Dodd Frank Thesis

The Dodd-Frank Wall Street Reform and Consumer Protection Act
Purpose Statement The economic policy I have decided to research is The Dodd-Frank Wall Street Reform and Consumer Protection Act, more commonly referred to as The Dodd-Frank Act. This particular economic policy interests me because of the reasons that lead to the Great Financial Crisis in 2008 and the massive financial impact that was felt not just by one particular group of individuals but by everyone across the country. The Dodd-Frank Act is a compendium of federal regulations, primarily affecting financial institutions and their customers, in an attempt to prevent the recurrence of events that caused the 2008 financial crisis (Investopedia, 2010) The Dodd-Frank Act, which comprises
There were several factors that contributed to the market failure that can be observed as far back as the repeal of The Glass-Steagall legislation in 1998. Banks became involved with precarious investments, asset managers began dealing in high-yield mortgage-backed securities, and credit agencies such as Moody’s, S&P and Fitch presented AAA ratings on the junk securities all of which was just the start of the breakdown in the market. Then in 2006, there was a strong drive for short-term profits in which 84% of sub-prime mortgages were issued by private lending firms to low and moderate income borrowers (Swift, 2011). The lack of regulation allowed companies to write trillions of dollars in derivatives all while not reserving any dollars against future claims. Additionally, with combination of the majority of the sub-prime lenders not being obligated to the standard mortgage laws and regulations, the use of nonbank underwriters, and exempt status from federal regulations lead to the financial crisis of
The act established a number of new government agencies tasked with overseeing various components of the act which include The Financial Stability Oversight Council and Orderly Liquidation Authority, The Consumer Financial Protection Bureau, The Volcker Rule, and the SEC Office of Credit Ratings (Fontinelle, 2013). The Financial Stability Oversight Council observes potential risks that could affect the entire financial industry, regulates non-bank financial firms, and makes recommendations to the Federal Reserve to supervise any company that gets too big, thus preventing the too-big-to-fail. The Orderly Liquidation Authority provides for orderly liquidations or restructurings if any firm becomes too weak and prevents tax dollars from being used to prop up such firms (Fontinelle, 2013). The Consumer Financial Protection Bureau supervises credit reporting agencies, as well as payday and consumer loans while regulating credit fees, which include credit, debit, mortgage underwriting and bank fees. Due to the banks misuse of depositors' money in hedge funds for own profit, The Volcker Rule was initiated to prohibit banks