Dodd Frank Act

Summarize and assess the Dodd-Frank Act and it likely effects on financial markets.

The Dodd-Frank Wall Street Reform and Consumer Protection Act was created to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end “too big to fail,” to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes. It was proposed by Barney Frank from the House of Representatives and Chris Dodd from the Senate Banking Committee, and then signed into federal law by President Obama on July 21, 2010. This act is a way of producing financial regulatory reform in response to different economic issues. It was made in order to identify the risks in the financial stability of the U.S. in all organizations. It promotes discipline and the elimination of the expectation that the government will be shielding organizations from losses should failures arise. This act created the Financial Stability Oversight Council (FSOC) to look out for risks that affect the entire financial industry by having banks subject to a number of regulations along with the possibility of being broken up if any of them are determined “too big to fail.” The Volcker Rule is part of Dodd-Frank as it separates investment banking, private equity, and proprietary trading sections of financial institutions from their consumer lending arms. Dodd-Frank also requires that the riskiest derivatives such as credit default swaps be regulated by the SEC or the Commodity Futures Trading Commission. Dodd-Frank created an Office of Credit Rating to regulate credit ratings agencies and prevent investors from being misled by over-rated derivatives and mortgage-backed securities. The act also created the Consumer Financial Protection Bureau to protect consumers from unmoral business practices by banks.

Many people on Wall Street see the Dodd-Frank act as an overreaction to the recession of...