Dodd-Frank Act of 2010

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 general objective of this policy paper is to deeply understand the latest and most influential financial reforms and the current financial environment in U.S through relatively comprehensive analysis with regard to the Dodd-Frank Act. In doing so, I move forward to provide some suggestions on improving the relevant legislature.

Prior to the 2008 economic depression, obtaining a mortgage was relatively simple for home buyers. However, many of those mortgages had provisions that made it difficult for borrowers to repay their mortgages (“Dodd-Frank,” n.d.). As a result, many homeowners lost their homes when they were unable to repay their mortgages, which led to the real estate crisis. In 2010 the Mortgage Reform and Anti-Predatory Lending Act, also known as the Dodd-Frank Act, was enacted to reform how mortgage servicers vetted borrowers and to eliminate the use of predatory loan practices (Cheeseman, 2013, p. 485). Under the Dodd-Frank Act, creditors must establish borrower’s credit history, income and expected income, debt-to-income ratio, and other factors before

The Volcker Rule is said to limit speculative trading and do away with proprietary trading by banks. This change could make it more difficult for banks to be profitable. The act also contains a provision for regulating derivatives such as the credit default swaps that were widely blamed for contributing to the 2008 financial crisis. The Volcker Rule also regulates the financial firms' use of derivatives in an effort to prevent "too-large-to-fail" institutions from calling for big risks that might wreak havoc on the wider economic

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

The United States has one of the biggest and fastest growing economies of the world. Our financial system has been affected by numerous crises throughout the years and as a result Congress has reacted in the most recent times and two well-known acts have been signed into laws by the presidents at the time to protect investors and consumers alike. A brief overview of the Sarbanes-Oxley Act of 2002, a discussion of some of the provisions therein, opinions of others regarding the act and also my personal and professional opinion will be discussed below. The same will be examined about the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The banks were bailed out in 2008 because the government wanted to buy $700 billion to buy distressed mortgage, and to take off debts on the banks books. The bailout created a bill called the Troubled Assets Relief Program. This means troubled banks have the right to submit a bid price to sell their assets to TARP as part of a reverse auction. This act helps the government know they did not spend a certain amount of money. The bank was bailed out by George Bush in October 3, 2008. The Volcker Rule affect the risky investment by having a hold on what type of trading that the banks do. This Act does not allow investment banks into trading with low quality assets, as in options, derivatives and

The Dodd- Frank law on whistle-blowing bounty program is an upgrade from the Sarbanes- Oxley. The Sarbanes – Oxley whistle -blower program protected employees from getting retaliated upon by their employers when they report misconduct within the company they are employed. Dodd- Frank law took is a step further, an employee who reports financial misconduct are entitled to receive 10 percent to 30 percent of the fines and settlements if the conviction is upheld and the penalties exceed $1 million dollars (Ferrell, 112, 2013). The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law by President Obama in 2010 (Ferrell, pg. 110, 2013). The focal mission of the Consumer Financial Protection Bureau is to make markets for

The Dodd-Frank Wall Street Reform and Consumer Protection Act is a massive piece of financial reform legislation passed by the Obama administration in July 2010 as a response to the financial crisis of 2008. Named after sponsors U.S. Senator Christopher J. Dodd and U.S. Representative Barney Frank, the act's numerous provisions, spelled out over roughly 2,300 pages, are being implemented over a period of several years and are intended to decrease various risks in the U.S. financial system. The law was initially proposed by the Obama administration in June 2009, when the White House sent a series of proposed bills to Congress. A version of the legislation was introduced

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.

On July 21, 2010, in Washington D.C., President Barack Obama signed into federal law the Dodd Frank Wall Street Reform and Consumer Protection Act, better known as the Dodd-Frank Act. The much criticized law, was passed as a response to financial effects of the financial crisis of 2007-2010 and presented changes to the country’s regulatory environment directly affecting all federal regulatory agencies and the financial services industry. The controversial law.

The Glass-Steagall Act of 1933 that defined the roles for commercial banks, investments banks and insurance firms was over ridden by the Gramm-Leach-Bliley Act (1999) which repealed the provisions that restricted affiliations in financial institutions. Hence one solution is to overcome the incentive problem and the conflict of interests that arise when financial institutions simultaneously undertake financial activities of varied nature.

Because Goldman Sachs had to convert to a bank-holding company after receiving bailout funds from the United States government, Goldman must follow the Volcker Rule. The Volcker Rule limits a bank or bank-holding company from making speculative investments that are non-beneficial to customers and greatly limits the ability for the company to invest in hedge funds or private equity funds (Hoffman, 2016). This rule has led to the deleveraging of the balance sheet by traditional investment banking firms such as Goldman Sachs. As shown in the liabilities section of the balance sheet, Goldman has reduced securities loaned by 49.68 percent, trading liabilities reduced by 20.52 percent, and short-term borrowings reduced by 39.66 percent from 2011 to 2015. Conversely, Goldman has seen a 111.50 percent increase in customer deposits (good liabilities) over the same time

However, Bernanke admonished investors by the book that even though banking regulation and supervision protect investors as always, if some particular events or financial crisis happened, like housing bubble and mortgage markets crisis, either or both of these two system work. The example in the book is booming house prices in 2000s. After the sharply increasing of housing prices, risky mortgage lending likes subprime lending trouble began surfacing in 2006 and 2007. The risky mortgage comes with more demand for housing, which will again push the housing prices higher and higher, reinforcing a vicious cycle. As a result, because of the nominate housing price is much higher than the real price, the careful lenders who have good credit step out the market, the rest of borrowers are subprime lenders, “some borrowers were defaulting on loan after making only a few, or even no, payments.” (318) In the book, Bernanke conceded that Fed responded the trouble slowly and cautiously. When Board in Washington determined to make supervision of bank more centralized, he still overconfidently believe that Reserve Bank staff were better informed about condition in their districts. Another Bernanke’s conceit is that the financial regulatory system was not as stable and comprehensive as he thought before the financial crisis. In

The financial instability of the past few years has provided important evidence that can be used for the detection of dangerous flaws in the international banking system. After the financial crisis of 2008- 2009, the Basel Committee on Banking Supervision made significant steps in improving understanding the key supervisory issues and improvement of banking regulation worldwide. Subsequently, new standards were created for banking system regulation, which represents upgraded capital requirements, liquidity norms, and additional monitoring tools for banking supervision and regulation. These standards were first established in 2009 by the BCBS though some of the Committee’s proposals remain currently open for discussion.