The Dodd-Frank Bill in the US

The Dodd-Frank Bill in the US

Introduction

The 2008 financial crisis had impacted the whole world. It had impacted all parts of the world and had caused problems for all the businesses in the world. There were specific sectors that were impacted by this financial crisis and they were the ones who had suffered losses. People have described this financial crisis, the worst after the Great Depression. Although many measures were taken to reduce the impact of financial crisis, none of them worked in an effective manner. Countries had to suffer huge losses and the situation of their economies weakened with time and as the crisis got stronger (www.aim.org). The economic decline all around the world caused a lot of damage to different countries, and there are countries who are suffering from this crisis till now.

Discussion

During the financial crisis of 2007-2009, some of the world's largest financial firms filed for bankruptcy. Stock markets lost value on a massive scale as investors sought safer investments. The crisis rippled from Wall Street across the United States, evidenced by persistently high unemployment rates. Angry Americans blamed excesses in the financial industry and demanded a government response. The controversial result, The Dodd-Frank Wall Street Reform And Consumer Protection Act of 2010, claims to resolve systemic failures in the financial industry that led to the crisis (Perlow, 2011).

President Obama described Dodd-Frank as a “sweeping overhaul of the United States financial regulatory system.”1 Dodd-Frank intends to regulate the financial system so comprehensively that future crisis are prevented and large institutions never again require a government bail-out. As such, the law addresses the alleged main cause of the crisis: excessive speculation and risk-taking by financial firms so large that they are systemically important to the economy.

Key Provisions of Dodd-Frank

Dodd-Frank attempts to prevent future financial crises by enhancing regulation of the financial industry. The requirements of Dodd-Frank could be viewed positively or negatively. New regulatory burdens - like capital reserves, reporting requirements, and trading restrictions - both levy substantial compliance costs and strive to instill confidence in the financial industry. Similarly, the creation of a new regulatory bodies, like the Financial Stability Oversight Council, may both complicate compliance requirements and create a stronger regulatory system, with respective costs and benefits. Capital requirements are a clear example of compliance costs that may benefit the system overall by preventing crises and the need for government support. Also, bans on proprietary trading and participation in hedge funds affect some of the most profitable but most risky activities of financial firms. Therefore, the net effect may be costly or beneficial, and investor perceptions may differ (Penner, 2008). The regulation of new financial products previously excluded from oversight, including swaps and other products that were blamed for causing the financial crisis, is another example of costly but potentially beneficial regulation. Finally, Dodd-Frank requires an overhaul the mortgage industry, aimed at preventing another housing bubble, with new requirements on real estate sales and brokers. All of these new requirements add ...