The Dodd Frank Act in a Nutshell

In response to the financial crisis, the Dodd Frank Act was signed by the US Administration in 2010. By affecting all the federal financial regulatory agencies and almost every part of the financial services industry, it reshaped the entire financial regulation in the US.

Its main objective is to fight systemic risk by identifying, evaluating and managing threats to the stability of the American financial system.

It has therefore created two new agencies, which are the Financial Stability Oversight Council and the Office of Financial Research. The authority of the Federal Reserve Board of Directors has been reinforced.

The Financial Stability Oversight Council coordinates actions and eases communications among financial regulators, evaluates nonbank financial companies and enforces new risk mitigation standards.

The Office of Financial Research collects different types of data and creates new tools to assess and cope with risks.

The Federal Reserve Board implements stress tests, imposes risk control measures and restricts the access to the US market to certain financial players.

The three major outcomes of the Dodd Frank Act are the reduction of the size of the OTC derivative market through regulated exchanges and clearing houses (CCPs), the limitation of speculation on commodities as well as the creation of the Volcker rule whose major goal is to ban proprietary trading activities in banks and separate market-making trading from proprietary trading activities.

Dr. Jacqueline Haverals, BSL Professor

Jacqueline Haverals

 

 

 

2 thoughts on “The Dodd Frank Act in a Nutshell

  1. Would not the reenactment of the Glass- Steagall Act have more efficiently and effectively addressed the issues associated with the financial meltdown of 2008 in the U,S.? Moreover, would not criminal prosecution of those who carried out such wrongful acts leading up to the 2008 financial debacle better serve society going forward? Dr. Ivo Pezutto has a great book on this subject: “Predictable and Avoidable”. BusinessWeek a few years ago also produced a spaghetti map of the implications of the Dodd-Frank Act (it implied this act has and will create a financial regulatory mess). In fact, the parties whose names title the act (Dodd & Frank), were at the root cause of some principal drivers that caused the financial imbroglio – NINA (no income, no assets – or liars’ loans) housing loans I think it is therefore prudent to ask should we follow an act drafted/overseen by the two principals who created some of the biggest means (housing loans for unqualified parties) for the financial debacle to take place? Repeal Dodd-Frank and bring back Glass-Steagall.

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