Theu.s. Dodd Frank Wall Street Reform And Consumer Protection Act

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.

ABSTRACT There are many analyses of the economic effects that regulations, in general, and Sarbanes-Oxley Act, in particular, have had on American business. This analysis looks at the effect that the Sarbanes-Oxley Act has had on the American banking industry. The return on assets and return on equity were obtained from the Federal Reserve Bank for all SEC-registered and nonregistered banks for the period 2000

After Dodd-Frank Act takes effect, the impacts on the stakeholders, negatively and positively, especially the financial institutions, investors and customers, are far-reaching. Accompanying with that, efficiency and adequacy of the Dodd-Frank Act is examined.

Before the advent of the Federal Deposit Insurance Corporation (FDIC) in 1933 and the general conception of government safety nets, the United States banking industry was quite different than it is today. Depositors assumed substantial default risk and even the slightest changes in consumer confidence could result in complete turmoil within the banking world. In addition, bank managers had almost complete discretion over operations. However, today the financial system is among the most heavily government- regulated sectors of the U.S. economy. This drastic change in public policy resulted directly from the industry’s numerous pre-regulatory failures and major disruptions that produced severe economic and social

While Dodd Frank was held as an act that would increase capital and liquidity buffers banks held and reign in the risky behavior of financial institutions. In doing so it has cost a heavy burden to bank in the form of compliance cost and implications about its future impact on households and the financial sector. Listed are the six key provisions of Dodd Frank, in each highlighted area the pros and cons of that key aspect that will be discussed.

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

Of the five program areas, the majority of the TARP money was spent stabilizing banking institutions, with a total of $250 billion. $27 billion was committed to efforts in restarting credit markets, and another $47 billion committed to help families avoid foreclosure. The other two program areas were efforts to provide stability to the U.S. auto industry in the amount of $82 billion, and approximately $70 billion was committed to stabilize American International Group (AIG). In addition, the U.S. Treasury implemented standards of executive compensation for financial institutions that were rescued by the TARP program (Department of Treasury, n.d.).

The Dodd-Frank Regulatory Reform Act is one of the most influential regulations in response to the financial crisis. This acts primary focus is to prevent future financial system collapses, by reducing excessive risk taking by financial institutions and by protecting the consumers (Rose & Hudgins, 2013). In addition, the Dodd- Frank Act gives the Federal Reserve the authority to monitor financial institutions and gives them the power to restructure or liquidate firms that are financially inadequate (Investopedia, 2010). Fortunately, since the 2008 financial crisis a number of new regulations have been enacted, the Dodd-Frank Act is the most monumental new regulation, because it seeks to prevent future bank bailouts and the risky behaviors of financial institutions. While these regulations may not be enough to fully prevent another financial crisis, the necessary steps have been taken to minimize the disastrous effects of overt risk taking by financial

The Treasury Department purchased $40 billion in AIG preferred shares from its Capital Repurchase Plan. The Fed will purchase $52.5 billion in mortgage-backed securities. The funds are allowing AIG to retire its credit default swaps.” The case of AIG demonstrates a specific illustration of the “too big to fail” problem.

Dodd-Frank Repeal. The Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155) was the most significant overhaul of the banking sector to become law since Dodd-Frank was enacted in 2010. The House Congressional leaders agreed to vote on the compromise bill that Senate Republicans negotiated with enough Democrats in exchange for a promise that a broader set of House-passed rollbacks will get a vote later this year. As a result, S.2155 contains marginal changes and exemptions from existing rules and regulations for smaller banks. It also relieves some larger bank holding companies from some of Dodd-Frank’s heightened regulations. Unfortunately, Mercatus research had little to no effect on substantial policy issues or discussions.

This helped strengthen the financial system in the aftermath of the subprime mortgage crisis that started in 2007. This act requires banks to reduce their risk taking by requiring greater financial cushions like lower leverage ratios for example, among other prevention methods. Financial institutions have also been required to have easily sold assets on hand in the event of financial difficulties. They can keep their assets either at their own bank or through another financial institution. Regulators have also worked with financial institutions to reduce their leverage ratios. There are many pros to take notice of, for example the Dodd-Frank act requires full and fair disclosure by lenders to credit consumers. Another positive aspect would also include the requirement for most derivative securities to be traded on visible government regulated exchanges. This act also amends the Sarbanes-Oxley Act to eliminate imposition of its most costly accounting requirements, on smaller

Almost 1.2 trillion dollars were spent on bailing out the various banks in the 2008 financial crisis. First, what bailouts are is explained. Then, the history of bailouts in the US is told. Finally, the effects of the recent bailouts are analyzed. Because billions of dollars are spent on bailouts, they need to be understood by the public by knowing their history and their effects on the economy to ensure informed decisions in the future on whether or not banks should be allowed to fail.

The financial markets for a long time were regulated following the aftershocks of the global recession which affected several economies across the globe. It was until the 1980's that the federal government passed the Deregulation and Monetary Act which was aimed at providing deregulation for the financial institutions. This gave the banks the flexibility to compete and extend their services at a much easier and faster way in a very competitive market and a less regulated environment. The aim was to provide better and affordable financial services to the consumers.

In conclusion, because of the 2007-8 financial crisis and the resulting Dodd-Frank legislation the era of the TBTF bank and non-bank financial institution is over. The FDIC now has the regulatory authority to liquidate these [formerly] TBTF bank and non-bank financial institutions in an orderly manner. The ultimate goal of the FDIC’s new regulatory powers is to protect the taxpayer from another bailout.

When looking at something as large as the economy, we have to realize that there is always the potential for something to go wrong. This could be something that naturally takes place due to lows and highs in business cycles, or something that is totally unnatural, like human manipulation of the market. Due to things like this we often have to set some type of regulations to keep certain factors of the economy in check. During this paper I will discuss some of the regulation packages that have been introduced in an effort to keep the economy in check. A few of these include the Glass-Steagall Act, the Frank-Dodd Act, and the Volker Rule. Furthermore, we will attempt to answer questions like, how does the Frank-Dodd address the “Too Big to Fail” problem with banks? Do you think the Frank-Dodd Act accomplishes its goal? If not, what might you suggest to correct the issue?