Question

.One of the most important and well known reform act passed in response to the Financial Crisis of 2007-2009 was the Dodd-Frank Wall Street Reform and Consumer Protection Act, popularly called the Dodd-Frank Act. Explain 2 specific provisionsof this Act and the purpose it was designed to fulfill?

b. One goal of the Dodd-Frank Wall Street reform is to end the too-big-to-fail problem. How did it propose to do so? Why might it fail?

Answer 1

2 Specific provisions are as per below.

1) The Consumer Financial Protection Bureau: The purpose of this bureau was to protect consumers from risky lending since this was the main reason for the financial crisis of 2007-2009 and this makes easier for consumers to understand mortgage terms and conditions before proceeding with the mortgage loan.

2) Volcker Rule: This restricts and forbids the banks to invest their money in hedge funds and private equity firms, they can't invest their own profit into or own any proprietary trading operations with some exceptions and same was done to avoid conflict of interest in their business interests.

b) Too big to fail problem: Financial Stability Oversight Council and Orderly Liquidation Authority tracks the financial stability of big firm and banks whose failure can put big effect on the economy and which can create economic crisis of big scale and these firms are treated as (Too Big to Fail) and orderly liquidation fund provides money to liquidation/closure of these financial firms and even the Financial Stability Oversight Council can break the banks which are too big and too risky to the economy and its financial health.