Dodd-Frank Act of 2010

1079 Words Apr 7th, 2015 5 Pages
Kevin Patel
Intermediate Accounting I
Professor Stubbs

Topical Paper 2: Dodd-Frank Act of 2010 In 2008, when the financial crisis occurred, millions of Americans were left without jobs and trillions of dollars of wealth was lost wealth. To make sure the Great Recession would not happen again, President Barrack Obama put into effect the Dodd- Frank Act. With the help of this law, banks will not be able to take irresponsible risks that had negative effects on the American people. Furthermore, with the Volcker Rule embedded into the act, it will ensure that banks are no longer allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their
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There are a few exceptions to the Volcker Rule, but banks must also document their compliance with the exemption written. At a minimum, the proposed rule would require that a banking entity's compliance program include describing and monitoring the entity's covered fund activities and investments, while identifying potential areas of non-compliance, and enforcing the compliance program effectively (Richards). With such a rigorous program, companies will have to continuous check if their debt securities meet up against the standards of the Volcker Rule, changing the classification of a security when it doesn’t comply with the act. Even though there are many restrictions to what banks can investment in due to the Volcker Rule, there are many loopholes and exemption available for them to take advantage of. For example, MF Global bought risky European government debt, then used those bonds as collateral to borrow more money, and take that borrowed money to buy up more risky European bonds. Even though the Volcker rule restricts trading in European debt, it was able to bypass the system and risk billions of dollars which it ended up losing, in the end, hurting American taxpayers (Gandel). Due to the Volcker Rule, banks are consistently trying to find new loopholes causing they them to purchase different types of debt