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Introduction The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010 in response to the 2008 financial crisis. It aimed to increase financial stability, and to put an end to the “too big to fail” issue plaguing the recession. The problems arose from major corporations, such as General Motors Company and American International Group, Inc., requesting bailouts from the United States Government. Also, the housing bubble burst with regards to mortgages. Major Provisions Just as the Sarbanes-Oxley Act had many provisions, so does the Dodd-Frank Act. A few of the major provisions include Title I, Title VI, Title VII, Title X, among various other provisions impacting the accounting industry. Title I created the Financial …show more content…
Generally, thus far, there has been increased transparency of the financial markets through the creation of exchanges to trade financial derivatives; nonbanks which had few rules to follow are now regulated; the U.S. Treasury has access to an increased collection of data from its investigations; there are stronger markets; and most importantly, there is improved consumer finance protection from financial services institutions. Dodd-Frank focuses on preventing another financial crisis, and this is implemented by increasing capital reserves and the requirement of contingency plans, which will help with faster recovery while minimizing the damage. Contingency plans/ living wills for troubled institutions would minimize the need for government bailouts and minimize the detrimental effect on the economy and public. The increased capital requirements and stress test prepare firms for economic shocks and crises. Nonbank financial institutions, such as Lehman Brothers and AIG, Inc., were not regulated like banks, and their practices were detrimental to the economy. With the Dodd-Frank Act, there is more oversight to regulate; taking measures to prevent another financial crisis. Steps such as the creation of the FSOC could have potentially exposed the problems with AIG, …show more content…
economy. Recovering from the 2008 financial crisis is a long and arduous journey. Some may argue that the Act lead to minimal to no in improvement in the economy. A few of the negative effects, and areas where Dodd-Frank fall short include oversight, reach of act, negative effect to the economy, liquidity, and so on. There are claims that provisions of Dodd-Frank are so overbearing as to be detrimental. For example, “The director of the Consumer Financial Bureau…can declare any consumer-credit product ‘unfair’ or ‘abusive’ and outlaw it.”7 Contrary, some believe there is not enough oversight from the
Consequently, the provisions to separate commercial banking from securities and investment firms were regarded as a way to diminish the risk associated with providing such deposit insurance. Although some historians argue that the depression itself is what caused the collapse of the banking system, in 1933 the general consensus was that banks had provoked the failure by engaging in shady and abusive practices with depositor’s money. Congressional hearings conducted in early 1933 seemed to indicate that bankers and brokers were guilty of “disreputable and seemingly dishonest dealings, and gross misuses of the public's trust” (“Understanding How”, 1998). The Glass Steagall act was the main legislative response of President Roosevelt’s administration to the unprecedented financial turmoil that was facing the nation in the middle of a deep depression. It was intended to regulate and stabilize the banking industry, reduce risk, and provide consumers with confidence in the financial
In addition, the Federal Reserve did badly on supervision of the financial market. Many banks did not have enough ability to value their risk. The Federal Reserve and other supervision institution should require these banks to enhance their ability of risk valuing.
In 1850, the Lehman bros. and Richard s. fuld jr. started their business of small buying and selling cotton shop. With the pace of time their business and their ambitions grew up, and opened the Futures trading venture in US. With efforts the firm moved to dealing of commodities with merchant banking. The success of bank was up to at mark.
The Sarbanes-Oxley Act of 2002 (SOX) was named after Senator Paul Sarbanes and Michael Oxley. The Act has 11 titles and there are about six areas that are considered very important. (Sox, 2006) The Sarbanes-Oxley Act of 2002 made publicly traded United States companies create internal controls. The SOX act is mandatory, all companies must comply. These controls maybe costly, but they have indentified areas within companies that need to be protected. It also showed some companies areas that had unnecessary repeated practices. It has given investors a sense of confidence in companies that have complied with the SOX act.
... 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.
Jake Clawson Ethical Communication Assignment 2/13/2014. JPMorgan Chase, Bailouts, and Ethics “Too big to fail” is a theory that suggests some financial institutions are so large and so powerful that their failure would be disastrous to the local and global economy, and therefore must be assisted by the government when struggles arise. Supporters of this idea argue that there are some institutions that are so important that they should be the recipients of beneficial financial and economic policies from government. On the other hand, opponents express that one of the main problems that may arise is moral hazard, where a firm that receives gains from these advantageous policies will seek to profit by it, purposely taking positions that are high-risk, high-return, because they are able to leverage these risks based on their given policy. Critics see the theory as counter-productive, and that banks and financial institutions should be left to fail if their risk management is not effective.
The Dodd-Frank Wall Street Reform and Consumer Protection Act brought the most significant changes to financial regulation in the United States since the 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. Like Glass-Steagall, the legislation passed after the Great Depression, it sought to regulate the financial markets and make another economic crisis less likely. Banks were deregulated in 1999 by the Gramm-Leach-Biley Act, which repealed the Glass-Steagall Act and essentially allowed for the excessive risk taken on by banks that caused the most recent financial crisis. The Financial Stability Oversight Council was established through the Dodd-Frank Wall Street Reform and Consumer Protection Act and was created to address the systemic risks in the United States financial system and to improve coordination among financial regulators.
After the crash reform acts were put into place to once more stabilize the market. The first step was the formation of the Securities and Exchange Commission or the SEC. The role of the SEC was to lay down the market regulations and enact discipline in case of any infringement of said rules. Secondly the Glass-Stegall Act was passed. The Glass-Stegall Act states that the investment and the commercial banks could no longer have any involvement.
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
The Great Recession of 2007 – 2009 enlarges the longest financial crisis since the Great Depression of 1929 – 1932 that damaged the economy. The causes of the Great Recession all started as hundreds of billions of dollars were given to the United States abroad and financiers conceiving were to make a profit and what better way but the real estate market. Since the Community Reinvestment Act of 1977 and an expansion made in 1995, the then President Bush endorsed the program that created Option adjustable rate mortgages (nick-named “Pick-A-Pay”) to allow banks to sell these options even though they were high risk (Conservapedia, 2013). The Community Reinvestment Act of 1977/95 is defined as “to framework financial institutions, state and local governments, and community organizations to jointly promote banking services in the community” (Office of the Comptroller of the Currency, n.d.). That being said, there were three individuals, and firms that contributed the most to the recession, including Senator Charles Schumer D-NY, Fannie Mae, American Insurance Group (AIG), Goldman Sachs, Merrill Lynch and Morgan Stanley....
The recession officially began when the 8 trillion dollar housing bubble burst. (State of Working America, 2012) Prior to that, institutions bundled mortgage debt into derivatives that were sold to financial investors. Derivatives were initially intended to manage risk and to protect against the downside, but the investors used them to take on more risk to maximize their profits and returns. (Zucchi, 2010). The investors bought insurance against losses that might arise from securities so that they could secure their money. Mortgage defaults unexpectedly skyrocketed, which caused securitization and the insurance structure to collapse. (McConnell, Brue, Flynn, 2012). The moral hazard problem arose. The large firm investors thought they were too big for the government to allow them to fail. They had the incentive to make even more risky investment.
Credit cards: for some they are the paths to financial freedom, for others they are a necessity for daily purchases. During the recent economic crisis, many have sought out to find the cause. One common suspect is the credit card industry, which is comprised of more than six thousand card issuers (Clayton 209). This issue is debated in the two-part article “Should Congress Regulate Credit Card Rates and Fees?” “Yes” and “No.” Tamara Draut, Director of Economic Opportunity, Demos, argues yes, claiming the credit card companies’ ability to adjust terms and interest rates traps cardholders in everlasting debt. On the contrary, Kenneth J. Clayton, Managing Director of Card Policy for the American Bankers Association, argues no, stating that regulating credit card companies would hinder many people from obtaining credit and further damage the economy. Although both Draut and Clayton present strong evidence for some aspects of their arguments, both writers make assumptions which they fail to support and ignore the complexity of the issue, making their arguments overall unpersuasive.
The "subprime crises" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain upon a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes.
Many of the “Elite” financial figures could not give a definite answer about why this crisis occurred as well as stated by many of the people interviewed, “We don’t know how it happened.” Many young brokers working for JP Morgan back in the middle of the 90’s believed they could come up with a way to cut risk, credit derivatives. Credit Derivatives are just a way of using other methods to separate and transfer risk to someone else other than the vender and free up capital. They tested their experiment with Exxon Mobile who were facing millions of dollars in damage for the Valdez Oil Spill back in 1989 by extending their line of credit. This also gave birth to credit default swaps (CDS) which a company wants to borrow money from someone who will buy their bond and pay the buyer back with interest over time. Once the JP Morgan and Exxon Mobile credit default swap happened, others followed in their path and the CDS began booming throughout the 90’s. The issue was that many banks in...
...nd people just trying to sell their homes were harmed by this because there were items available for a lower price. Putting regulations on the percentage a loan can be, and the ability to give out risky loans would assist in averting this crisis in the future.