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