What is Dodd Frank Act About?

by Dori Tery on August 21, 2013

101 – What is Dodd Frank Act?

President Barrack Obama , in 2010, introduced a federal law called the Dodd-Frank Wall street reform and consumer protection act. It was introduced to handle the great depression and recession that brought about a lot of changes in the United States. It has been the most significant act since the Glass-Steagall act, trying to regulate the financial market and hoping to control the damage of any other economic crisis.

This act was named after the people who created this act, Senator Chris Dodd introduced it in March 2010 and the senate passed it in two months. The bill underwent a few minor changes by Congressman Barney Frank and the house approved it by the month of June. Thus on July, president Barrack Obama passed the law.

The act over looks the financial stability of the wall street, stops banks and financial institutes from gambling money, supervises the insurance companies and makes insurance available to the minorities of the country. This act made banks use hedge funds only for their customers. This was not taken seriously and faced much opposition. The securities exchange commission, where excessive risk taking was monitored and helped in identifying any kind of financial crisis that would take place, looked after credit. So what is Dodd Frank act about? It left it completely on the regulators to decide.

What is Dodd Frank Act saying about?

What is Dodd Frank Act? The act has a number of regulations. The summary of the acts follows

• Looks over wall street- the financial stability oversight council keeps a check on the risks being taken. Hedge funds are also controlled. The Dodd Frank act enables that no company becomes too big to handle resulting in a recession.

• Curbs bank from gambling- depositors who have invested their money in the bank often fear that their money is going to be used by the bank for their own money. This act stops the bank from using hedge funds. It often becomes difficult which money is for the bank’s benefit or the depositors. This act stops the bank from doing any such gambling.

• It regulates derivatives that are risky- the Security Exchange commission identifies the most risk taking exchanges, preventing it from any financial crisis. The Dodd Frank act sets up clearing houses to make these derivatives public

• Hedge fund traders were bought out in the open- earlier no one knew what they were investing in or how much these investments were risky. This was because hedge funds and financial consultants were not regulated. This act made it compulsory for all hedge funds to register under the SEC and provide all the details of all the money exchange.

• Supervising insurance company- earlier insurance was made available for the upper strata class of people. The minorities were bereft of any such advantages. The Dodd Frank Act enabled insurance for all the backward and underprivileged people of the country.

What is Dodd Frank certification requirement?

According to the Dodd Frank certification, no individual can start getting assistance from Making Home Affordable Program, if that person, dealing with mortgage or in the real estate business, commits the crime of forgery, theft, tax evasion or messing with financial dealings. This certification became legitimate from 2010. Every person should acquire this Dodd Frank certification from every borrower, each time they deal in monetary exchange.

Whether this act helped or not

what is dodd frankAfter a lot of lobbying, this act was passed. It turned out to be a strong bill. It faced opposition. Since its implementation, a lot of legal matters have gotten involved. There are at least seven legal challenges. A lot of banks refused to accommodate with the act. They faced problems with the hedge funds. A lot of derivatives were exchanged without much evidence. It was a negotiation between the big bank and the customers, so no regulators got involved. This helped in building up the risks.

Like all act, this act too faced criticism. It took time to implement its regulations. But it had its advantages. It helped bring in order in financial dealings. Minorities received the advantages of the Dodd Frank act.

Watch the video – Dodd Frank Simplified

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