What is The Cost of Implementing Dodd Frank Rules?

by Dori Tery on March 6, 2013

The Cost of Implementing Dodd Frank Rules

The recent financial system which crashed in 2008 has caused many legislative changes implemented to stop the crisis from happening again. The changes are collectively called as the Dodd Frank Rules, and foremost among them was the Volcker Rule. This rule has been redefined and allows the financial institution in the country to register itself as a bank. Therefore the new financial institution can receive deposits, and those fail to do so thereby remaining a brokerage. The changes have caused a huge impact as it modifies what is needed of these large and small financial institutions in their transactional accounting in the future. It literally changes how these institutions run their business, what type of investments they can provide, how much capital they need to keep in reserve to remain solvent, and which financials report they must disclose to public. Many new departments in the finance institutions are formed literally to handle this and introduce new cost of running the business.

But that was just the beginning of the impacts. Dodd Frank Rule compliance forced all financial institutions change the method how they keep their record and put away each transaction they run business each day. The objective of having the Dodd Frank rule compliance is to ensure the institutions have a system in place that allowed them to prepare records up to 5 years old instantaneously if Congress demanded that. Naturally, for many businesses still following out-dated financial management systems, unexpected expenses will occur when re-implementing of these new rules. The only doubt was how large those debits could be, and whether those increased operation costs would ruin down their current business model?

There were also supplementary guidelines governing which financial consultants to a corporate should register with the SEC, the Securities and Exchange Commission. To implement the rules effectively, will likely mean that accounting and finance departments will have to check each new advisory far more carefully to make sure the corporate remains in compliance with the new law. Again, this has introduced more costs to the company.

The Dodd Frank Rules Add More Cost to Most of the Corporates Operating in Wall Street

Of course, none of the new rules covers the bad credit can swap by default and derivatives that formed the breakdown in the first place. Their important selling point to customers was that not many can figure them out easily. That fails to keep the relationship with the new Dodd Frank law. All the complication has to be resolved so that all the financial transactions are flawless and easy to understand. That, in itself, will generate huge cost for these big companies because the expensive lawyers and accountants will be working extra time to figure the new rules out.

cost of implementing dodd frank rulesAt last, the diverse but essential legislative changes that including the new Dodd Frank financial recovery bill will create the cost of running business far greater for most of the big companies on Wall Street. It was intended to make investing more straightforward and transparent to Wall Street of America. We will have to wait for a while and observe if that occurs.

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