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    Dodd Frank Act

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    Paras Mittal
    The Dodd-Frank Act aimed to prevent another financial crisis like 2008 by establishing new regulations and agencies. It targeted banks, mortgage lenders, and credit rating agencies believed to have caused the crisis. Key provisions included establishing the Financial Stability Oversight Council to monitor systemic risk, the Consumer Financial Protection Bureau to prevent predatory lending, and the Volcker Rule restricting speculative trading. However, critics argue the regulatory burden may make US firms less competitive than foreign counterparts.

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    Dodd Frank Act

    Uploaded by

    Paras Mittal
    18 views2 pages
    The Dodd-Frank Act aimed to prevent another financial crisis like 2008 by establishing new regulations and agencies. It targeted banks, mortgage lenders, and credit rating agencies believed to have caused the crisis. Key provisions included establishing the Financial Stability Oversight Council to monitor systemic risk, the Consumer Financial Protection Bureau to prevent predatory lending, and the Volcker Rule restricting speculative trading. However, critics argue the regulatory burden may make US firms less competitive than foreign counterparts.

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    The Dodd-Frank Act aimed to prevent another financial crisis like 2008 by establishing new regulations and agencies. It targeted banks, mortgage lenders, and credit rating agencies believed to have caused the crisis. Key provisions included establishing the Financial Stability Oversight Council to monitor systemic risk, the Consumer Financial Protection Bureau to prevent predatory lending, and the Volcker Rule restricting speculative trading. However, critics argue the regulatory burden may make US firms less competitive than foreign counterparts.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    18 views2 pages

    Dodd Frank Act

    Uploaded by

    Paras Mittal
    The Dodd-Frank Act aimed to prevent another financial crisis like 2008 by establishing new regulations and agencies. It targeted banks, mortgage lenders, and credit rating agencies believed to have caused the crisis. Key provisions included establishing the Financial Stability Oversight Council to monitor systemic risk, the Consumer Financial Protection Bureau to prevent predatory lending, and the Volcker Rule restricting speculative trading. However, critics argue the regulatory burden may make US firms less competitive than foreign counterparts.

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     The Dodd-Frank Act targeted the sectors of the financial system that

    were believed to have caused the 2008 financial crisis, including banks,
    mortgage lenders, and credit rating agencies.
     Critics of the law argue that the regulatory burdens it imposes could
    make United States firms less competitive than their foreign
    counterparts.

    The Dodd-Frank Wall Street Reform and Consumer Protection Act was
    intended to prevent another financial crisis like the one in 2008.

    One of the key provision of Dodd Frank act is:

    1. Financial stability
     Under Dodd-Frank, the Financial Stability council monitor the financial
    stability of major financial firms whose failure could have a serious
    negative impact on the U.S. economy (companies deemed "too big to
    fail").
     The council has the authority to break up banks that are considered
    large as to pose a systemic risk; it can also force them to increase their
    reserve requirements.

    Another key provision was establishment of

    2. Consumer Financial Protection Bureau


    The Consumer Financial Protection Bureau (CFPB), was given the job of
    preventing predatory mortgage lending and make it easier for consumers to
    understand the terms of a mortgage before agreeing to them ,

    As subprime mortgage market was the underlying cause of the 2008 crisis.

    The Volcker Rule


    Another key component of Dodd-Frank, the Volcker Rule, restricts the ways in
    which the banks can invest, limiting speculative trading and eliminating
    proprietary trading. Banks are not allowed to be involved with hedge funds or
    private equity firms, which are considered too risky.

    Volcker Rule aims to protect bank customers by preventing banks from


    making certain types of speculative investments that contributed to the 2008
    financial crisis.

    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. Dodd-Frank set up centralized exchanges for swaps trading to reduce
    the possibility of counterparty default and also required greater disclosure of
    swaps trading information to increase transparency in those markets. The
    Volcker Rule also regulates financial firms' use of derivatives in an attempt to
    prevent big institutions from taking large risks that might have greater impact
    on the broader economy.

    In other words, the rule aims to discourage banks from taking too much
    risk by barring them from using their own funds to make these types of
    investments to increase profits. The Volcker Rule focuses on the fact
    that these speculative trading activities do not benefit banks’ customers.

    Limitations of Dodd Frank:

     Critics of the law argue that the regulatory burdens it imposes could
    make United States firms less competitive than their foreign
    counterparts.

     The higher reserve requirements under Dodd-Frank mean banks must


    keep a higher percentage of their assets in cash, which decreases the
    amount they are able to hold in marketable securities. In effect, this
    limits the bond market-making role that banks have traditionally
    undertaken. With banks unable to play the part of a market maker,
    prospective buyers are likely to have a harder time finding counteracting
    sellers. More importantly, prospective sellers may find it more difficult to
    find counteracting buyers.

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