What Is Dodd Frank?

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IV. What is Dodd Frank?
Financial Services Chairman Barney Frank and former Chairman of the Senate Banking Committee Chris Dodd created the Dodd-Frank Wall Street Reform and Consumer Protection Act comprised of “849 pages, 16 titles, and 225 new rules across 11 agencies” (Richardson 85). It is a heavily regulated complex act created to reign in risky behavior of Wall Street. Epstein and Montecino from Political Economy Research Institute state, Dodd Frank came about to “reign in risky practices, increase the capital and liquidity buffers banks had to hold, bring derivatives under-regulation…begin to bring the largest most complex financial institutions…under scrutiny and some regulatory oversight”(1). Dodd- Frank signed into federal law
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“When a financial firm’s capital is low, it is difficult for that firm to perform financial services; and when capital is low in the aggregate, it is not possible for other financial firms to step in and address the breach” (Richardson, (87). There is a correlation between how much leverage a firm has and interconnected its assets are with other financial institutions. Systemic risk is very important and there is no mention in Dodd Frank about the interconnected on assets with other financial institutions. The International Monetary Fund in a recent G-20 commissioned study determined, “that institutions that were interconnected, not just the largest institutions, could impair financial markets” (Manasfi 191)”. So even if capital reserves are heighted it’s the interconnected of the institutions that will cause a problem in the economy. It would have been better to heighten capital reserves and at the same time reinstall something like the Glass Steagall Act to put up a wall to prevent the interconnection on financial institutions.
VI Stress testing and capital planning
Before the 2008 financial crisis many large financial firms were incapable of adequately assessing the chance that they would suffer large losses that could lead to their failure. As large firms began to suffer losses in late 2007, they made little effort to rebuild their capital buffer—either by reducing shareholder payouts or raising new equity capital—even though they easily could have
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