What is Dodd Frank Bill?

by Dori Tery on August 3, 2013

Brief Abstract Regarding Dodd Frank Bill

The Dodd Frank Bill is deemed one of most noteworthy financial reform bill. The act has brought forth a plethora of financial regulations in the United States. This bill was passed to provide viable solutions to the issues relevant to recession in the US. This act has made reforms in financial regulatory setting, which has affected all those parts of the industry dealing with financial services and all those national federal financial regulatory agencies. It is seeking ways to save the nation from another economic catastrophe and regulate country’s financial markets. Chriss Dodd, chairperson of the Senate Banking Committee and Barney Frank chair of the Financial Services Committee Chairman are two legislators who had given birth to this bill.

Dodd Frank Bill has proposed regulations broadly in eight respects. The act is meant to bring regulations in credit cards, varied loans and mortgages. It stopped the banks from playing gamble with its depositor’s money and brought a check on credit rating companies. The act could actually amplify supervision for insurance companies as they wanted to regulate risky derivatives as well.

Dodd Frank Bill – Regulation on Loans

The act could consolidate functions of the various agencies to monitor various credit reporting bureaus. It looked into credit cards and consumer loans but did not supervise auto loans. The Consumer Financial Protection Bureau under the U.S. Treasury Department regulated credit fees, bank fees, mortgage, and credit, debit all at once. The bill protected all homeowners by arranging such methods that they can comprehend all the risk factors in mortgage loans. Under this act bank had this responsibility of verifying borrower’s credit history and his current job status and income. Dodd Frank Bill looked out for risks, which may affect the entire financial industry by monitoring all non-banking financial corporations’ (NBFC’s) like circumvent funds. It was recommended that any of the NBFC’s if turn out to be huge in magnitude and they would be needed the Federal Council to monitor to increase reserve requirement.

Putting a check on banks from gambling

The Volcker Rule which was passed in the light of this act prevented banks from investing money into hedge funds, proprietary trading operations and private equity funds to reap profits for them. This step was taken because banks were using the depositor’s money for these investments. It was difficult to know which funds were for customers and which for the banks. To identify properly Dodd Frank Bill gave seven years to the banks for divesting the funds. If any funds were less than 3% of the net revenue banks could keep them. The rule was passed in 2010 but because of strong unhealthy conspiration it was in effect much later than the scheduled time limit. They wanted that the Securities Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC) should standardize all the riskiest derivatives. So that if any major risk was there it could be detected and major crisis can be effortlessly averted . They also wanted a clearing house to come up so that derivative trades become public.

Checking Credit Rating companies and insurance companies

Dodd Frank Bill established an Office of Credit Ratings to regulate credit rating companies as many used to blame the companies for giving biased over-rating to few and rests are given diminutive rating. This was the reason behind investors getting mislead and couldn’t realize the danger if they could not pay back debts what would be their actual conditions. Dodd Frank Bill identified insurance companies, which were creating risks to the entire financial industry and ensured that insurance would be available for low profiled communities.

dodd frank billThe Dodd Frank Bill has received a mixed response, as some critics questioned upon its sufficiency to handle financial crisis condition while others thought that it has taken away the freedom. It’s only the time which has the correct answer and we have the only option to wait and observe.

 

 

Watch the Video – Dodd Frank Bill Critism From Tom Easton

Watch the Video – Dodd Frank Bill Problems

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