The Dodd-Frank Wall Street Reform and Consumer Protection Act

1561 WordsJun 17, 20187 Pages
The Dodd-Frank Wall Street Reform and Consumer Protection Act brought the most significant changes to financial regulation in the United States since the reform that followed the Great Depression. It made changes in the American financial regulatory environment that affect all federal financial regulatory agencies and almost every part of the nation’s financial services industry. Like Glass-Steagall, the legislation passed after the Great Depression, it sought to regulate the financial markets and make another economic crisis less likely. Banks were deregulated in 1999 by the Gramm-Leach-Biley Act, which repealed the Glass-Steagall Act and essentially allowed for the excessive risk taken on by banks that caused the most recent financial…show more content…
217). The Dodd-Frank Act utilizes several different measures to determine the level of systemic risk in the financial system. Regulators are encouraged to consider the following criteria when assessing the systemic risk of a firm (pgs. 131-132): 1) The amount and nature of the company’s financial assets. 2) The amount and nature of the company’s liabilities, including the degree of reliance on short-term funding. 3) The extent of the company’s leverage. 4) The extent and nature of the company’s off-balance-sheet exposures. 5) The extent and nature of the company’s transactions and relationship with other financial companies 6) The company’s importance as a source of credit for households, businesses, and state and local governments and as a source of liquidity for the financial system. 7) The nature, scope, and mix of the company’s activities. 8) The degree to which the company is already regulated by one or more federal financing regulatory agencies. 9) The operation of, or ownership interest in, any clearing, settlement, or payment business of the company. There are three challenges to regulating systematic risk: 1) Identifying and measuring the systemic risk of financial firms 2) Developing, based on systemic risk measures, an optimal policy whose
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