The introduction of the Glass-Steagall Act resulted in banks to separate either into commercial banks or investment banks. A commercial bank is a bank that offers it service to the general public, whereas an investment bank is a bank that purchases shares to resell them to investors. Prior to the Glass-Steagall Act many banks would be both a commercial bank and an investment bank. Furthermore, banks at the time would take risks with the people’s money which ultimately resulted in the banks to crash. By instating the Glass-Steagall Act, risks regarding the people’s money were reduced. In the Glass-Steagall two different views become more noticeable. One is a progressive belief, since by implementing the Glass-Steagall act the government has greater regulation than before. However, conservative beliefs also formed due to the Glass-Steagall Act. Conservatives had repealed and blocked the reinstatement of the act. Many attribute the Glass-Steagall Act the primary reason to the recession in 2008. There is a progressive belief in that the Glass-Steagall act resulted in better management of the people’s money, but there are also conservative beliefs expressed through its blockade of renewal. The attempt to not renew the act shows that there are also people who attempt to have a more deregulated government and hence being conservative. Through these two different actions there is a
... could have such an impact after three decades of virtually innocuous existence. Pundits point to the 1995 CRA regulatory changes passed by congress and signed into law by President Bill Clinton. These changes strengthened the standards by which CRA regulators were able to judge banks on how well they were serving the credit needs of their local community. However in 2004, President George Bush repealed most of these changes, and weakened the CRA to where it had been in the early-90’s. It is simply implausible that the CRA had no negative ramifications until 30 years after it was passed. If it were a substantial cause of horrific lending standards, the financial crisis would have occurred much earlier than 2007. There must have been other, much larger contributing factors that arose in the 30 years after the CRA was enacted that led to the housing crash.
...omestic banks. The adoption and implementation of the Basel II Capital Accord in 2008 has led to improved risk management and stronger crisis management.
The Volcker Rule, named after the former chairman of the United States Federal Reserve Paul Volcker, was first publicly discussed in January 2010. President Obama had proposed the Volcker Rule as an additional ruling to the Dodd-Frank Wall Street Reform and Consumer Protection Act, a bill that was at the time already under consideration by Congress. The Dodd-Frank Wall Street Reform and Consumer Protection Act, also known as the Dodd-Frank Act, was projected to help further promote and regulate financial stability of the United States’ economy, especially during the Great Recession, which officially lasted from 2008 to 2010. The general purpose of this Act is to regulate the financial regulatory system by avoiding any excessive or unnecessary risk-taking by large, influential banks, which is one of the significant causations that initially triggered the financial crisis. One crucial piece of this Act is the Volcker Rule, as it seeks to financial regulators to reform the ways banks can invest and regulate trading in the markets. The Volcker Rule is intended to greatly reduce risks within the banking industry by setting a restriction to trading. It limits the way banks invest their money within “speculating” markets, in which are not related to or benefit their customers. The more specific banking entities the Volcker Rule emphasizes on prohibiting any investments, ownership, or sponsorship of hedge funds, private equity funds, as well as, any “proprietary” trading. Additionally, it generally prevents financial institutions from using any of the bank’s money, which is insured by the FDIC, to manage any private equity funds and hedge funds.
The Sarbanes-Oxley act also goes by ‘Public Company Accounting Reform and Investor Protection Act’ or also the ‘Corporate and Auditing Accountability and Responsibility Act’. The Act had a total of 11 sections in it ranging from penalties that criminals could face or responsibilities that the boards at corporations. The Act had a purpose to protect the people who are investing or looking to buy stocks from companies by making the reports and financial statements more reliable and stick punishments for those who don’t abide by the law. The 11 Sections included:
Although the crisis came to head in 2008, there were people who had realized that trouble was coming for years. The largest warning sign was the amount of credit in the market place. Many of the big companies and banks had very little capital, and the lack of capital was brought on by the housing bubble. Companies were lending too much money to people who could not pay them back. And even before people started to default on their mortgages, people could see that this was a problem. During a meeting with the Senate Committee on Banking, Housing, and Urban Affairs in January 2007 the staff of the Federal Reserve admitted “that they were aware of [the] problem in the housing issue three years earlier” (Dodd). And they were not the only ones. As far back as 2001 there were people who saw the danger that sub-prime mortgages were and who were trying to have bills passed to stop the bad lending that was going on, but no one wanted to list...
...one of the most complex and confusing cornucopia of corridors to ever stumble down. Another remedy to the situation would be a hardnosed restructuring of the banking system, but with a newly resurgent 780 billion dollar taxpayer handout of power from the federal government the likelihood of anyone finding that theory as any more than a Ralph Nadar dream would find themselves sorely disappointed. The subtle way to fixing the problem without disrupting the entirety of the current order of finance would be to create a grassroots credit default swap market accessible to homeowners rather than large financial catacombs of lending and borrowing, far from the sight of the public. Regardless of the change regulations need to and have not, to date, been enacted which will cause another crash in the future or deepen the current economic situation into a full-blown depression.
In the 1930s the United States was hit by far the worst financial crisis that it has ever encountered, which was called The Great Depression, but the second worst was not that long ago. During the Financial Crisis of 2007-2009 the United States had a chain of banking failures and a tremendous growth of liability in the federal budget. However, the government had stepped in to prevent some of these failures and through this the concept of “Too Big To Fail” arose once again.
The Dodd–Frank Wall Street Reform and Consumer Protection Act was signed into federal law by President Barack Obama on July 21, 2010 at the Ronald Reagan Building in Washington, DC. Passed as a response to the late-2000s recession, it brought the most significant changes to financial regulation in the United States since the regulatory reform that followed the Great Depression. It made changes in the American financial regulatory environment that affect all federal financial regulatory agencies and almost every part of the nation's financial services industry.The law was initially proposed by the Obama Administration in June 2009, when the White House sent a series of proposed bills to Congress. A version of the legislation was introduced in the House in July 2009. On December 2, 2009, revised versions were introduced in the House of Representatives by Financial Services Committee Chairman Barney Frank, and in the Senate Banking Committee by former Chairman Chris Dodd. Due to their involvement with the bill, the conference committee that reported on June 25, 2010, voted to name the bill after the two members of Congress.
Ibid. Grant, Joseph Karl. "What The Financial Services Industry Puts Together Let No Person Put Asunder: How The Gramm-Leach-Bliley Act Contributed To The 2008-2009 American Capital Markets Crisis." Albany Law Review 73.2 (2010): 371-420. Academic Search Complete. Web. 11 Mar. 2014.
The financial crisis of 2007 is a huge cycle. It began by brining two groups of people together that had no prior direct relationship history. These two groups of people are homeowners and investors. During the explanation of how the financial crisis occurred, allow homeowners to represent mortgages and investors to represent money. These mortgages in turn represent houses and the money represents large institutions such as pension funds, mutual funds, sovereign funds, and insurance companies. These groups are brought together through the financial system, which consist of a variety of investment banks and brokers commonly referred to as Wall Street. Though it may not seem like it, the banks on Wall Street are closely connected to the houses on Main St.
The Dodd-Frank Wall Street Reform and Consumer Protection Act’s policies haven’t really been implemented to the extent that regulators would have liked. Although the legislation takes many steps in addressing systematic risks in the United States financial system and improving coordination among regulators, some critics believe that alternative options might have been more effective. The coming years will give us a better understanding of how well the Dodd-Frank Act addressed these concerns.
One of the major unintended impacts of the Dodd-Frank Act has been on credit unions and community banks. These banks weathered the credit crisis and lost only 6% of their share of banking assets between 2006 and mid-2010. A recent Harvard study indicates that this decline accelerated to 12% since the passage of the Dodd-Frank in July 2010. [a] While the community banks’ earnings increased by 12% to $5.3 billion by mid 2015 the number of these banks had declined according to Federal Deposit Insurance Corporation. The number of banks with assets under $1 billion has declined from around 7500 in 2010 to less than 6000 since Dodd-Frank came into effect. [b] Increased compliance costs due hiring of new personnel to interpret the new regulations compelled these banks to cut down on customer service amongst other things. The law hurt them disproportionately and forced them to consolidate. Regulatory economies of scale drive the process of consolidation. A larger bank is often more equipped at handling increased regulatory burdens