The Dodd-Frank Wall Street Reform and Consumer Protection Act

11. Investors and creditors are particularly interested in this financial statement because it tells them what is happening to the company’s most important resource?

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is commonly referred as the Dodd-Frank Act. This act was passed as a response to the Great Recession in order to prevent potential financial debacle in the future. This regulation has a significant impact on American financial services industry by placing major changes on the financial regulation and agencies since the Great Depression. This paper examines the history and impact of Dodd-Frank Act on American financial services industry.

The Glass Steagall Act was passed on 1933, which is also known as The Banking Act to tighten regulation on the way banks did their business. This act was written as an emergency measure when about 5,000 banks failed during the Great Depression. Banks mostly failed because of the way they would invest with money. The act prohibits banks from investing money on investments that turn out to be risky. Banks could no longer sell securities or bonds. The act also created Federal Deposit Insurance Corporation (FDIC) to protect the deposits of individuals, which is still used to this date. The FDIC in this era insures your deposits in your bank up to $250,000. This gave the public confidence again to deposit their money in the bank. In 1933

y. How much it has borrowed against its credit line and free cash flow( defined as net income plus depreciation less dividend payments)

The erosion of the prerequisites of market discipline by GSEs creates moral hazard. According Tony Fiennes (2016), market discipline is the way in which market participants influence a financial institution to act in the best interest of shareholders, through monitoring its risk profile and financial position (Fiennes,1). Fiennes (2013) states that three conditions must be present for market discipline to exist and be effective. Market participants must have access to relevant information and have incentives to monitor corporations. Additionally, the market must have a competitive environment so that investors can decide on the best investment (Fiennes, 1). Moral hazard is the idea that, under certain circumstances, individuals will alter their behavior and take on more risk (Pettinger,1). This paper will examine how market discipline is destroyed in the mortgage industry by Fannie Mae 's and Freddie Mac 's “too big to fail” size and government backing.

Ratios Liquidity Ratios Current Ratio (CR) Quick Ratio (QR) Leverage Ratios Debt Ratio (DR) Debt to Equity (D/E) TIE Activity / Turnover Ratios ARTO DSO INVTO Profitability Ratios Gross Profit Margin (GPM) Net Profit Margin (NPM) ROA ROE 2010 Avg 2.5 1.6 0.4 0.7 14.0 10.6 34.6 7.0 0.4 0.2 0.2 0.4 Risk Analysis Able to cover short term debts; look into CA types to evaluate how quickly they can be liquidated to cover CL Able to cover short term debts; CA are heavily dependent on inventory Less dependent on money borrowed from others; using small amount of leverage; indicates strong equity position Using small amount of leverage; indicates strong equity position; should look into operational liabilities Can cover interest payments 14 times over; may indicate an inefficient use of funds 2.0 Low 1.0 Low 1.0 Low 1.0 Low 6.0 Low

The post-crisis regulatory framework has shifted from a framework which was centred on a single regulatory constraint – the risk-weighted capital ratio – to one with multiple constraints. In addition to the risk-weighted ratio, the post-crisis framework also includes a leverage ratio, large exposure limits and two liquidity standards (ie the Liquidity Coverage Ratio and the Net Stable Funding Ratio). And supervisory stress testing is playing an increasingly important role across a number of jurisdictions. Each regulatory measure has strengths and weakness. The multiple metrics framework is more robust to arbitrage and erosion

Systemic Risk is the risk of the collapse of the entire financial system, Kay (2008) defined it as ‘the tendency for the failure of a financial services business to have an impact on many other businesses.’ [ 16 ] The key to solving the problem of systemic risk is by naming and taxing the TBTF firms and this will minimize systemic risk and it will level the playing field for firms who do not have the same guarantee of financial support as TBTF firms do.

debt. The steady cash flow generated by the business, short-term bank loans, and the proceeds of the

firm’s financing, for example, issuing or repurchasing stock and borrowing or repaying loans. It also

I will additionally clarify the ratios that were computed, address different strategies for examining financial statements aside from ratio analysis. I will additionally clarify the examination of the firm, and make proposals for development. The manufacturing company I picked is Johnson & Johnson.

Due to this users of the financial statements identifies the merits and demerits of the entity, and also liquidity and solvency including financing.

1. Profitability Ratio - Profitability ratios measure the firm 's use of its assets and control of its

In the aftermath of the financial crisis of 2007 – 2009, the Basel Committee of Banking Supervision launched a program that substantially revised the existing capital adequacy guidelines. As a result, the Committee released a new version of bank capital and liquidity standards, referred to as “Basel III”, in December 2010. Subsequent guidance was issued in January 2011 regarding minimum requirements for regulatory capital instruments. The G20 , including United States and the European Union, publicly endorsed the Basel III standards at their November 2010 Summit in Seoul, and relevant countries around the world have made efforts to study its impacts on their banking industry and to find the best ways to implement them into law in their respective jurisdictions. There have been numerous worldwide debates and discussions since its introduction. However, the core principle of more stringent capital requirement has not been changed and it is now unavoidable for impacted financial institutions to comply with the new standards. The purpose of this paper is to summarize the key elements for the Basel III capital adequacy framework and discuss its practical implications on the financial industry.

The Basel Committee on Banking Supervision has developed a regulatory capital framework for operational risk measurement and introduced three approaches: the Basic Indicator Approach (BIA), the Standardized Approach (SA) and the Advanced Measurement Approach (AMA).The identification and measurement of operational risk can be viewed as following either the top down approach or the bottom up approach depending on the method used to calculate the risk charge. In the top down approach, the financial data is extracted from the Balance Sheet and Profit and Loss statement. This method may not result in the proper capturing of risks nor does it help in risk mitigation. This approach corresponds with the Basic Indicator Approach and the Standardized Approach of Basel II Accord. The third approach of the Accord i.e. Advanced Measurement Approach, is consistent with bottom up approach in which the regulatory capital requirement will be defined by the estimate generated by the internal operational risk measurement system (Rajeev, 2004).