The Effectiveness of Dodd-Frank Act

The Dodd-Frank represents the most comprehensive financial regulatory reform measures taken since the Great Depression; in simplest arms the Dodd-Frank Act is a law that places major regulations on the financial industry. Dodd-Frank grew out of the Great Recession with the intention of preventing another collapse of major financial institutions in the U. S. The Dodd- Frank also enforces the consumer protect act which is put in place to protect borrowers from abusive barrowing and puts regulations on banks that practice these bad habits. Why did the Dodd-Frank Act come about?

In 2008 the economy suffered a great recession and Dodd-Frank was suppose to be the answer, the tool to fix the financial problems in the U. S. If you will. Dodd-Frank put financial regulations that were said would turn the recession around and help prevent a recurrence on financial institutions. There are said to be many reasons why the economy started to plummet some say the housing market was the reason for the downward spiral of the economy and others say the banking system had a huge hand in the recession as well along with credit reporting agencies that falsely reported scores.

There are many contributing factors that could have been the reason for the financial downturn of the U. S. And the Dodd-Frank Act is supposed to be the answer for regulating banks ND implementing consumer protection. In 2010 President Barack Obama signed the Dodd-Frank Act in to Law to help secure the future economy of the U. S. I am personally all for the Dodd-Frank law, I feel that it will benefit the U. S. Economy to have stricter laws preventing it from completely failing again. Some research shows that there has been as many as 47 recessions in the U. S. O something was not right and we needed a change. In my opinion there is no way that we should have experienced recession in 2009, we are supposed to be a advance country, now I understand that things happen and that's exactly why I'm all for resolutions and changes and that's why I feel it is important that the Dodd-Frank and embraced and hopefully used properly. We as the United States need to tighten our laws and restrictions and work more at being proactive rather then reactive when things go wrong and now our entire economy is at risk because of one large financial institution.

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As you read further in the paper you will see some of the provisions like many that stuck out to me and being some of the most important while also explaining why I am in favor of the Dodd-Frank law. One of the Dodd-Frank Act's main goals is to regulate banks, which means that banks will be subjected to a series of regulations and if any of the banks are determined to be too big to fail then there is a possibility that the bank can be broken up.

In order to be able to focus so much on banks and making sure the banks are complaint with the regulations the bill created the Financial Stability Oversight Council. The Treasury Secretary chairs the Council and has nine members including the Federal Reserve, the Securities and Exchange Commission and the new Consumer Financial Protection Bureau or CAP. It also oversees non-bank financial firms like hedge funds. The Financial Stability Oversight Council (OFFS) will monitor the markets for asset price bubbles and the build up of systemic risks.

In addition, it would designate which financial firms are the systemically important. These firms would be subject to additional regulations by the Federal Reserve, which would include higher capital standards and stricter liquidity requirements, as well as requirements that they draw up a "living will", that is a plan for the orderly liquidation if the firm gets into financial difficulties. Manikins,Snakeskin 2012 peg. 449) Some like that under Dodd-Frank banks are also required to have plans for a quick and orderly shutdown in the event that the bank becomes insolvent.

In accordance with the OFFS there were other regulations that the banks would have to comply with eventually. This regulation is called the Blocker Rule, this prohibits banks from investing in or owning hedge funds at all. The Blocker Rule stopped private equity funds and proprietress trading for the banks own profit and the banks would only be allowed to own a small percentage of the hedge and private equity funds. The Blocker rule came about because Paul Blocker was against banks using the funds the bank received from benefits deposits insurance for risky trading.

The Blocker Rule does allow some trading when it's necessary for the bank to run its business. , so if the bank needs to trade currency to offset their own holdings in a foreign currency they would be allowed to do so. The Blocker Rule was not in effect when The Dodd-Frank was sign and began implementation, it was a future regulation that later was added and implemented. Derivatives are a huge part of the Dodd-Frank; derivatives played a part in the nonfatal of GIG.

Alga had to be bailed out after extensive use of derivatives, and the Dodd-Frank has placed regulations to prevent this in the future. Derivatives are financial instruments whose payoffs are linked to previously issued securities, such as credit default. In order to try and get a handle on this issue Dodd-Frank requires that the risky derivatives are regulated by the SEC or the commodity futures trading commission while the more transparent derivatives are put in a clearinghouse. The clearinghouse is going to act similar to the stock exchange; this is a way to trade the reparative biblically.

Not all derivatives will be subject to the law, The Securities and Exchange Commission and the Commodity Futures Trading Commission approved a rule that would exempt some energy companies, hedge funds and banks from derivative oversight. (CNN, 2013) Insurance companies and credit rating agencies are some of the other financial institutions that Dodd-Franks effect. The Federal Insurance office was created which operates under the Treasury Department to help identify insurance companies that could pose a risk to the entire system.

Dodd-Frank created this regulation because of the damage that GIG caused, so this regulation will be more proactive in avoiding the same problem again. Also in the interest of the consumers, the Federal Insurance office will collect information about the insurance industry and make sure affordable health insurance is provided for minorities. Some credit rating companies were criticized for providing scores that were not correct and there for allowing consumers to get loans they could not afford.

This was saw as misleading along with over rating derivatives and mortgage-backed securities Ђ?and saying the investment tools were worth more than their actual value. Dodd- Frank made it so as apart of the new rules, the SEC can require agencies to submit their rating systems for review, and can De-certify an agency that gives misleading ratings. The new rule should put a stop to the issue of approving loans and mortgages that the consumers could not afford. The law requires that the consumers provide proof of income, credit, and Job history which only makes sense to make sure the consumer can afford to repay what they have barrowed.

One of the gig reasons I agree with the law is the Consumer Protection, Dodd-Frank legislation created a new Consumer Financial Protection Bureau (CUFF) that is funded and housed with in the Federal Reserve. This regulation was to protect consumers from immoral business practices by banks. The CUFF consolidated a number of existing consumer protection responsibilities in other government agencies. The CUFF has the authority to examine and enforce regulations for all businesses engaged in issuing mortgage products that have more then $10 billion in assets. Manikins Snakeskin, 2012 peg. 448) The CUFF is also able to examine other financial products marketed toward poor people in efforts to keep our economy from falling apart again from this. The law also works with the regulators in large banks to stop transactions that hurt consumers, such as risky lending. Which also bans payments to brokers for pushing borrowers into higher-priced loans, as well as giving the state attorney general power to enforce certain rules issued by the legislation on the stricter consumer protection laws on National Banks.

This allows for it to ban brokers from pushing consumers into higher ricer loans. In addition to the above-mentioned perks I also appreciate that consumers have access to information made plain for anyone to be able to understand, and there is a 24-hour hotlist to report issues with any financial services. In accordance with helping consumers stay away from faulty loans the CUFF also monitor the debit card use, credit care and pay day loan use, this seems to be a good idea to me because it can kind of hold you back from doing something the will eventually put you in the negative.

Although the government always had some ability to seize failing financial institutions and slowly close them down, the government did not have total resolution over authority over the largest financial institutions. This was the issue when it came t the government saving Lehman Brothers and the there was not resolutions to be offered so the company filed for bankruptcy. Dodd-Frank now provides the government with this authority for financial firms that are deemed systemic, and also gives regulators the right to levy fees on financial institutions with more than $50 billion in assets to recoup losses. (Manikins Snakeskin, Peggy 2012)

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