Question

What are the main features of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010?

Answer 1

Hi There,

Here is my view on Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 .

What Is the Dodd-Frank Wall Street Reform and Consumer Protection Act?

The Dodd-Frank Wall Street Reform and Consumer Protection Act is a massive piece of financial reform legislation that was passed in 2010, during the Obama administration. It was created as a response to the financial crisis of 2008. Named after sponsors Senator Christopher J. Dodd (D-Conn.) and Representative Barney Frank (D-Mass.), the act contains numerous provisions, spelled out over roughly 2,300 pages, that were to be implemented over a period of several years.

The Dodd-Frank Wall Street Reform and Consumer Protection Act—typically shortened to just the Dodd-Frank Act established a number of new government agencies tasked with overseeing the various components of the act and, by extension, various aspects of the financial system. When Donald Trump was elected President in 2016, he pledged to repeal Dodd-Frank; in May 2018, the Trump administration signed a new law rolling back significant portions of it.

Mainly Focus on :

• The Dodd-Frank Wall Street Reform and Consumer Protection 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.
• In 2018, Congress passed a new law that rolled back some of Dodd-Frank's restrictions.

MAIN FEATURES :

1) Over watching the  Wall Street :

The Financial Stability Oversight Council identifies the key risks which  affect the entire financial industry. If the firms become too big, the FSOC will turn them over to the Federal Reserve for closer supervision. For example, the Fed can make a bank increase its reserve requirement. That will make sure they have enough cash on hand to prevent bankruptcy. The chair of the FSOC is the Treasury secretary. The council has 10 voting members and five nonvoting members. Voting members include the Securities and Exchange Commission, the Fed, the Consumer Financial Protection Bureau (CFPB), the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation (FDIC), the Federal Housing Finance Agency, and the Consumer Financial Protection Agency. Dodd-Frank also strengthened the role of whistleblowers protected under SOX

2) Keeps Tabs on Giant Insurance Companies :

Dodd-Frank created a new Federal Insurance Office under the Treasury Department. It identifies insurance companies that create a risk for the entire system. It also gathers information about the insurance industry. In December 2014, for example, it reported on the impact of the global reinsurance market to Congress. The FIO makes sure insurance companies don't discriminate against minorities. It represents the U.S. on insurance policies in international affairs. The FIO works with states to streamline regulation of surplus lines insurance and reinsurance.

3) Prohibits  Banks from Gambling with Public Money :

The Volcker Rule bans banks from using or owning hedge funds for their own profit. It prohibits them from using your deposits to trade for their profit. Banks can only use hedge funds at a customer's request. However, this aspect of the Dodd-Frank Act has been a prominent target for rollback, including multiple proposed and finalized rule changes from agencies like the Fed and the FDIC.

4) Analyse the  Federal Reserve Bailouts :

The Government Accountability Office can review future Fed emergency loans, and the Treasury Department must approve the new powers. This provision addressed critics who thought the Fed went overboard with its emergency loans and other "bailouts" to the banks during the Great Recession.

5) Look into Risky Derivatives :

The Securities and Exchange Commission and the Commodity Futures Trading Commission regulate the most dangerous derivatives. They are traded at a clearinghouse, which is similar to a stock exchange. That makes the trading function more smoothly. The regulators can also identify excessive risk and bring it to policy-makers' attention before a major crisis occurs.

6) Monitors Credit Rating Agencies

Dodd-Frank created an Office of Credit Ratings at the SEC. It regulates credit-rating agencies like Moody's and Standard & Poor's. Critics of these agencies say they helped fuel the crisis by inaccurately reporting on the safety of some derivatives. Under Dodd-Frank, the SEC can require them to submit their methodologies for review. It can deregister an agency that gives faulty ratings.

7) Monitors and Regularise Credit Cards, Loans, and Mortgages

Dodd-Frank created the CFPI, which consolidated many watchdog agencies and put them under the Treasury Department. It oversees credit reporting agencies and credit and debit cards. It also oversees payday and consumer loans, except for auto loans from dealers. Banking fees are also under the purview of the CFPB. These include fees associated with credit, debit, mortgage underwriting, and more.

Although Dodd-Frank didn't ban risky mortgage loans, such as interest-only loans, it sought to protect homeowners by requiring better disclosure of what the loans actually were. Banks have to prove that borrowers understand the risks. They also have to verify borrower's income, credit history, and job status.