Dodd-Frank Wall Street Reform and Consumer Protection Act

Dodd-Frank Wall Street Reform and Consumer Protection Act

1. What is Dodd-Frank Act? What are its main proposals? Summarize, if possible.

        The Dodd-Frank Wall Street Reform is a very substantial piece of legislation that was put into effect by the Obama administration in response to the financial crisis of 2008. The reform is named after U.S. Senator Christopher J. Dodd and U.S. Representative Barney Frank. The overall goal of this piece of legislation is to limit the amount of risk in the U.S. banking system. The first was is the creation of the Financial Stability Oversight Council. This is a council created to monitor the banks that are viewed as two big to fail such as JP Morgan or Goldman Sachs. The council is able to dismantle financial companies if they deem necessary as well as force them to increase reserve requirements. The next council created in the Consumer Financial Protection Bureau, which has a main goal of stopping the predatory lending practices that led to the financial crisis in 2008.The Volcker Rule is the next key attribute of the Dodd-Frank Reform. This act restricts the ways banks can invest. It effectively was able to separate the investment portion of the bank with the commercials functions of the bank. Banks are no longer allowed to work with hedge funds or private equity firms because they are now classified as two risky. The act established the SEC Office of Credit Ratings, this being a direct cause due to the credit raters being blamed for the financial crisis after giving out misleading investment ratings. The act also created provisions for regulating derivatives and credit default swaps so they are now traded in a centralized market. The Dodd-Frank Reform has many positives to offer to the U.S. Financial Markets.

2. What is the basic motivation behind these proposals?

        The main motivation behind these proposals is to make using financial markets have less risk so as to not have issues like the 2008 financial crisis. All of these regulations are being proposed in order to make sure something like that does not occur again.

3. For each of the proposals, discuss who is likely to support the changes and why (winners).

        The main winners with this reform are Wall St. and derivatives traders. The reform itself sets apart the elite of Wall Street and makes it very difficult for another bank to break into the market. This is also a win for derivative traders the only real changed that was made that they must be a separate entity from the bank compared to before, the only real change that was made was increased transparency.