reserve anticipates that the CPFF will expire on February 1, 2010.

Note: Unaudited. Components may not sum to total because of rounding; does not include $5 billion of other investments. 1. The CPFF purchases only U.S. dollar-denominated commercial paper (including asset-backed commercial paper) that is rated at least A-1/P-1/F1 by Moodys, S&P, or Fitch and, if rated by more than one of these rating organizations, is rated at least A-1/P-1/F1 by two or more. Split-rated is acceptable commercial paper that has received an A-1/ P-1/F1 rating from two rating organizations and a lower rating from a third rating organization. When pledged commercial paper is downgraded below split-rated after purchase, the facility holds such paper to maturity.

Background
The CPFF is a facility, authorized under Section 13(3) of the Federal Reserve Act, which supports liquidity in the commercial paper markets. The CPFF provides a liquidity backstop to U.S. issuers of commercial paper through a specially created limited liability company (LLC) called the CPFF LLC. This LLC purchases three-month unsecured and asset-backed commercial paper directly from eligible issuers. The FRBNY pro-

vides nancing to the LLC, and the FRBNYs loan to the LLC is secured by all of the assets of the LLC, including those purchased with the accumulated upfront fees paid by the issuers. Breakdowns of commercial paper held in the CPFF LLC, by type and credit rating, are shown in tables 16 and 17, respectively. The CPFF was announced on October 7, 2008, and purchases of commercial paper began on October 27. This program is administered by the FRBNY, and the assets and liabilities of the LLC are consolidated onto the balance sheet of the FRBNY. The net assets of the LLC are shown in tables 1, 10, and 11 of the weekly H.4.1 statistical release, and primary accounts of the LLC are presented in table 7 of the H.4.1 statistical release. On December 16, 2009, the Federal Reserve announced that it anticipates that the CPFF will expire on February 1, 2010, consistent with the Federal Reserves announcement of June 25, 2009.

12

Credit and Liquidity Programs and the Balance Sheet

Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) Recent Developments
Credit outstanding under the AMLF has been zero since October 13, 2009. As previously announced, the Federal Reserve anticipates that the AMLF will expire on February 1, 2010.

Since May 8, 2009, there has been no new borrowing through the AMLF, and as of October 13, 2009, all prior outstanding AMLF credit had matured. On December 16, 2009, the Federal Reserve announced that it anticipates that the AMLF will expire on February 1, 2010, consistent with the Federal Reserves announcement of June 25, 2009.

Collateral
Collateral eligible for the AMLF is limited to ABCP that: was purchased by the borrower on or after September 19, 2008, from a registered investment company that holds itself out as a MMMF and has experienced recent material outows; was purchased by the borrower at the mutual funds acquisition cost as adjusted for amortization of premium or accretion of discount on the ABCP through the date of its purchase by the borrower; was not rated lower than A-1, P-1, or F1 at the time it was pledged to the Federal Reserve Bank of Boston (this would exclude paper that is rated A-1/P-1/F1 but is on watch for downgrade by any major rating agency); was issued by an entity organized under the laws of the United States or a political subdivision thereof under a program that was in existence on September 18, 2008; and has a stated maturity that does not exceed 120 days if the borrower is a bank, or 270 days if the borrower is a non-bank. The qualifying ABCP must be transferred to the Federal Reserve Bank of Bostons restricted account at the Depository Trust Company before an advance, collateralized by that ABCP, will be approved. The collateral is valued at the amortized cost (as dened in the Letter of Agreement) of the eligible ABCP pledged to secure an advance. Advances made under the facility are made without recourse, provided the requirements in the Letter of Agreement are met. A breakdown of AMLF collateral by credit rating is shown in table 19.
Table 19. AMLF Collateral by Rating
Billions of dollars, as of December 30, 2009 Type of collateral Asset-backed commercial paper with rating A-1/P-1/F1 and not on watch for downgrade . . . . . . . A-1/P-1/F1 but on watch for downgrade1 . . . . . . . . . . . Below A-1/P-1/F1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Value 0 0 0 0

Background
The AMLF is a lending facility that nances the purchase of high-quality asset-backed commercial paper from money market mutual funds (MMMFs) by U.S. depository institutions and bank holding companies. The program is intended to assist money funds that hold such paper in meeting the demand for redemptions by investors and to foster liquidity in the assetbacked commercial paper (ABCP) market and money markets more generally. The loans extended through the AMLF are non-recourse loans; as a result, the Federal Reserve has rights to only the collateral securing the loan if the borrower elects not to repay. To help ensure that the AMLF is used for its intended purpose of providing a temporary liquidity backstop to MMMFs, the Federal Reserve has established a redemption threshold for use of the facility. Under this requirement, a MMMF must experience material outowsdened as at least ve percent of net assets in a single day or at least 10 percent of net assets within the prior ve business daysbefore the ABCP that it sells would be eligible collateral for AMLF loans to depository institutions and bank holding companies. Any eligible ABCP purchased from a MMMF that has experienced redemptions at these thresholds could be pledged to the AMLF at any time within the ve business days following the date that the threshold level of redemptions was reached. The initiation of the AMLF, announced on September 19, 2008, relied on authority under Section 13(3) of the Federal Reserve Act. It is administered by the Federal Reserve Bank of Boston, which is authorized to make AMLF loans to eligible borrowers in all 12 Federal Reserve Districts. Lending through the AMLF is presented in table 1 of the weekly H.4.1 statistical release and is included in Other loans in tables 10 and 11 of the H.4.1 statistical release.
Table 18. AMLF: Number of Borrowers and Amount Outstanding
Daily average for four weeks ending December 30, 2009 Number of borrowers Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note: Unaudited. 0 Borrowing ($ billions) 0

Note: Unaudited. Components may not sum to total because of rounding. 1. The AMLF accepts only U.S.-dollar denominated asset-backed commercial paper (ABCP) that is not rated lower than A-1, P-1, or F1 by Moodys, S&P, or Fitch, and (effective April 22, 2009) is not on watch for downgrade. Collateral that is on watch for downgrade or is rated below A-1/P-1/F1 is ABCP that has deteriorated after it was pledged.

January 2010

13

Term Asset-Backed Securities Loan Facility (TALF) Recent Developments

The December non-commercial mortgage-backed securities TALF subscription supported the primary issuance of six asset-backed securities (ABS) deals worth a total of about $3.8 billion, of which approximately $2.3 billion was nanced through the TALF. Approximately $0.7 billion in loans were also extended against previously issued TALF-eligible ABS collateral. In addition, $1.3 billion in TALF loans were extended against legacy commercial mortgage-backed securities (CMBS) collateral in the December CMBS TALF subscription. On December 23, 2009, and January 11, 2010, the Federal Reserve Bank of New York (FRBNY) announced that the credit ratings of four nationally recognized statistical rating organizations (NRSROs)DBRS, Inc.; Fitch Ratings; Moodys Investors Service; and Standard & Poorswould be accepted for establishing the eligibility of selected types of ABS as collateral by the TALF. These NRSROs ratings will be eligible beginning with the TALFs February 2010 ABS subscription. This action was taken in accordance with a rule adopted by the Federal Reserve Board establishing criteria for the FRBNY to determine the eligibility of ratings issued by NRSROs for TALF purposes. The rules eligibility requirements do not apply to discount window lending or to other extensions of credit provided by the Federal Reserve System.

Background
On November 25, 2008, the Federal Reserve announced the creation of the TALF under the authority of Section 13(3) of the Federal Reserve Act. The TALF is a funding facility under which the FRBNY extends credit with a term of up to ve years to holders of eligible ABS. The TALF is intended to assist nancial markets in accommodating the credit needs of consumers and businesses of all sizes by facilitating
Table 20. TALF: Number of Borrowers and Loans Outstanding
As of December 30, 2009 Lending program Non-CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of borrowers 106 81 147 Borrowing ($ billions) 39 9 48

the issuance of ABS collateralized by a variety of consumer and business loans; it is also intended to improve market conditions for ABS more generally. Eligible collateral initially included U.S. dollardenominated ABS that (1) are backed by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA) and (2) have a credit rating in the highest investment-grade rating category from two or more eligible NRSROs and do not have a credit rating below the highest investmentgrade rating category from an eligible NRSRO. The loans provided through the TALF are non-recourse, meaning that the obligation of the borrower can be discharged by surrendering the collateral to the FRBNY. Borrowers commit their own risk capital in the form of haircuts against the collateral, which serve as the borrowers equity in the transaction and act as a buffer to absorb any decline in the collaterals value in the event the loan is not repaid. The U.S. Treasury is providing protection against losses of up to $20 billion to the FRBNY using funds authorized under the Troubled Assets Relief Program (TARP) of the Emergency Economic Stabilization Act of 2008. On February 10, 2009, the Federal Reserve Board announced that it would consider expanding the size of the TALF to as much as $1 trillion and potentially broaden the eligible collateral to encompass other types of newly issued AAA-rated ABS, such as ABS backed by commercial mortgages or private-label (nonagency) ABS backed by residential mortgages. Any expansion of the TALF would be supported by the Treasurys providing additional funds from the TARP. As of December 30, 2009, however, the authorized limit for the program remained at $200 billion. Between March and May 2009, the Federal Reserve expanded the range of eligible collateral for TALF loans to include: ABS backed by loans or leases related to business equipment, leases of vehicle eets, oorplan loans, mortgage servicing advances, and insurance premium nance loans; and newly issued commercial mortgage-backed securities (CMBS) and certain high-quality CMBS issued before January 1, 2009 (so-called legacy CMBS). High-quality newly issued and legacy CMBS must have at least two AAA ratings from a list of eligible NRSROsDBRS, Inc.; Fitch Ratings; Moodys Investors Service; Realpoint; or Standard & Poorsand must not have a rating below AAA from any of these rating agencies. The Federal Reserve also authorized TALF loans with maturities of ve years, available for the June 2009 funding, to nance purchases of CMBS, ABS

Note: Unaudited. Number of borrowers may not sum to total because borrowers may be included in more than one category. Borrowing amounts may not sum to total because of rounding.

14

Credit and Liquidity Programs and the Balance Sheet Table 21A. Issuers of Non-CMBS that Collateralize Outstanding TALF Loans
As of December 30, 2009 Issuers AH Mortgage Advance Trust 2009-ADV2 AH Mortgage Advance Trust 2009-ADV3 Ally Auto Receivables Trust 2009-A American Express Credit Account Master Trust AmeriCredit Automobile Receivables Trust 2009-1 Bank of America Auto Trust 2009-1 Bank of America Auto Trust 2009-2 BMW Floorplan Master Owner Trust BMW Vehicle Lease Trust 2009-1 Cabelas Credit Card Master Note Trust CarMax Auto Owner Trust 2009-1 CarMax Auto Owner Trust 2009-A Chase Issuance Trust Chesapeake Funding LLC Chrysler Financial Auto Securitization Trust 2009-A CIT Equipment Collateral 2009-VT1 Citibank Credit Card Issuance Trust Citibank Omni Master Trust CitiFinancial Auto Issuance Trust 2009-1 CNH Equipment Trust 2009-B CNH Wholesale Master Note Trust Discover Card Execution Note Trust FIFC Premium Funding LLC First National Master Note Trust Ford Credit Auto Lease Trust 2009-A Ford Credit Auto Owner Trust 2009-A Ford Credit Auto Owner Trust 2009-B Ford Credit Auto Owner Trust 2009-C Ford Credit Auto Owner Trust 2009-D Ford Credit Floorplan Master Owner Trust A GE Capital Credit Card Master Note Trust GE Dealer Floorplan Master Note Trust GE Equipment Midticket LLC, Series 2009-1 Great America Leasing Receivables Funding, L.L.C. Harley-Davidson Motorcycle Trust 2009-1 Harley-Davidson Motorcycle Trust 2009-2 Honda Auto Receivables 2009-2 Owner Trust Honda Auto Receivables 2009-3 Owner Trust Huntington Auto Trust 2009-1 Hyundai Auto Receivables Trust 2009-A Hyundai Floorplan Master Owner Trust John Deere Owner Trust 2009 MMAF Equipment Finance LLC 2009-A MMCA Auto Owner Trust 2009-A Navistar Financial Dealer Note Master Owner Trust Nissan Auto Lease Trust 2009-A Nissan Auto Receivables 2009-A Owner Trust OCWEN Servicer Advance Receivables Funding Company II Ltd. PFS Financing Corp. SLC Private Student Loan Trust 2009-A SLM Private Education Loan Trust 2009-B SLM Private Education Loan Trust 2009-C SLM Private Education Loan Trust 2009-CT SLM Private Education Loan Trust 2009-D U.S. Small Business Administration Volkswagen Auto Lease Trust 2009-A WHEELS SPV, LLC World Financial Network Credit Card Master Note Trust World Omni Auto Receivables Trust 2009-A World Omni Master Owner Trust

backed by student loans, and ABS backed by loans guaranteed by the SBA. The Federal Reserve indicated that up to $100 billion of TALF loans could have veyear maturities and that some of the interest on collateral nanced with a ve-year loan may be diverted toward an accelerated repayment of the loan, especially in the fourth and fth years. On September 1, 2009, the following four nonprimary dealer broker-dealers were named as agents for the TALF: CastleOak Securities, LP; Loop Capital Markets, LLC; Wells Fargo Securities, LLC; and The Williams Capital Group, LP. These agents, like the primary dealers, may represent borrowers in accessing the facility. On October 5, 2009, the Federal Reserve announced two changes to the procedures for evaluating ABS pledged to the TALF. The rst change was to propose a rule that would establish criteria for the FRBNY to use when determining which NRSROs ratings are accepted for establishing the eligibility of ABS to be pledged as collateral to the TALF. The rule establishing the process for approving NRSROs was nalized on December 4, 2009. The second change required the FRBNY to conduct a formal risk assessment of all proposed collateral in addition to continuing to require that collateral for TALF loans receive two AAA ratings from TALF-eligible NRSROs. These changes were intended to promote competition among credit rating agencies, ensure appropriate protection against credit risk for the U.S. taxpayer, and ensure that TALF collateral continues to comply with the existing high standards for credit quality, transparency, and simplicity of structure. The Federal Reserve Board initially authorized the offering of new TALF loans through December 31, 2009, but subsequently authorized an extension of the program until March 31, 2010, for loans against newly issued ABS and legacy CMBS, and until June 30, 2010, for loans against newly issued CMBS.

Collateral and Risk Management

Under the TALF, the FRBNY lends on a non-recourse basis to holders of certain ABS backed by consumer, business, and commercial mortgage loans. Eligible collateral for the TALF includes U.S. dollar-denominated ABS that (1) have a credit rating in the highest longterm or, in the case of non-mortgage-backed ABS, the highest short-term investment-grade rating category (for example, AAA) from at least two eligible NRSROs and (2) do not have a credit rating below the highest investment-grade rating category from an eligible NRSRO. Eligible small-business-loan ABS also include U.S. dollar-denominated cash ABS for which

Table 21B. Issuers of Newly Issued CMBS that Collateralize Outstanding TALF Loans
As of December 30, 2009 Issuers DDR I Depositor LLC Trust Series 2009-DDR1

January 2010 Table 21C. Issuers of Legacy CMBS that Collateralize Outstanding TALF Loans
As of December 30, 2009 Issuers Banc of America Commercial Mortgage Inc. Series 2004-1 Banc of America Commercial Mortgage Inc. Series 2004-2 Banc of America Commercial Mortgage Inc. Series 2004-3 Banc of America Commercial Mortgage Inc. Series 2004-4 Banc of America Commercial Mortgage Inc. Series 2005-1 Banc of America Commercial Mortgage Inc. Series 2005-2 Banc of America Commercial Mortgage Inc. Series 2005-3 Banc of America Commercial Mortgage Inc. Series 2005-5 Banc of America Commercial Mortgage Inc. Series 2005-6 Banc of America Commercial Mortgage Trust 2006-1 Banc of America Commercial Mortgage Trust 2006-2 Banc of America Commercial Mortgage Trust 2006-4 Banc of America Commercial Mortgage Trust 2006-5 Banc of America Commercial Mortgage Trust 2006-6 Banc of America Commercial Mortgage Trust 2007-1 Banc of America Commercial Mortgage Trust 2007-2 Banc of America Commercial Mortgage Trust 2007-3 Banc of America Commercial Mortgage Trust 2007-4 Banc of America Commercial Mortgage Trust 2007-5 Bear Stearns Commercial Mortgage Securities Trust 2004-PWR4 Bear Stearns Commercial Mortgage Securities Trust 2005-PWR10 Bear Stearns Commercial Mortgage Securities Trust 2005-PWR7 Bear Stearns Commercial Mortgage Securities Trust 2005-PWR8 Bear Stearns Commercial Mortgage Securities Trust 2005-PWR9 Bear Stearns Commercial Mortgage Securities Trust 2005-TOP20 Bear Stearns Commercial Mortgage Securities Trust 2006-PWR12 Bear Stearns Commercial Mortgage Securities Trust 2006-PWR13 Bear Stearns Commercial Mortgage Securities Trust 2006-PWR14 Bear Stearns Commercial Mortgage Securities Trust 2006-TOP22 Bear Stearns Commercial Mortgage Securities Trust 2006-TOP24 Bear Stearns Commercial Mortgage Securities Trust 2007-PWR15 Bear Stearns Commercial Mortgage Securities Trust 2007-PWR16 Bear Stearns Commercial Mortgage Securities Trust 2007-PWR17 Bear Stearns Commercial Mortgage Securities Trust 2007-PWR18 Bear Stearns Commercial Mortgage Securities Trust 2007-TOP26 Bear Stearns Commercial Mortgage Securities Trust 2007-TOP28 CD 2005-CD1 Commercial Mortgage Trust CD 2006-CD2 Mortgage Trust CD 2006-CD3 Mortgage Trust CD 2007-CD4 Commercial Mortgage Trust CD 2007-CD5 Mortgage Trust Citigroup Commercial Mortgage Trust 2004-C1 Citigroup Commercial Mortgage Trust 2006-C4 Citigroup Commercial Mortgage Trust 2008-C7 COBALT CMBS Commercial Mortgage Trust 2006-C1 COBALT CMBS Commercial Mortgage Trust 2007-C2 COBALT CMBS Commercial Mortgage Trust 2007-C3 COMM 2004-LNB2 Mortgage Trust COMM 2005-C6 Mortgage Trust COMM 2005-LP5 Mortgage Trust COMM 2006-C7 Mortgage Trust COMM 2006-C8 Mortgage Trust Commercial Mortgage Loan Trust 2008-LS1 Commercial Mortgage Trust 2004-GG1 Commercial Mortgage Trust 2005-GG3 Commercial Mortgage Trust 2005-GG5 Commercial Mortgage Trust 2006-GG7 Commercial Mortgage Trust 2007-GG9 Credit Suisse Commercial Mortgage Trust Series 2006-C1 Credit Suisse Commercial Mortgage Trust Series 2006-C3 Credit Suisse Commercial Mortgage Trust Series 2006-C4 Credit Suisse Commercial Mortgage Trust Series 2006-C5 Credit Suisse Commercial Mortgage Trust Series 2007-C2 Credit Suisse Commercial Mortgage Trust Series 2007-C3 Credit Suisse Commercial Mortgage Trust Series 2007-C5 CSFB Commercial Mortgage Trust 2004-C3 CSFB Commercial Mortgage Trust 2005-C1 CSFB Commercial Mortgage Trust 2005-C2 CSFB Commercial Mortgage Trust 2005-C3 CSFB Commercial Mortgage Trust 2005-C4 CSFB Commercial Mortgage Trust 2005-C5 CSFB Commercial Mortgage Trust 2005-C6 GE Commercial Mortgage Corporation Series 2004-C3 GE Commercial Mortgage Corporation Series 2005-C1 GE Commercial Mortgage Corporation Series 2005-C4 GE Commercial Mortgage Corporation, Series 2007-C1 Trust GMAC Commercial Mortgage Securities, Inc. Series 2004-C3 Trust GMAC Commercial Mortgage Securities, Inc. Series 2006-C1 Trust GS Mortgage Securities Corporation II Series 2004-GG2

15 Table 21C. Issuers of Legacy CMBS that Collateralize Outstanding TALF LoansContinued
As of December 30, 2009 Issuers GS Mortgage Securities Corporation II Series 2005-GG4 GS Mortgage Securities Trust 2006-GG6 GS Mortgage Securities Trust 2006-GG8 GS Mortgage Securities Trust 2007-GG10 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2003-CIBC7 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2004-C1 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2004-C2 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2004-C3 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2004-CIBC10 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2004-CIBC8 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2004-PNC1 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2005-CIBC11 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2005-CIBC13 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2005-LDP1 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2005-LDP2 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2005-LDP4 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2005-LDP5 J.P. Morgan Chase Commercial Mortgage Securities Trust 2006-CIBC14 J.P. Morgan Chase Commercial Mortgage Securities Trust 2006-CIBC15 J.P. Morgan Chase Commercial Mortgage Securities Trust 2006-CIBC16 J.P. Morgan Chase Commercial Mortgage Securities Trust 2006-CIBC17 J.P. Morgan Chase Commercial Mortgage Securities Trust 2006-LDP6 J.P. Morgan Chase Commercial Mortgage Securities Trust 2006-LDP8 J.P. Morgan Chase Commercial Mortgage Securities Trust 2007-LDP11 J.P. Morgan Chase Commercial Mortgage Securities Trust 2007-LDP12 LB Commercial Mortgage Trust 2007-C3 LB-UBS Commercial Mortgage Trust 2004-C1 LB-UBS Commercial Mortgage Trust 2004-C2 LB-UBS Commercial Mortgage Trust 2004-C4 LB-UBS Commercial Mortgage Trust 2004-C7 LB-UBS Commercial Mortgage Trust 2005-C2 LB-UBS Commercial Mortgage Trust 2005-C3 LB-UBS Commercial Mortgage Trust 2006-C1 LB-UBS Commercial Mortgage Trust 2006-C3 LB-UBS Commercial Mortgage Trust 2006-C6 LB-UBS Commercial Mortgage Trust 2006-C7 LB-UBS Commercial Mortgage Trust 2007-C1 LB-UBS Commercial Mortgage Trust 2007-C2 LB-UBS Commercial Mortgage Trust 2007-C6 LB-UBS Commercial Mortgage Trust 2007-C7 LB-UBS Commercial Mortgage Trust 2008-C1 Merrill Lynch Mortgage Trust 2003-KEY1 Merrill Lynch Mortgage Trust 2004-KEY2 Merrill Lynch Mortgage Trust 2005-CIP1 Merrill Lynch Mortgage Trust 2005-LC1 Merrill Lynch Mortgage Trust 2005-MKB2 Merrill Lynch Mortgage Trust 2006-C1 ML-CFC Commercial Mortgage Trust 2006-2 ML-CFC Commercial Mortgage Trust 2006-3 ML-CFC Commercial Mortgage Trust 2006-4 ML-CFC Commercial Mortgage Trust 2007-5 ML-CFC Commercial Mortgage Trust 2007-6 ML-CFC Commercial Mortgage Trust 2007-7 ML-CFC Commercial Mortgage Trust 2007-9 Morgan Stanley Capital I Trust 2003-IQ4 Morgan Stanley Capital I Trust 2004-TOP13 Morgan Stanley Capital I Trust 2005-HQ5 Morgan Stanley Capital I Trust 2005-HQ6 Morgan Stanley Capital I Trust 2005-HQ7 Morgan Stanley Capital I Trust 2005-IQ9 Morgan Stanley Capital I Trust 2006-HQ10 Morgan Stanley Capital I Trust 2006-HQ8 Morgan Stanley Capital I Trust 2006-IQ11 Morgan Stanley Capital I Trust 2006-IQ12 Morgan Stanley Capital I Trust 2006-TOP21 Morgan Stanley Capital I Trust 2006-TOP23

16 Table 21C. Issuers of Legacy CMBS that Collateralize Outstanding TALF LoansContinued
As of December 30, 2009 Issuers Morgan Stanley Capital I Trust 2007-HQ11 Morgan Stanley Capital I Trust 2007-IQ14 Morgan Stanley Capital I Trust 2007-IQ15 Morgan Stanley Capital I Trust 2007-TOP27 Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust

Credit and Liquidity Programs and the Balance Sheet Table 22. TALF Collateral by Underlying Loan Type
Billions of dollars, as of December 30, 2009 Type of collateral By underlying loan type Auto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Newly issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Floorplan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premium service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Servicing advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Small business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Student loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Value 6 10 * 10 22 1 1 3 1 1 7 53

Series Series Series Series Series Series Series Series Series Series Series Series Series Series Series Series Series Series Series Series

2002-C1 2003-C9 2004-C12 2004-C14 2005-C16 2005-C17 2005-C19 2005-C20 2005-C22 2006-C23 2006-C24 2006-C25 2006-C26 2006-C27 2006-C28 2006-C29 2007-C30 2007-C31 2007-C32 2007-C33

Note: Unaudited. Components may not sum to total because of rounding. Data represent the face value of collateral. * Less than $500 million.

Table 23. TALF Collateral by Rating

Billions of dollars, as of December 30, 2009 Type of collateral Asset-backed securities with minimum rating of:1 AAA/Aaa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AA+/Aa+ to AA-/Aa- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Value 53 * 53

all of the underlying credit exposures are fully guaranteed as to principal and interest by the full faith and credit of the U.S. government. All or substantially all of the credit exposures underlying eligible ABS must be exposures to U.S.-domiciled obligors or with respect to real property located in the United States or its territories. The underlying credit exposures of eligible ABS must be student loans, auto loans, credit card loans, loans or leases relating to business equipment, leases of vehicle eets, oorplan loans, mortgage servicing advances, insurance premium nance loans, commercial mortgages, or loans guaranteed by the SBA. Except for ABS for which the underlying credit exposures are SBA-guaranteed loans, eligible newly issued ABS must be issued on or after January 1, 2009. Eligible legacy CMBS must be issued before January 1, 2009, must be senior in payment priority to all other interests in the underlying pool of commercial mortgages, and must meet certain other criteria designed to protect the Federal Reserve and the Treasury from credit risk. In almost all cases, eligible collateral for a particular borrower must not be backed by loans originated or securitized by the borrower or by an affiliate of the borrower. The FRBNYs loan is secured by the ABS collateral, with the FRBNY lending an amount equal to the market value of the ABS, less a haircut. The lendable value of the ABS may be adjusted based on a risk assessment by the FRBNY. The Federal Reserve has set initial haircuts for each type of eligible collateral to reect an assessment of the riskiness and maturity of the various types of eligible ABS. Breakdowns of TALF collateral by underlying loan type and credit rating are shown in tables 22 and 23, respectively.

Note: Unaudited. Components may not sum to total because of rounding. Data represent the face value of collateral. 1. Eligible ABS collateral for the TALF must have a credit rating in the highest long-term or, in the case of non-mortgage-backed ABS, the highest short-term investment-grade rating category from at least two eligible NRSROs and must not have a credit rating below the highest investment-grade rating category from an eligible NRSRO. When pledged collateral is downgraded below the highest investment-grade rating, existing loans against the collateral remain outstanding. However, the ABS may not be used as collateral for any new TALF loans until it regains its status as eligible collateral. * Less than $500 million.

TALF LLC, a limited liability company formed to purchase and manage any asset-backed securities that might be received by the FRBNY in connection with the TALF, has committed to purchase, for a fee, all ABS received by the FRBNY in conjunction with a TALF loan at a price equal to the TALF loan, plus accrued but unpaid interest. Purchases of these securities are funded rst through the fees received by the LLC and any interest the LLC has earned on its investments. In the event that such funding proves insufficient, the U.S. Treasurys Troubled Asset Relief Program (TARP) will provide additional subordinated debt funding to TALF LLC to nance up to $20 billion of asset purchases. Subsequently, the FRBNY will nance any additional purchases of securities by providing senior debt funding to TALF LLC. Thus, the TARP funds provide credit protection to FRBNY. Financial information on TALF LLC is reported weekly in tables 1, 2, 8, 10, and 11 of the H.4.1 statistical release. As of December 30, 2009, TALF LLC had purchased no assets from the FRBNY.

January 2010

17

Lending in Support of Specic Institutions

Quarterly Developments
Net income, including changes in valuation, for the Maiden Lane, Maiden Lane II, and Maiden Lane III LLCs was $0.3 billion, $1.8 billion, and $3.7 billion, respectively, for the quarter ended September 30, 2009. As presented in table 24, these changes resulted in improvements to the fair value asset coverage of loans by the Federal Reserve Bank of New York (FRBNY) to the Maiden Lane LLCs. Cash ows generated from the Maiden Lane II and Maiden Lane III portfolios are used to pay down the loans from the FRBNY. As shown in tables 29 and 32, those repayments totaled about $3.8 billion in the third quarter of 2009.
Table 25. Maiden Lane LLC Outstanding Principal Balance of Loans
Millions of dollars FRBNY senior loan Principal balance at closing . . . . . . . . . . . . . . . . Most Recent Quarterly Activity Principal balance on 6/30/2009 (including accrued and capitalized interest) . . . . . . . . . Accrued and capitalized interest 6/30/2009 to 9/30/2009 . . . . . . . . . . . . . . . . . Repayment during the period from 6/30/2009 to 9/30/2009 . . . . . . . . . . . . . . . . . . Principal balance on 9/30/2009 (including accrued and capitalized interest) . . . . . . . . . 28,820 JPMC subordinate loan 1,150

29,159 37 0 29,196

1,217 16 0 1,233

Note: Unaudited. As part of the asset purchase agreement, JPMC made a loan to Maiden Lane LLC. For repayment purposes, this obligation is subordinated to the senior loan extended by the FRBNY.

Background
During the nancial crisis, the Federal Reserve has extended credit to certain specic institutions in order to avert disorderly failures that could result in severe dislocations and strains for the nancial system as a whole and harm the U.S. economy. In certain other cases, the Federal Reserve has committed to extend credit, if necessary, to support important nancial rms.

related securities, residential and commercial mortgage loans, and associated hedges from Bear Stearns. The LLC is managing its assets through time to maximize the repayment of credit extended to the LLC and to minimize disruption to the nancial markets. In the second quarter of 2008, the FRBNY extended credit to Maiden Lane LLC. Details of the terms of the loan are published on the FRBNY website (www.newyorkfed.org/markets/maidenlane.html). The assets of Maiden Lane LLC are presented weekly in tables 1, 10, and 11 of the H.4.1 statistical release.

Bear Stearns and Maiden Lane LLC

In March 2008, the FRBNY and JPMorgan Chase & Co. (JPMC) entered into an arrangement related to nancing provided by the FRBNY to facilitate the merger of JPMC and the Bear Stearns Companies Inc. In connection with the transaction, the Federal Reserve Board authorized the FRBNY, under Section 13(3) of the Federal Reserve Act, to extend credit to a Delaware limited liability company, Maiden Lane LLC, to partially fund the purchase of a portfolio of mortgageTable 24. Fair Value Asset Coverage
Millions of dollars Fair value asset coverage of FRBNY loan on 9/30/2009 Maiden Lane LLC . . . . . . . Maiden Lane II LLC . . . . . Maiden Lane III LLC . . . . (3,055) (604) 3,645 Fair value asset coverage of FRBNY loan on 6/30/2009 (3,400) (2,371) (129)

Table 26. Maiden Lane LLC Summary of Portfolio Composition, Cash and Cash Equivalents, and Other Assets and Liabilities
Millions of dollars Fair Value on Fair Value on 9/30/2009 6/30/2009 Agency MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-agency RMBS . . . . . . . . . . . . . . . . . . . . . . . . Commercial loans . . . . . . . . . . . . . . . . . . . . . . . . . . Residential loans . . . . . . . . . . . . . . . . . . . . . . . . . . . Swap contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TBA commitments1 . . . . . . . . . . . . . . . . . . . . . . . . Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . Other assets2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities3 . . . . . . . . . . . . . . . . . . . . . . . . . . . Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,437 1,938 4,025 623 1,318 382 863 1,446 527 (2,418) 26,141 16,424 1,962 4,447 683 1,827 1,199 736 1,805 827 (4,151) 25,759

Note: Unaudited. Fair value asset coverage is the amount by which the fair value of the net portfolio assets of each LLC (refer to table 38) is greater or less than the outstanding balance of the loans extended by the FRBNY, including accrued interest.

Note: Unaudited. Components may not sum to totals because of rounding. 1. To be announced (TBA) commitments are commitments to purchase or sell mortgage-backed securities for a xed price at a future date. 2. Including interest and principal receivable and other receivables. 3. Including amounts payable for securities purchased, collateral posted to Maiden Lane LLC by swap counterparties, and other liabilities and accrued expenses.

18

Credit and Liquidity Programs and the Balance Sheet

Table 27. Maiden Lane LLC Securities Distribution by Sector and Rating Percent, as of September 30, 2009
Sector1 AAA Agency MBS . . . . . . . . . . . . . . . . . . Non-agency RMBS . . . . . . . . . . . . Other2 . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
2

Rating AA+ to AA 0.0 0.6 0.9 1.5 A+ to A 0.0 0.8 0.3 1.1 BBB+ to BBB BB+ and lower 0.0 0.4 0.9 1.3 0.0 7.3 0.7 8.0 Govt/ Agency 86.2 0.0 0.0 86.2 Total 86.2 9.6 4.3 100.0

0.0 0.5 1.5 2.0

Note: Unaudited. This table presents the sector and ratings composition of the securities in the Maiden Lane LLC portfolio as a percentage of all securities in the portfolio. It is based on the fair value of the securities. Lowest of all ratings is used for purposes of this table. Rows and columns may not sum to totals because of rounding. 1. Does not include Maiden Lane LLCs swaps and other derivative contracts, commercial and residential mortgage loans, and TBA commitments. 2. Includes all asset sectors that, individually, represent less than 5 percent of the aggregate fair value of securities in the portfolio.

Figure 2. Maiden Lane LLC Securities Distribution as of September 30, 2009

Additional details on the accounts of Maiden Lane LLC are presented in table 4 of the H.4.1 statistical release. Information about the assets and liabilities of Maiden Lane LLC is presented as of September 30, 2009, in tables 25 through 27 and gure 2. This information is updated on a quarterly basis.

American International Group (AIG) Recent Developments

As shown in table 28, the balance on the AIG revolving credit facility decreased from $45.1 billion to $22.0 billion between November 25, 2009, and
Table 28. AIG Revolving Credit Facility
Billions of dollars Value Balance on November 25, 2009 . . . . . . . . . . . . . . . . . . . . . . . Principal drawdowns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principal repayments and reductions . . . . . . . . . . . . . . . . Recapitalized interest and fees . . . . . . . . . . . . . . . . . . . . . . Amortization of restructuring allowance . . . . . . . . . . . . Balance on December 30, 2009 . . . . . . . . . . . . . . . . . . . . . . . 45.1 3.7 (27.6) 0.7 0.2 22.0

Note: Unaudited. Components may not sum to total because of rounding. Does not include Maiden Lane II LLC and Maiden Lane III LLC.

December 30, 2009. The decline was driven by $27.6 billion of principal repayments and reductions. In particular, in transactions completed on December 1, 2009, the Federal Reserve Bank of New York (FRBNY) received $25 billion in preferred interests in two special purpose vehicles (SPVs) established by AIG to hold all of the equity of American International Assurance Company (AIA) and American Life Insurance Company (ALICO) in exchange for a $25 billion reduction in the balance of the credit facility. As part of this exchange, the amount of credit available to AIG under the FRBNYs revolving credit facility was reduced by $25 billion as well. Excluding capitalized interest and fees, the ceiling on the revolving credit facility was lowered from $60 billion to $35 billion on December 1, 2009. The transactions were previously announced as part of the March 2009 restructuring of the governments assistance to AIG. AIG has chosen global coordinators for a potential initial public offering (IPO) of AIA. Depending on market conditions and subject to customary regulatory approvals, the IPO may occur as early as this year. The proceeds generated from the IPO would be used to redeem AIA preferred interests held by the FRBNY.

January 2010

19

Moodys Investors Service downgraded two subsidiaries of AIG, International Lease Finance Corporation (ILFC) and American General Finance (AGF). ILFCs senior unsecured debt rating was reduced by four notches, from Baa3 to B1, and AGFs senior unsecured debt rating was reduced by ve notches, from Baa3 to B2. The downgrades did not have an immediate impact on the credit rating of AIG, Inc.

Background
On September 16, 2008, the Federal Reserve, with the full support of the Treasury Department, announced that it would lend to AIG to prevent a disorderly failure of this systemically important rm, protect the nancial system and the broader economy, and provide the company time to restructure its operations in an orderly manner. Initially, the FRBNY extended an $85 billion line of credit to the company. The terms of the credit facility are disclosed on the Boards website (www.federalreserve.gov/monetarypolicy/ bst_supportspecic.htm). Loans outstanding under this
Figure 3. AIG Revolving Credit

facility are presented weekly in table 1 of the H.4.1 statistical release and included in Other loans in tables 10 and 11 of the H.4.1 statistical release. On November 10, 2008, the Federal Reserve and the Treasury announced a restructuring of the governments nancial support to AIG. As part of this restructuring, two new limited liability companies (LLCs) were created, Maiden Lane II LLC and Maiden Lane III LLC, and the line of credit extended to AIG was reduced from $85 billion to $60 billion. (On October 8, 2008, the FRBNY was authorized to extend credit under a special securities borrowing facility to certain AIG subsidiaries. This arrangement was discontinued after the establishment of the Maiden Lane II facility.) More detail on these LLCs is reported in the remainder of this section. Additional information is included in tables 5 and 6 of the H.4.1 statistical release. On March 2, 2009, the Federal Reserve and the Treasury announced an additional restructuring of the governments assistance to AIG, designed to enhance the companys capital and liquidity in order to facili-

Note: The above data illustrate selected components of the amount of credit extended to the American International Group Inc., including loan principal, all capitalized interest and fees, and the amortized portion of the initial commitment fee. The data exclude commercial paper sold by AIG and its subsidiaries to the Commercial Paper Funding Facility as well as amounts borrowed prior to December 12, 2008, under a securities borrowing arrangement. The facility ceiling represents the limit on the credit agreement plus capitalized interest and fees. Until December 1, 2009, the ceiling was $60 billion (excluding capitalized interest and fees); on December 1, 2009, it was reduced to $35 billion.

20

Credit and Liquidity Programs and the Balance Sheet

tate the orderly completion of the companys global divestiture program. Additional information on the restructuring is available at www.federalreserve.gov/ newsevents/press/other/20090302a.htm. On April 17, 2009, the FRBNY implemented a loan restructuring adjustment that was previously approved and announced on March 2. The interest rate on the loan to AIG, which was the three-month Libor plus 300 basis points, was modied by removing the existing interest rate oor of 3.5 percent on the Libor component. Consistent with U.S. generally accepted accounting principles (GAAP), as of July 29, 2009, the reported value of the AIG revolving credit extension was reduced by a $1.3 billion adjustment to reect the loan restructuring. This restructuring adjustment is intended to recognize the economic effect of the reduced interest rate and will be recovered as the adjustment is amortized over the remaining term of the credit extension. The Federal Reserve expects that the credit extension, including interest and commitment fees under the modied terms, will be fully repaid. On June 25, 2009, the FRBNY entered into agreements with AIG to carry out two transactions previously approved and announced on March 2, 2009, as part of the restructuring of the U.S. governments assistance to AIG. These transactions were completed on December 1, 2009. Under these agreements, the FRBNY received preferred interests in two SPVs formed to hold the outstanding common stock of AIGs largest foreign insurance subsidiaries, American International Assurance Company Ltd. (AIA) and American Life Insurance Company (ALICO). In exchange, upon the closing of each transaction and the resulting issuance of preferred interests, the outstanding balance held by, and amount available to, AIG (excluding capitalized interest and fees) under the revolving credit facility was reduced by $25 billion. Specically, the maximum amount available was reduced from $60 billion to $35 billion. By establishing the AIA and ALICO special purpose vehicles as separate legal entities, these transactions positioned AIA and ALICO for future initial public offerings, depending on market conditions. Subject to certain conditions, proceeds from any public offerings by the companies must rst be used to fully redeem the FRBNYs preferred interests. The interest rate on the loan to AIG is the threemonth Libor, plus 300 basis points. The lending under this facility is secured by a pledge of assets of AIG and its primary nonregulated subsidiaries, including all or a substantial portion of AIGs ownership interest in its regulated U.S. and foreign subsidiaries. Furthermore, AIGs obligations to the FRBNY are guaranteed

by certain domestic, nonregulated subsidiaries of AIG with more than $50 million in assets. Figure 3 shows the amount of credit extended to AIG over time through the credit facility, including the principal, interest, and commitment fees, along with the facility ceiling.

Maiden Lane II LLC

Under Section 13(3) of the Federal Reserve Act, the Federal Reserve Board authorized the FRBNY to lend up to $22.5 billion to a newly formed Delaware limited liability company, Maiden Lane II LLC, to partially fund the purchase of residential mortgage-backed securities (RMBS) from the securities lending portfolio of several regulated U.S. insurance subsidiaries of
Table 29. Maiden Lane II LLC Outstanding Principal Balance of Senior Loan and Fixed Deferred Purchase Price
Millions of dollars FRBNY senior loan Principal balance at closing . . . . . . . . . . . . . . . . Most Recent Quarterly Activity Principal balance on 6/30/2009 (including accrued and capitalized interest) . . . . . . . . . Accrued and capitalized interest 6/30/2009 to 9/30/2009 . . . . . . . . . . . . . . . . . . Repayment during the period from 6/30/2009 to 9/30/2009 . . . . . . . . . . . . . . . . . . Principal balance on 9/30/2009 (including accrued and capitalized interest) . . . . . . . . . 19,494 AIG xed deferred purchase price 1,000

17,712 55 (966) 16,801

1,020 8 0 1,028

Note: Unaudited. As part of the asset purchase agreement, AIG subsidiaries were entitled to receive from Maiden Lane II LLC a xed deferred purchase price plus interest on the amount. This obligation is subordinated to the senior loan extended by the FRBNY, and it reduced the amount paid by Maiden Lane II LLC for the assets by a corresponding amount.

Table 30. Maiden Lane II LLC Summary of RMBS Portfolio Composition, Cash and Cash Equivalents, and Other Assets and Liabilities
Millions of dollars Fair Value on Fair Value on 9/30/2009 6/30/2009 Alt-A (ARM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subprime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Option ARM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . Other assets2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities3 . . . . . . . . . . . . . . . . . . . . . . . . . . . Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,903 8,758 939 1,299 297 3 (2) 16,197 4,455 8,348 840 1,371 327 3 (2) 15,341

Note: Unaudited. Components may not sum to totals because of rounding. 1. Includes all asset sectors that, individually, represent less than 5 percent of aggregate outstanding fair value of securities in the portfolio. 2. Including interest and principal receivable and other receivables. 3. Including accrued expenses and other payables.

January 2010 Table 31. Maiden Lane II LLC Securities Distribution by Sector and Rating
Percent, as of September 30, 2009 Rating RMBS sector AAA Alt-A (ARM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subprime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Option ARM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.9 8.1 0.0 0.1 9.1 AA+ to AA 3.0 3.0 0.0 0.6 6.6 A+ to A 2.6 2.9 0.0 0.0 5.5 BBB+ to BBB BB+ and lower 1.4 2.6 0.0 0.0 4.0 23.0 38.5 5.9 7.4 74.7 Total 30.8 55.1 5.9 8.2 100.0

21

Note: Unaudited. This table presents the sector and ratings composition of Maiden Lane II LLCs RMBS portfolio as a percentage of aggregate fair value of the securities in the portfolio. Lowest of all ratings is used for the purposes of this table. Rows and columns may not sum to totals because of rounding. 1. Includes all asset sectors that, individually, represent less than 5 percent of the aggregate fair value of securities in the portfolio.

Figure 4. Maiden Lane II LLC Securities Distribution as of September 30, 2009

AIG. On December 12, 2008, the FRBNY loaned about $19.5 billion to Maiden Lane II LLC. Details of the terms of the loan are published on the FRBNY website (www.newyorkfed.org/markets/ maidenlane2.html). The net portfolio holdings of Maiden Lane II LLC are presented in tables 1, 10, and 11 of the weekly H.4.1 statistical release. Additional detail on the accounts of Maiden Lane II LLC is presented in table 5 of the H.4.1 statistical release. Information about the assets and liabilities of Maiden Lane II LLC is presented as of September 30, 2009, in tables 29 through 31 and gure 4. This information is updated on a quarterly basis.

Maiden Lane III LLC

Under Section 13(3) of the Federal Reserve Act, the Federal Reserve Board authorized the FRBNY to lend up to $30 billion to a newly formed Delaware limited liability company, Maiden Lane III LLC, to fund the purchase of certain asset-backed collateralized debt

obligations (ABS CDOs) from certain counterparties of AIG Financial Products Corp. (AIGFP) on which AIGFP had written credit default swaps and similar contracts. On November 25, 2008, the FRBNY loaned about $24.4 billion to Maiden Lane III LLC to partially fund the purchase of ABS CDOs. Details of the terms of the loan are published on the FRBNY website (www.newyorkfed.org/markets/maidenlane3.html). Assets of the portfolio of the LLC will be managed to maximize cash ows to ensure repayment of obligations of the LLC while minimizing disruptions to nancial markets. The net portfolio holdings of Maiden Lane III LLC are presented in tables 1, 10, and 11 of the weekly H.4.1 statistical release. Additional detail on the accounts of Maiden Lane III LLC is presented in table 6 of the H.4.1 statistical release. Information about the assets and liabilities of Maiden Lane III LLC is presented as of September 30, 2009, in tables 32 through 34 and gure 5. This information is updated on a quarterly basis.

22 Table 32. Maiden Lane III LLC Outstanding Principal Balance of Senior Loan and Equity Contribution
Millions of dollars FRBNY senior loan Principal balance at closing . . . . . . . . . . . . . . . . Most Recent Quarterly Activity Principal balance on 6/30/2009 (including accrued and capitalized interest) . . . . . . . . . Accrued and capitalized interest 6/30/2009 to 9/30/2009 . . . . . . . . . . . . . . . . . . Repayment during the period from 6/30/2009 to 9/30/2009 . . . . . . . . . . . . . . . . . . Principal balance on 9/30/2009 (including accrued and capitalized interest) . . . . . . . . . 24,339 AIG equity contribution 5,000

Credit and Liquidity Programs and the Balance Sheet Table 33. Maiden Lane III LLC Summary of Portfolio Composition, Cash and Cash Equivalents, and Other Assets and Liabilities
Millions of dollars Fair Value on Fair Value on 9/30/2009 6/30/2009 High-grade ABS CDO . . . . . . . . . . . . . . . . . . . . . Mezzanine ABS CDO . . . . . . . . . . . . . . . . . . . . . Commercial real estate CDO . . . . . . . . . . . . . . RMBS, CMBS, & Other . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . Other assets1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities2 . . . . . . . . . . . . . . . . . . . . . . . . . . . Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,001 2,099 4,572 246 547 38 (3) 23,500 14,491 1,882 4,186 225 1,645 59 (4) 22,485

22,614 66 (2,825) 19,855

5,108 43 0 5,151

Note: Unaudited. As part of the asset purchase agreement, AIG purchased a $5 billion equity contribution, which is subordinated to the senior loan extended by FRBNY.

Note: Unaudited. Components may not sum to totals because of rounding. 1. Including interest and principal receivable and other receivables. 2. Including accrued expenses.

Table 34. Maiden Lane III LLC Securities Distribution by Sector, Vintage, and Rating
Percent, as of September 30, 2009 Sector and vintage1 AAA High-grade ABS CDO . . . . . . . . . . . Pre-2005 . . . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . Mezzanine ABS CDO . . . . . . . . . . . . Pre-2005 . . . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial real estate CDO . . . . . Pre-2005 . . . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . RMBS, CMBS, and other . . . . . . . . Pre-2005 . . . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.9 1.9 0.0 0.0 0.0 0.2 0.0 0.2 0.0 0.0 2.1 AA+ to AA 0.0 0.0 0.0 0.0 0.0 0.2 0.2 0.0 0.0 0.0 0.5 0.5 0.0 0.0 0.0 0.2 0.0 0.1 0.0 0.0 0.8 A+ to A 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 17.6 2.8 0.0 0.0 14.8 0.1 0.0 0.1 0.0 0.0 17.7 Rating BBB+ to BBB- BB+ and lower 0.7 0.7 0.0 0.0 0.0 1.4 1.0 0.0 0.0 0.4 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.0 0.0 2.2 69.1 23.9 30.1 7.5 7.6 7.3 4.0 2.9 0.0 0.3 0.0 0.0 0.0 0.0 0.0 0.5 0.1 0.4 0.1 0.0 76.9 Not rated 0.0 0.0 0.0 0.0 0.0 0.3 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.3 Total 69.8 24.6 30.1 7.5 7.6 9.2 5.5 2.9 0.0 0.7 20.0 5.2 0.0 0.0 14.8 1.1 0.2 0.8 0.1 0.0 100.0

Note: Unaudited. This table presents the sector, vintage, and rating composition of the securities in the Maiden Lane III LLC portfolio as a percentage of all securities in the portfolio. It is based on the fair value of the securities. Lowest of all ratings is used for purposes of this table. Rows and columns may not sum to totals because of rounding. 1. The year of issuance with the highest concentration of underlying assets as measured by outstanding principal balance determines the vintage of the CDO.

Figure 5. Maiden Lane III LLC Securities Distribution as of September 30, 2009

January 2010

23

Citigroup
On November 23, 2008, the Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC) jointly announced that the U.S. government would provide support to Citigroup in an effort to support nancial markets. The terms of the arrangement, under which the government parties had agreed to provide certain loss protections and liquidity supports to Citigroup with respect to a designated pool of $301 billion of assets, are provided on the Federal Reserve Boards website (www.federalreserve.gov/ monetarypolicy/bst_supportspecic.htm). The FRBNY has not extended credit to Citigroup under this arrangement. On December 23, 2009, the Treasury, the Federal Reserve, and the FDIC agreed to terminate the Master Agreement dated January 15, 2009, with Citigroup Inc. In consideration for terminating the Master Agreement, the FRBNY received a $50 million termination fee from Citigroup. Outstanding expenses in connection with the Master Agreement and not yet reimbursed by Citigroup will continue to be reimbursable.

Bank of America
On January 16, 2009, the Treasury, the Federal Reserve, and the FDIC jointly announced that the U.S. government had agreed to provide certain support to Bank of America to promote nancial market stability. Information concerning these actions is available on the Federal Reserve Boards website at www.federalreserve.gov/monetarypolicy/ bst_supportspecic.htm. On May 7, 2009, following the release of the results of the Supervisory Capital Assessment Program, Bank of America announced that it did not plan to move forward with a part of the package of supports announced in January 2009specically, a residual nancing arrangement with the Federal Reserve and the related guarantee protections that would be provided by the Treasury and the FDIC with respect to an identied pool of approximately $118 billion in assets. In September 2009, Bank of America paid an exit fee in order to terminate the term sheet, which was never implemented, with the Treasury, the Federal Reserve, and the FDIC. The Federal Reserves portion of the exit fee was $57 million.

24

Credit and Liquidity Programs and the Balance Sheet

Federal Reserve Banks Financial Tables

Quarterly Developments
The daily average balance of the Federal Reserve System Open Market Account (SOMA) holdings exceeded $1 trillion during the rst three quarters of 2009 (table 36). Net earnings from the portfolio amounted to approximately $32 billion during this period; most of the earnings are attributable to the holdings of U.S. government securities and agencyguaranteed mortgage-backed securities (MBS). Net earnings from Federal Reserve loan programs over the rst three quarters of the year amounted to about $2.2 billion; interest earned on Term Auction Facility (TAF) loans and credit extended to American International Group, Inc. (AIG) accounted for most of the total (table 37). After providing for the payment of dividends and reservation of an amount necessary to equate surplus with capital paid-in, distributions to the U.S. Treasury as interest on Federal Reserve notes totaled $27 billion during the rst three quarters of 2009, as noted in table 35. The Board of Governors nancial statements are audited annually by an independent audit rm retained by the Boards Office of Inspector General. The audit rm also provides a report on compliance and on internal control over nancial reporting in accordance with government auditing standards. The Office of Inspector General also conducts audits, reviews, and investigations relating to the Boards programs and operations as well as of Board functions delegated to the Reserve Banks. Audited annual nancial statements for the Reserve Banks and Board of Governors are available at www.federalreserve.gov/monetarypolicy/ bst_fednancials.htm. On a quarterly basis, the Federal Reserve prepares unaudited updates of tables presented in the Annual Report.

Combined Statement of Income and Comprehensive Income

Table 35 presents unaudited combined Reserve Bank income and expense information for the rst three quarters of this year. Tables 36 through 38 present information for the SOMA portfolio, the Federal Reserve loan programs, and the variable interest entitiesthe Commercial Paper Funding Facility (CPFF) and Maiden Lane, Maiden Lane II, and Maiden Lane III LLCsfor the rst three quarters of this year. These tables are updated quarterly.

Background
The Federal Reserve Banks annually prepare nancial statements reecting balances as of December 31 and income and expenses for the year then ended. The Federal Reserve Bank nancial statements also include the accounts and results of operations of several limited liability companies (LLCs) that have been consolidated with the Federal Reserve Bank of New York (FRBNY) (the consolidated LLCs). The Board of Governors, the Federal Reserve Banks, and the consolidated LLCs are all subject to several levels of audit and review. The Reserve Banks nancial statements and those of the consolidated LLC entities are audited annually by a registered independent public accountant retained by the Board of Governors. To ensure auditor independence, the Board requires that the external auditor be independent in all matters relating to the audit. Specically, the external auditor may not perform services for the Reserve Banks or others that would place it in a position of auditing its own work, making management decisions on behalf of the Reserve Banks, or in any other way impairing its audit independence. In addition, the Reserve Banks, including the consolidated LLCs, are subject to oversight by the Board.

SOMA Financial Summary

Table 36 shows the Federal Reserves average daily balance of assets and liabilities in the SOMA portfolio for the period from January 1, 2009, though September 30, 2009, the related interest income and expense, and the realized and unrealized gains and losses for the rst three quarters of the year. U.S. government and agency securities, as well as agency-guaranteed MBS making up the SOMA portfolio, are recorded at amortized cost on a settlement-date basis. Rather than using a fair value presentation, an amortized cost presentation more appropriately reects the Reserve Banks purpose for holding these securities given the Federal Reserves unique responsibility to conduct monetary policy. Although the fair value of security holdings can be substantially greater than or less than the recorded value at any point in time, these unrealized gains or

January 2010 Table 35. Federal Reserve Banks Combined Statement of Income and Comprehensive Income
Millions of dollars January 1, 2009, to September 30, 2009 Interest income: Loans to depository institutions (refer to table 37) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other loans (refer to table 37) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . System Open Market Account (refer to table 36) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated variable interest entities (refer to table 38): Investments held by consolidated variable interest entities: Maiden Lane, Maiden Lane II, and Maiden Lane III LLCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial Paper Funding Facility LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense: System Open Market Account (refer to table 36) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depository institution deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated variable interest entities (refer to table 38) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-interest income (loss): System Open Market Accountrealized and unrealized losses, net (refer to table 36) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments held by consolidated variable interest entities gains (losses), net (refer to table 38): Maiden Lane, Maiden Lane II, and Maiden Lane III LLCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial Paper Funding Facility LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for loan restructuring (refer to table 37)1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reimbursable services to government agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-interest (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses: Salaries and other benets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Occupancy expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equipment expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assessments by the Board of Governors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Professional fees related to consolidated variable interest entities (refer to table 38) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income prior to distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in funded status of benet plans2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income prior to distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution of comprehensive income: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid to member banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remaining amount to be distributed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Memo: Distributions to U.S. Treasury (interest on Federal Reserve notes)3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 889 2,261 31,131 4,668 3,962 42,911 86 1,496 200 1,782 41,129 487 (3,802) 8 (989) 517 299 25 (3,455) 2,019 202 136 641 88 401 3,487 34,187 297 34,484 1,049 33,435 26,977

25

Note: Unaudited. 1. In accordance with GAAP, as of June 30, 2009, the AIG revolving credit extension was reduced by a $1.4 billion adjustment for loan restructuring. The adjustment is related to the loan modication, announced on March 2, 2009, which eliminated the existing oor on the interest rate. The restructuring adjustment is being recovered as it is amortized over the remaining term of the credit extension. 2. Represents the recognition of benet plan deferred actuarial gains and losses and prior service costs. 3. The Board of Governors requires each Reserve Bank to distribute any remaining net earnings to the U.S. Treasury as interest on Federal Reserve notes, after providing for the payment of dividends and reservation of an amount necessary to equate surplus with capital paid-in. These distributions are made weekly based on estimated net earnings for the preceding week. The amount of each Banks weekly distribution to the U.S. Treasury would be affected by signicant losses and increases in capital paid-in at a Reserve Bank, which would require that the Reserve Bank retains net earnings until the surplus is equal to the capital paid-in. The distributions to the U.S. Treasury are reported on an accrual basis; actual payments to the U.S. Treasury during the period from January 1, 2009, through September 30, 2009, were $24,552 million.

losses have no effect on the ability of the Reserve Banks to meet their nancial obligations and responsibilities. As of September 30, 2009, the fair value of the U.S. government and agency securities held in the SOMA, excluding accrued interest, was $980 billion, the fair value of the agency-guaranteed MBS was $703 billion, and the fair value of investments denominated in foreign currencies was $26 billion, as determined by reference to quoted prices for identical securities, except for MBS, for which market values are obtained from an independent pricing vendor.

FRBNY conducts purchases and sales of U.S. government securities under authorization and direction from the Federal Open Market Committee (FOMC). The FRBNY buys and sells securities at market prices from securities dealers and foreign and international account holders. The FOMC has also authorized the FRBNY to purchase and sell U.S. government securities under agreements to resell or repurchase such securities (commonly referred to as repurchase and reverse repurchase transactions).

26 Table 36. SOMA Financial Summary

Millions of dollars

Credit and Liquidity Programs and the Balance Sheet

January 1, 2009 September 30, 2009 Average daily balance1 SOMA assets U.S. government securities2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal agency debt securities2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage-backed securities3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments denominated in foreign currencies4 . . . . . . . . . . . . . . . . . . Central bank liquidity swaps5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities purchased under agreements to resell . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SOMA liabilities Securities sold under agreements to repurchase . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 592,742 73,655 352,202 24,505 230,113 5,128 1,278,345 69,928 1,208,417 Interest income (expense) 16,202 1,241 11,351 231 2,093 13 31,131 (86) 31,045 Realized gains (losses) (411) (411) (411) Unrealized gains (losses) 898 898 898 Net earnings

16,202 1,241 10,940 1,129 2,093 13 31,618 (86) 31,532

Note: Unaudited. Components may not sum to totals because of rounding. 1. Based on holdings at opening of business. 2. Face value. 3. Guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Current face value of the securities, which is the remaining principal balance of the underlying mortgages. Does not include unsettled transactions. 4. Includes accrued interest. Investments denominated in foreign currencies are revalued daily at market exchange rates. 5. Dollar value of foreign currency held under these agreements valued at the exchange rate to be used when the foreign currency is returned to the foreign central bank. This exchange rate equals the market exchange rate used when the foreign currency was acquired from the foreign central bank.

The SOMA holds foreign currency deposits and foreign government debt instruments denominated in foreign currencies with foreign central banks and the Bank for International Settlements. Central bank liquidity swaps are the foreign currencies that the Federal Reserve acquires and records as an asset (excluding accrued interest) on the Federal Reserves balance sheet. On January 5, 2009, the Federal Reserve began purchasing MBS guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Transactions in MBS are recorded on settlement dates, which can extend several months into the future. MBS dollar roll transactions, which consist of a purchase of securities combined with an agreement to sell securities in the future, may generate realized gains and losses.
Table 37. Loan Programs Financial Summary
Millions of dollars

Loan Programs Financial Summary

Table 37 summarizes the average daily loan balances and interest income of the Federal Reserve for the rst three quarters of 2009. The most signicant loan balance is the TAF, which was established at the end of 2007. As noted earlier in this report, during 2008 the Federal Reserve established several lending facilities under authority of Section 13(3) of the Federal Reserve Act. These included the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), the Primary Dealer Credit Facility (PDCF), and credit extended to American International Group, Inc. (AIG). Amounts funded by the Reserve Banks under all these programs are recorded as loans

January 1, 2009 September 30, 2009 Loan programs Primary, secondary, and seasonal credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Term Auction Facility (TAF) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total loans to depository institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Primary Dealer Credit Facility (PDCF) and other broker-dealer credit . Credit extended to American International Group, Inc. (AIG), net . . . . . Term Asset-Backed Securities Loan Facility (TALF) . . . . . . . . . . . . . . . . . . . Total loans to others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total loan programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total loan programs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average daily balance1 46,864 351,661 398,525 10,315 10,167 41,753 16,011 78,246 476,771 476,771 Interest income2 176 713 889 72 37 1,938 214 2,261 3,150 3,150 Provision for loan restructuring (989) (989) (989) (989) Total 176 713 889 72 37 949 214 1,272 2,161 2,161

Note: Unaudited. Components may not sum to totals because of rounding. 1. Based on holdings at opening of business. Average daily balance includes outstanding principal and capitalized interest net of unamortized deferred commitment fees and allowance for loan restructuring, and excludes undrawn amounts and credit extended to consolidated LLCs. 2. Interest income includes the amortization of the deferred commitment and administrative fees.

January 2010 Table 38. Consolidated Variable Interest Entities Financial Summary
Millions of dollars Item Net portfolio assets of the consolidated LLCs and the net position of FRBNY and subordinated interest holders as of September 30, 2009 Net portfolio assets1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities of consolidated LLCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net portfolio assets available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans extended to the consolidated LLCs by FRBNY2 . . . . . . . . . . . . . . . . . . . Other benecial interests2,3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cumulative change in net assets since the inception of the programs Allocated to FRBNY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allocated to other benecial interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cumulative change in net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary of consolidated VIE net income for the current year through September 30, 2009, including a reconciliation of total consolidated VIE net income to the consolidated VIE net income recorded by FRBNY Portfolio interest income4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense on loans extended by FRBNY5 . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expenseother . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Portfolio holdings gains (losses)6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) of consolidated LLCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Net income (loss) allocated to other benecial interests6 . . . . . . . . . . . . Net income (loss) allocated to FRBNY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Add: Interest expense on loans extended by FRBNY, eliminated in consolidation5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) recorded by FRBNY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,435 0 4,435 (3,055) (1,233) (4,288) (604) (1,028) (1,632) 0 (1,506) (1,506) (3,659) (3,767) (7,426) CPFF ML ML II ML III

27

Total Maiden Lane LLCs

41,384 (360) 41,024 36,589 0 36,589

28,559 (2,418) 26,141 29,196 1,233 30,429

16,199 (2) 16,197 16,801 1,028 17,829

23,503 (3) 23,500 19,855 5,151 25,006

68,261 (2,423) 65,838 65,852 7,412 73,264

3,962 (587) 0 8 (27) 3,356 0 3,356 587 3,943

1,369 (109) (45) (881) (31) 303 (45) 348 109 457

876 (187) (26) (955) (9) (301) (26) (275) 187 (88)

2,423 (236) (129) (1,346) (21) 691 691 0 236 236

4,668 (532) (200) (3,182) (61) 693 620 73 532 605

Note: Unaudited. Components may not sum to totals because of rounding. 1. Commercial paper holdings are recorded at book value, which includes amortized cost and related fees. Maiden Lane, Maiden Lane II, and Maiden Lane III holdings are recorded at fair value. 2. Includes accrued interest. 3. The other benecial interest holder related to Maiden Lane LLC is JPMC, and for Maiden Lane II and Maiden Lane III LLCs it is AIG. 4. Interest income is recorded when earned, and it includes amortization of premiums, accretion of discounts, and paydown gains and losses. 5. Interest expense recorded by each VIE on the loans extended by the FRBNY is eliminated when the VIEs are consolidated in the FRBNYs nancial statements and, as a result, the consolidated VIEs net income (loss) recorded by the FRBNY is increased by this amount. 6. The amount of Maiden Lane portfolio holdings losses allocated to FRBNY is $3,802 million, which is the total of portfolio holdings gains (losses) reduced by the net income (loss) allocated to other benecial interests. This amount is reported as Investments held by consolidated variable interest entities gains (losses), net in table 35.

by the Reserve Banks. Net earnings from these loan programs were about $2.2 billion during the rst three quarters of 2009. All loans must be fully collateralized to the satisfaction of the lending Reserve Bank, with an appropriate haircut applied to the collateral. At September 30, 2009, no loans were impaired, and an allowance for loan losses was not required.

an estimate of the price that would be received upon selling an asset if the transaction were to be conducted in an orderly market on the measurement date. Consistent with generally accepted accounting principles, the assets and liabilities of these LLCs have been consolidated with the assets and liabilities of the FRBNY. As a consequence of the consolidation, the extensions of credit from the FRBNY to the LLCs are eliminated. Net portfolio assets available represent the net assets available to beneciaries of the consolidated VIEs and for repayment of loans extended by the FRBNY. Net income (loss) allocated to FRBNY represents the allocation of the change in net assets and liabilities of the consolidated VIEs available for repayment of the loans extended by the FRBNY and other beneciaries of the consolidated VIEs. The differences between the fair value of the net assets available and the face value of the loans (including accrued interest) are indicative of gains or losses that would have been incurred by the beneciaries if the assets had been fully liquidated at prices equal to the fair value as of September 30, 2009.

Consolidated Variable Interest Entities (VIEs) Financial Summary

Table 38 summarizes the assets and liabilities of various consolidated VIEs previously discussed in this report. It also summarizes the net position of senior and subordinated interest holders and the allocation of the change in net assets to interest holders. The FRBNY is the sole beneciary of the CPFF LLC and the primary beneciary of the Maiden Lane LLCs. Commercial paper holdings are recorded at book value, which includes amortized cost and related fees. Maiden Lane LLC, Maiden Lane II LLC, and Maiden Lane III LLC holdings are recorded at fair value, which reects

28

Credit and Liquidity Programs and the Balance Sheet

Appendix
Additional Information Provided Pursuant to Section 129 of the Emergency Economic Stabilization Act of 2008
For the reasons discussed below, the Board does not anticipate that the Federal Reserve or taxpayers will incur any net loss on the loans provided by the Federal Reserve under the TSLF, PDCF, CPFF, TALF, or the AMLF, or the loans provided by the Federal Reserve Bank of New York (FRBNY) to AIG or to Maiden Lane LLC, Maiden Lane II LLC, or Maiden Lane III LLC (collectively, the Maiden Lane facilities). In making these assessments, the Board has considered, among other things, the terms and conditions governing the relevant facility and the type, nature, and value of the current collateral or other security arrangements associated with the facility. As discussed earlier in this report, the Federal Reserve has established various terms and conditions governing the types of collateral that may be pledged in support of a loan under a facility in order to mitigate the risk of loss. In the case of the Maiden Lane facilities, the Board also has considered analyses of the projected returns on the portfolio holdings of the respective special purpose vehicle (SPV) (the assets of which serve as collateral for the loan(s) extended to the SPV) conducted by the FRBNY or its advisors in connection with the most recent quarterly revaluation of the assets of each SPV. pledged collateral, and the risk of loss is mitigated by daily revaluation of the collateral and haircuts on the collateral value.

Commercial Paper Funding Facility

All advances by the FRBNY to the SPV established under the CPFF are secured by all the assets of the SPV. In addition, in situations where the obligations acquired by the SPV are asset-backed commercial paper (ABCP), the advances are further secured by the assets that support the commercial paper. To use the CPFF, each issuer also must pay a facility fee. Furthermore, each time an issuer sells commercial paper that is not ABCP to the SPV, the issuer must pay a surcharge unless it has entered into a collateral arrangement for the commercial paper, or obtained an endorsement or guarantee of its obligation on the commercial paper, that is acceptable to the FRBNY. All fees are retained by the SPV and serve as additional collateral for the FRBNY loans to provide an additional cushion against losses.

Term Asset-Backed Securities Loan Facility

Under TALF, the FRBNY makes loans on a collateralized basis to holders of eligible ABS and CMBS. The potential for the Federal Reserve or taxpayers to incur any net loss on the TALF loans extended by the FRBNY to the holders of ABS and CMBS is mitigated by the quality of the collateral, the risk assessment performed by the FRBNY on all pledged collateral, and the margin by which the value of the collateral exceeds the amount of the loan (the haircut). Potential losses to the Federal Reserve also are mitigated by the portion of interest on TALF loans to borrowers transferred to TALF LLC and by $20 billion in credit protection provided by the Treasury under the Troubled Asset Relief Program, both of which are available to TALF LLC to purchase any collateral received by the FRBNY from a borrower in lieu of repaying a TALF loan or foreclosed upon due to a default by the borrower.

Term Securities Lending Facility

As noted in the main portion of this report, no loans currently are outstanding under the TSLF, and all prior loans under the TSLF were repaid in full. The potential for losses on any new securities loans that may be extended under the TSLF is mitigated by the quality of the collateral accepted, haircuts on the value of the collateral, daily revaluation of the collateral, and limits on the participation of individual dealers. Moreover, loans extended under this program are with recourse to the borrower beyond the specic collateral pledged.

Primary Dealer Credit Facility

As noted in the main portion of this report, no loans currently are outstanding under the PDCF, and all prior loans under the PDCF were repaid in full. All credit extended by the Federal Reserve under the PDCF is with recourse to the broker-dealer entity beyond the

Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility

As noted in the main portion of this report, no loans currently are outstanding under the AMLF, and all

January 2010

29

prior loans under the AMLF were repaid in full. Loans extended under the AMLF are secured by ABCP that receives the highest rating from a major credit rating agency. Moreover, the ABCP is supported by the assets backing the paper.

Loans to Maiden Lane LLC, Maiden Lane II LLC, and Maiden Lane III LLC
The portfolio holdings of each of Maiden Lane LLC (Maiden Lane), Maiden Lane II LLC (ML-II) and Maiden Lane III LLC (ML-III) are revalued in accordance with generally accepted accounting principles (GAAP) as of the end of each quarter to reect an estimate of the fair value of the assets on the measurement date. The fair value determined through these revaluations may uctuate over time. In addition, the fair value of the portfolio holdings that is reported on the weekly H.4.1 statistical release reects any accrued interest earnings, principal repayments, expense payments and, to the extent any may have occurred since the most recent measurement date, realized gains or losses. The fair values as of December 30, 2009as shown in table 1 of this report, and reported in greater detail in the H.4.1 release for that dateare based on quarterly revaluations as of September 30, 2009. Because the collateral assets for the loans to Maiden Lane, ML-II, and ML-III are expected to generate cash proceeds and may be sold over time or held to maturity, the current reported fair values of the net portfolio holdings of Maiden Lane, ML-II, and ML-III do not reect the amount of aggregate proceeds that the Federal Reserve could receive from the assets of the respective entity over the extended term of the loan to the entity. The extended terms of the loans provide an opportunity to dispose of the assets of each entity in an orderly manner over time and to collect interest on the assets held by the entity prior to their sale, other disposition, or maturity. Each of the loans extended to Maiden Lane, ML-II, and ML-III is current under the terms of the relevant loan agreement. In addition, JPMorgan Chase will absorb the rst $1.15 billion of realized losses on the assets of Maiden Lane, should any occur. Similarly, certain U.S. insur-

ance subsidiaries of AIG have a $1 billion subordinated position in ML-II and an AIG affiliate has a $5 billion subordinated position in ML-III, which are available to absorb rst any loss that ultimately is incurred by ML-II or ML-III, respectively. Moreover, under the terms of the agreements, the FRBNY is entitled to any residual cash ow generated by the collateral assets held by Maiden Lane after the loans made by the FRBNY and JPMorgan Chase are repaid, and ve-sixths and two-thirds of any residual cash ow generated by the assets held by ML-II and ML-III, respectively, after the senior note of the FRBNY and the subordinate positions of AIG affiliates for these facilities are repaid.

Revolving Credit Facility for American International Group, Inc.

In light of the extremely broad and diverse range of collateral (including AIGs ownership interest in numerous nonpublic companies) and guarantees securing advances under the Revolving Credit Facility and the term of the credit facility, it is difficult to estimate with precision the aggregate value that ultimately will or may be received in the future from the sale of collateral or the enforcement of guarantees supporting the Revolving Credit Facility, and disclosure of any such estimate could interfere with the goal of maximizing value through the companys global divestiture program and, consequently, diminish the proceeds available to repay the loan. However, based on the substantial assets and operations supporting repayment of the loan, the capital and capital commitments provided to AIG under the TARP, and the most recently completed quarterly review of the security arrangements supporting the Revolving Credit Facility conducted as of September 30, 2009, by the FRBNY supported by analyses performed by its advisors, the Federal Reserve anticipates that the loans provided by the Federal Reserve under the Revolving Credit Facility, including interest and commitment fees under the modied terms of the facility, will be fully repaid and will not result in any net loss to the Federal Reserve or taxpayers.

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

WASHINGTON . 0 . (. 20551
BEN 5. BE:RNANKE: CHAI RMAN

January 25, 2010

The Honorable Robert P. Casey, Jr. United States Senate Washington, D.C. 20510 Dear Senator: I am pleased to enclose in response to your letter of January 20, 2010, the answers to questions Y<?U posed in connection with the upcoming vote on my confirmation for a second term as Chairman of the Board of Governors of the Federal Reserve System. Please let me know ifl can be of further assistance.

Enclosure

Chairman Ben Bernanke submitted the following in response to written questions received from Senator Robert Casey in connection with the U.S. Senate confirmation for a second term as Chairman of the Board of Governors of the Federal Reserve System:

The Federal Reserve is responsible for monetary policies key to the health of our economy. A critical aspect of this responsibility is the ability to identify and act when the economy is imbalanced due to speculation and hyper-growth. Looking back over your first term, how could the Federal Reserve have intervened more effectively to slow the housing bubble and credit glut that led to the economic downturn? Specifically, based on the lessons learned from the residential housing crisis, how would you enhance the capability to more accurately identify emerging troubled industries and markets? Identifying emerging economic and financial imbalances in real time has always been difficult in the past and will remain difficult in the future. During the period leading up to the recent financial crisis, financial institutions, investors, and regulators here in the United States and around the world failed to appreciate the full extent of the pressures that were building in the financial system and the devastating consequences those pressures would have as they were released. Despite the challenges that will always be associated with identifying emerging imbalances in a timely manner, important steps can and should be taken to ensure better performance in the future on this score. Some of these steps will require Congressional action, while other steps can be taken by regulators under existing authority. One such step is to ensure that all firms with the potential to destabilize the financial system and the broader economy are subject to a robust, statutory framework for consolidated supervision. During the period leading to the financial crisis, many of the large, complex, and interconnected financial firms whose collapse contributed importantly to the financial crisis avoided the more stringent consolidated supervision that is imposed on bank holding companies by the Federal Reserve; they avoided such supervision because they were not organized as bank holding companies. Effective consolidated supervision of such organizations would have generated a far more comprehensive picture of the risks they were undertaking and the threat they posed to financial stability and the economy. For the present and immediate future, this issue is of diminished concern because so many systemically important firms converted their form of organization to one that is subject to consolidated supervision by the Federal Reserve. However, over the longer term, it will be critical to ensure that all large, complex, and interconnected firms that may threaten financial stability are supervised effectively on a groupwide basis. A second step is to ensure that financial supervisors take account of systemic, or macroprudential, risks as well as the more traditional safety-and-soundness risks affecting individual firms. During the run-up to the financial crisis, none of the federal regulators had sufficient authority to focus on the systemic risk that large financial organizations posed. A regulatory body, such as the council that the Federal Reserve has supported, with authority to focus on systemic risk would have been helpful in identifying not only the risks that individual institutions were accumulating, but also the ways in which such institutions might destabilize one another, either through their direct interactions or mediated through financial markets.

-2A third step is to ensure that financial institutions face stronger incentives to monitor their own risk positions. Institutions that face appropriate incentives will limit their own risk-taking and present smaller threats to other firms and markets. One way to enhance the incentives that institutions have to undertake only appropriate levels of risk-taking is to enhance the requirements that such institutions in fact hold capital. Toward that end, the Federal Reserve has been working through the Basel Committee on Bank Supervision and the Financial Stability Board to ensure that systemically critical financial institutions hold more and higher-quality capital and employ more robust liquidity management. A fourth step is to ensure that the individuals who are employed by financial institutions do not have the incentive to undertake inappropriate or imprudent risks. An appropriate compensation structure will not provide an incentive for individuals to swing for the fences, knowing that if they happen to connect, they will reap a rich reward, but if they miss, the federal taxpayer will be there to clean up the mess. Toward this end, the Federal Reserve has played a key role both internationally and domestically to ensure that banks use compensation structures that provide appropriate performance and risk-taking incentives. By taking these and other steps, we can ensure that the actions of private-sector firms and investors and of public-sector regulators are aligned in containing risk in the financial system to levels that do not threaten to undermine financial stability. In the future, you will be faced with critical decisions about shifting the Federal Reserves monetary policies with emerging economic growth. Looking at the lessons of past recessions, these decisions are oftentimes difficult and unpopular. Specifically, you will be faced with the difficult decision regarding the appropriate time to raise interest rates. What indicators are you reviewing in determining whether to raise interest rates? As I and my colleagues on the FOMC have affirmed in statements released after each of the Committees recent meetings, we anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As your question suggests, it will eventually become necessary to begin raising interest rates to sustain economic expansion by preventing overheating and rising inflation. The appropriate time to begin raising interest rates will depend primarily on how the outlook for economic activity, employment, and inflation--and the risks to that outlook--evolve. Accordingly, all indicators that inform economic forecasts will enter into the decision. More specifically, I anticipate that my colleagues and I will be guided in part by indications that resource slack, as measured by unemployment and unused production capacity, is on and will continue on a downward trend. Because actual inflation responds to cost pressures and the publics inflation expectations, I anticipate that we will also be guided to some extent by evidence on the trends in production costs and the behavior of measures of expected inflation. Finally, tight credit conditions have been restraining the economy and thus have been an important factor behind the Committees decisions to target an exceptionally low level of the federal funds rate. Accordingly, I anticipate that the timing of the eventual decision to raise the target will be informed by evidence that credit is becoming more readily available. In sum, monetary policy decisions going forward will

-3be guided by the Committees interpretation of the implications of a broad range of economic and financial data for the outlook for economic activity, employment, and inflation. The Federal Reserve has advocated for increased powers, including but not limited to greater resolution authority and a prominent place as the lead regulator in a proposed counsel of regulators. If granted such authority, what reforms would you institute at the Federal Reserve that would assist the American people? The United States needs a comprehensive agenda to contain systemic risk and address the problem of financial institutions that are viewed as being too big to fail. This agenda should seek to marshal and build on the individual and collective expertise and resources of all financial supervisors--not just the Federal Reserve--to contain systemic risks within the financial system. No agency has the expertise and breadth of information needed to effectively serve as the sole systemic risk regulator for the entire financial system. Indeed, legislative proposals would provide new or enhanced responsibilities for a number of federal agencies and departments. For example, current proposals would provide the Securities and Exchange Commission and Commodity Futures Trading Commission additional authority and responsibility for over-thecounter derivatives. These proposals also would provide the Federal Deposit Insurance Corporation, working in conjunction with the Treasury Department, the responsibility for winding down a failing systemically important financial firm in a way that is both orderly and imposes losses on the firms shareholders and creditors. As I have indicated previously, the Federal Reserve does not seek to serve as the resolution agency for systemically important institutions under the new framework. To effectively contain systemic risks, these enhanced authorities for individual supervisors should be supplemented by a broad-based council for the financial system as a whole. Such a council composed of all the financial agencies and departments involved in financial supervision and regulation would be very helpful in monitoring and identifying emerging systemic risks across the full range of financial institutions and markets. In addition, such a council usefully could coordinate the supervisory and regulatory responses of financial supervisors to emerging systemic threats, thereby promoting greater harmony and efficiency in supervisory and regulatory matters of systemic importance. Under the proposal advanced by the Administration and the legislation passed by the House of Representatives, the Secretary of the Treasury would serve as chairman of this council, a role that we believe is appropriate. There are important aspects of a reform agenda, however, that the Federal Reserve is uniquely qualified to fulfill--consolidated supervision and macroprudential supervision. The financial crisis has clearly demonstrated that all systemically important financial institutions--and not just those that own a bank--should be subject to a robust framework for supervision on a consolidated or group-wide basis. Many of the large, complex, and interconnected financial firms whose collapse contributed importantly to the financial crisis avoided the more stringent consolidated supervision that is imposed on bank holding companies by the Federal Reserve. These firms--which included American International Group, Washington Mutual, Countrywide, Bear Stearns, and Lehman Brothers--were instead subject to no consolidated supervision or to statutory or regulatory schemes that were far less comprehensive than that applicable to bank holding companies. The crisis also has demonstrated that the supervision of financial firms must

-4take account of systemic, or macroprudential risks as well as the more traditional safety-andsoundness risks affecting individual firms. The Federal Reserve currently serves as the consolidated supervisor of all bank holding companies, including a number of the largest and most complex banking organizations and a number of very large financial firms--such as Goldman Sachs, Morgan Stanley, and American Express--that became a bank holding company during the financial crisis. The Federal Reserve also took the lead in developing and implementing the Supervisory Capital Assessment Program (SCAP) also known as the stress test. This test, which was critical to restoring confidence in the banking system, was a watershed event for modern macroprudential supervision and drew heavily on the Federal Reserves macroeconomic and markets expertise to model potential credit losses and revenues at the large banking organizations participating in the SCAP. The expertise gained from these activities, as well as the information and perspective that the Federal Reserve has as a result of its central bank responsibilities, makes the Federal Reserve well suited to serve as consolidated supervisor for all systemically important financial firms and to ensure that the framework for consolidated supervision addresses both safety-and-soundness risks at individual institutions and macroprudential risks. The Federal Reserve already is taking important steps to improve the supervision of large, interconnected firms and to incorporate macroprudential considerations into our supervision of financial firms. We believe these reforms should significantly improve the resilience of the financial system and help protect the American people and economy. For example, working through the Basel Committee on Bank Supervision and the Financial Stability Board, the Federal Reserve has played a key part in efforts to ensure that systemically critical financial institutions hold more and higher-quality capital and employ more robust liquidity management. The Federal Reserve also played a key role in international work to ensure that banks use compensation structures that provide appropriate performance and risk-taking incentives. Domestically, it has taken the lead in addressing flawed compensation practices, issuing proposed guidance that would require banking organizations to review their compensation practices to ensure that they do not encourage excessive risk-taking, are subject to effective controls and risk management, and are supported by strong corporate governance, including oversight by their boards of directors. In the fall of 2008, the Federal Reserve updated its guidance on consolidated supervision, reaffirming the importance of such supervision, particularly for large complex firms, and emphasizing the importance of bringing a macroprudential perspective, as well as an individualinstitution safety-and-soundness perspective, to consolidated supervision. Of considerable importance, the Federal Reserve has taken steps to ensure that, when risk-management shortcomings are identified, its supervisors hold managers accountable and make sure that weaknesses receive proper attention at senior levels and are resolved promptly. This requires routinely and promptly communicating important supervisory concerns to the highest levels of bank management, including through more frequent involvement of senior bank managers and boards of directors and senior Federal Reserve officials. This approach proved especially effective during the SCAP and in other circumstances when clear expectations for prompt remediation were forcefully communicated to large banking organizations.

-5The Federal Reserve has also begun to make fundamental changes to its supervision and regulation of large bank holding companies to include a macroprudential perspective, as well as an individual-institution safety-and-soundness perspective, to supervision. For example, the Federal Reserve is developing a program of enhanced quantitative surveillance of large bank holding companies. Enhanced quantitative surveillance combines aggregate economic data, firm-level market-based indicators, and supervisory information to provide a fuller picture of the financial condition of firms, the risks they face, and their potential effects on the broader system. Examples of this approach are the indicative systemwide loss and pre-provision net revenue estimates that were developed for the SCAP and used in the subsequent analysis of the Troubled Asset Relief Program redemption requests, and the firm-specific loss and revenue estimates that were developed by combining these systemwide estimates with supervisory information. The Federal Reserve also is working with other domestic and international regulators and market participants to overcome the collective action problems that often plague efforts to strengthen market infrastructure. Since 2005, the Federal Reserve has been leading efforts by market participants and domestic and international regulators to strengthen the infrastructure of the credit derivatives and other over-the-counter derivatives markets. While further progress is needed, without the progress that was achieved since 2005, the failures of major dealers and defaults by some of the very largest names traded in the credit derivatives markets surely would have been far more disruptive than they were. Likewise, this year the Federal Reserve took the lead in organizing a private-sector group that is developing recommendations for cooperative measures to strengthen margin and settlement practices in the triparty repo markets. Finally, the Federal Reserve also is making changes designed to fully employ its expertise to effectively supervise large banking firms. The new supervisory framework will better accommodate a macroprudential orientation that goes beyond the traditional focus on individual institutions and better supports the identification and analysis of interconnected risks and sources of financial contagion. The new approach will implement a more centralized approach to the supervision of large, complex banks that are potentially systemically important. Consumer protection is a looming issue that must be addressed in our efforts at reform. What are your thoughts about the creation of a separate agency tasked with this mission? If instead the Federal Reserve was granted greater responsibility over consumer protection, how would you design and implement this new responsibility? A strong argument for an independent consumer agency within the financial regulatory structure is that it will focus single-mindedly on consumer protection as its primary mission. The argument is that the leadership of an agency with multiple functions may trade one off against the other or, at times, be distracted by responsibilities in one area and less attentive to problems in the other. A corollary of this basic point is that the agency would be more inclined to act to deter use of harmful financial products and, if properly structured and funded, may be less susceptible to the sway of powerful industry influences. We believe there are also advantages in maintaining consumer protection functions in the same agency that provides safety and soundness supervision in that the two are linked both substantively and practically. There are substantial efficiency and information advantages from

-6having the two functions housed in the same agency. For example, risk assessments related to an institutions management of consumer compliance functions are closely linked with other safety and soundness risks, and factor in to assessments of bank management and financial, legal and reputation risks. Furthermore, determinations that certain products or practices are unfair and deceptive in some cases require an understanding of how products are priced, offered, and marketed in an individual institution. This information is efficiently obtained through supervisory monitoring and examinations. Should Congress decide the Federal Reserve should retain responsibility in the consumer protection area, we believe that the Federal Reserve has the expertise and is prepared to capably perform these functions. Key elements of our program include rule writing, consumer testing necessary to develop effective disclosures, supervision and enforcement of consumer protection and fair lending laws, consumer complaint processing, research to support policy development and understand regional differences, consumer education, and outreach to consumer and community groups, industry and other experts to gain a broad range of perspectives. In recent years, the Federal Reserve has taken a number of important steps to strengthen consumer protections through robust new rules for mortgages, credit cards, gift cards, student loans, and overdraft protection programs, among other regulatory changes. In addition, we have expanded our supervisory program to include on-site examinations of certain nonbank subsidiaries of bank holding companies to assess their compliance with certain consumer protection laws and regulations, and evaluation of consumer complaints about their transactions with nonbank affiliates. This new program, announced in September 2009, promises to better inform supervisors and rule writers about trends in consumer lending and potentially harmful products or services being offered through nonbank lenders. We have also improved our visibility and access for consumers by establishing a centralized call center, web site, and 800 telephone number for receiving consumer complaints. We have increased staff resources to speed our response time for drafting new rules to address emerging trends that may pose new risks for consumers. In addition, a new specialized unit is working to identify and analyze trends in consumer financial services to provide early warnings on emerging consumer problems for rule-writers and examiners. This will also allow for more timely and useful communications to consumers and nonprofit support organizations. During your first confirmation hearing in 2006, you stated that there would be greater transparency at the Federal Reserve; how have you increased transparency since 2006 and what are your plans to improve upon transparency if confirmed? The Federal Reserve has significantly enhanced transparency in a number of important dimensions since 2006. On matters related to the conduct of monetary policy, the Federal Reserve was already one of the most transparent central banks in the world prior to 2006. The Federal Open Market Committee (FOMC) releases statements following every meeting that provide a rationale for the policy decision along with the record of voting and explanations for any dissents. In addition, detailed minutes of each FOMC meeting are made public three weeks following each meeting. The minutes provide a great deal of information about the range of

-7policymakers views on the economic situation and outlook, and on their deliberations about the appropriate stance of monetary policy. Since 2006, we have taken another important step forward in this area by providing a quarterly Summary of Economic Projections (SEP) of Board members and Reserve Bank presidents. These projections and the accompanying summary analysis provide detailed information regarding policymakers views about the future path of economic growth, inflation, and unemployment, including the long-run values of these variables assuming appropriate monetary policy. FOMC statements and minutes, the Summary of Economic Projections, and other related information are conveniently available on the Boards website (see http://www.federalreserve.gov/monetarypolicy/fomc.htm). The Federal Reserve implemented a number of credit and liquidity programs during the financial crisis to support the liquidity of key financial markets and institutions. We have taken a number of steps to ensure appropriate transparency and accountability in operating these programs. The Boards weekly H.4.1 statistical release has been greatly expanded to provide a wealth of information on the Federal Reserves balance sheet and the various credit and liquidity facilities. This release is closely watched in financial markets and by the public for nearly real-time information on the evolution of the Federal Reserves balance sheet (see http://www.federalreserve.gov/releases/h41/). The Federal Reserve has also developed a public website focused on its credit and liquidity programs that provides background information on all the facilities, along with data on the number and types of borrowers utilizing various facilities, and the types and value of collateral pledged (see http://www.federalreserve.gov/monetarypolicy/bst.htm). In addition, the Federal Reserve produces a monthly report to Congress that provides more detailed information on the full range of credit and liquidity programs implemented during the crisis. This report also includes information on borrowing and collateral under all the facilities, detailed information on the assets held in the Maiden Lane facilities and other special lending facilities, and quarterly financial statements for the Federal Reserve System. The Federal Reserve has also issued reports to Congress in fulfillment of section 129 of the Emergency Economic Stabilization Act of 2008. Furthermore, these reports provide detailed information on all of the programs that rely on emergency lending authorities, including the Federal Reserves assessment of the expected cost to the Federal Reserve and the U.S. taxpayer of various Federal Reserve programs implemented during the crisis. As of today, the Federal Reserve does not expect to sustain losses on any of the credit and liquidity programs implemented during the crisis. All of these reports are available on the Federal Reserves public website (see http://www.federalreserve.gov/monetarypolicy/bst_reports.htm). To provide further transparency regarding the Federal Reserves transactions with AIG, we recently issued a request for a full GAO review of all aspects of the Federal Reserves

-8involvement with the extension of credit to AIG (see http://www.federalreserve.gov/monetarypolicy/files/letter_aig_20100119.pdf). The Federal Reserve has also been transparent about the management of its programs. Various programs employ private sector firms as purchasing and settlement agents and to perform other functions; the contracts for all of these vendor arrangements are available on the website of the Federal Reserve Bank of New York (see http://www.newyorkfed.org/aboutthefed/vendor_information.html). The Federal Reserve has also recently begun to publish detailed CUSIP-level data regarding its holdings of Treasury, agency, and agency-backed mortgage-backed securities; these data provide the public with precise information about the maturity and asset composition of the Federal Reserves securities holdings (see http://www.newyorkfed.org/markets/soma/sysopen_accholdings.html). Recently, the Federal Reserve Bank of New York published a revised policy governing the designation of primary dealers. An important motivation in issuing revised guidance in this area was to make the process for becoming a primary dealer more transparent. Looking ahead, the Federal Reserve will continue to examine ways that it can further enhance transparency. As I have emphasized on many occasions, transparency is essential in ensuring appropriate accountability to the Congress and the general public. Moreover, transparency is a key principle of modern central banking and can enhance the effectiveness of the central bank in achieving its macroeconomic objectives. We will continue to review all of our disclosure policies to ensure that we are providing the greatest amount of information to the public that is consistent with the Federal Reserves statutory objectives of fostering maximum employment and price stability.