Question

7) What was the aim of the Dodd-Frank Act? What are the ratios imposed by the Dodd-Frank Act and how have financial institutions responded? Discuss the recent proposed amendments to these regulations. What are the key revisions?

Answer 1

Dodd-Frank Wall Street & Consumer Protection Act passed in 2010 is a United States Federal Law. This created finanacial regulatory process to limit risk through transparency and accountability. It majorly focussed on banks for more strict rules and regulations. It's whistleblowing provision for those with original information about security breach to report to the government & were eventually financially awarded, was a great step to fight against financial corruption.

Dodd Frank Act provides a new rule in which a public company has to disclose the ratio of the compensation of its CEO to the median compensation of its employees. "pay ratio disclosure "is mandatory for a public company.

Many large multinational companies with huge workforce and compounded work culture have not faced difficulty in gathering pay data and calculating their CEO pay ratios becaused of their well designed system which has worked for years. Unfortunately the scenario is not same for other companies. Instead they are hoping that the rule will be delayed as they have done next to nothing to face it.

Recent proposed ammendments includes dozens of recommendations ranging from legislatives fixes which was supposed to be adapted by congress in order to boost economic growth as regulators colud lossen rule on banks.the report focussed on frequency ,scope etc. It also recommends openning up the Federal Reserve's role in stress testing banks. Several changes to " living wills" process were proposed etc

FOLLOWING are the major revisions

1>FSOC(Financial Stability Oversight Council) will stop designating companies like AIG.

2>It exempts banks with less than $10 billion in assets.

3>all hedge funds has to be registered with SEC

4>it would reduce the bank stress test from anually to every two year. These test tell the Federal Reserve that a particular bank has enough capital to survive economic crisis or not.