Question

Can someone explain the Dodd-Frank act, and the Housing Reform act of 2008 in regular English? I've tried to look it up and it seems super complicated with a bunch of terms.

Answer 1

odd-Frank is a bill named after the Senators that sponsored and published it and was aimed at addressing the issues around financial institutions being “too big to fail”. It reintroduced some of the restrictions foregone by the repeal of Glass Steagall.

While ostensibly the American version of Basel III , it extended it, and chose some local alternatives to the equivalent international standards. It is a huge bill but some of the issues it address are:

Capital - minimum required capital, stress tests, eligible capital instruments and counter cyclical buffers (i.e. requiring institutions which may be too big to fail to hold more capital in anticipation of bad times). Increased capital allocation to securitizations.

Introduced Consumer Protection Agency to give more rights to consumers and to try and prevent predatory lending practises.

Rating Agencies - removed the agencies from the capital allocation process, made them more accountable and less prone to conflict of interest

Derivatives - introduced clearing houses and exchanges for derivative transactions to increase transparency, required collateral to be posted and adjusted daily. Increased the capital penalties for derivatives and encouraged the push out of derivatives companies from banks.

Introduced the Volcker rule to limit banks use of the balance sheet for speculative purposes such as private equity, hedge funds etc.