Professor Jacquelyn Mosely
ACC 599 – Graduate Accounting Capstone
April 27, 2012
Dodd-Frank act, named after its founder, the Democratic senators Chris Dodd and Barney Frank, designed to form a new Financial Stability Oversight Council, or better call it an authority on non performing banks and financial institutions, enforces very stringent capital, leverage and liquidity requirements. The Act holds new necessities for private equity funds, credit rating agencies, debit card interchange fees, derivatives, hedge funds, and corporate governance, to which we believe, will certainly pull down the ability to churn out better profit levels of US banks (Brush, 2012) .
What’s more, with this act we believe that the indications are on concluding the 50 years old financial deregulation, which was supposed to be the best for the US economy. If the critics have to be believed, then this act has little to do in order to save the next crisis as this only stresses on “too big to fail”, and has indeed failed to take into account the reform of America's mal-performing secondary mortgage players Freddie Mac and Fannie Mae, and has also failed to re-establish Glass-Steagall’s separation of “utility” and “casino” banking. In totality this indicates that, this act will prove more destructive that constructive as it doesn’t lay emphasis on the future financial crises and rather seems to obstruct the economic growth (Brush, 2012) .
Discuss how the changes in the lending regulatory environment, particularly with the passage of the Dodd-Frank Act, has impacted the bank’s ability to lend money to businesses for capital projects and acquisitions. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, enacted by the Obama administration in the United States, is perhaps the most ambitious and far-reaching overhaul of financial regulation since the 1930s. When the financial crisis was at its peak, in 2008, few of the large companies like Citigroup, Bank of America, JPMorgan Chase and Goldman Sachs fell into the trap of liquidation due to their high lending activities to numerous businesses and capital projects, which left these banks broke to pathetic levels and finally they surrendered for bailout funds under the Troubled Relief Assets Program ("Dodd-Frank ," 2012). In order to normalize such acts by the big financial institutions, to avoid big time financial bankruptcies, the Dodd-Frank Act came into act a year ago, and has limited the activities of these financial biggies due to which they slithered down the way to insolvency and has specified the same to the authority of the Federal Deposit Insurance Corporation ("Dodd-Frank ," 2012). Here are the highlights of the Act:
• Identifying and regulating systemic risk: Sets up a Council that can deem non-bank financial firms as systemically important, regulate them and, as a last resort, break them up; also establishes an Office under the Treasury to collect, analyze and disseminate relevant information for anticipating future crises. • Proposing an end to too-big-to-fail: Requires funeral plans and orderly liquidation procedures for unwinding of systemically important institutions, ruling out taxpayer funding of wind-downs and instead requiring that management of failing institutions be dismissed, wind-down costs be borne by shareholders and creditors, and if required, ex post levies be imposed on other (surviving) large financial firms. • Expanding the responsibility and authority of the Federal Reserve. Grants the Fed authority over all systemic institutions and responsibility for preserving financial stability. • Restricting discretionary regulatory interventions: Prevents or limits emergency federal assistance to individual non-bank institutions. • Reinstating a limited form of the Glass-Steagall Act: Limits bank holding...