Can we truly appreciate the Dodd-Frank Act of 2010?
Well, it came after the problems associated with the financial meltdown of 2008. Dodd-Frank came about with the best intentions.
On Friday, February 3 President Trump signed an executive order allowing the Dodd-Frank Act to be reviewed. Have financial times changed so that Dodd-Frank can be amended or eliminated? I say let the review proceed to give us the facts. In the meantime here is a rundown of how Dodd-Frank came about in the first place.
Around August of 2007, some big banks experienced a liquidity crisis. Institutional clients stopped providing funds to keep banks afloat.
In September of 2008, the crisis climaxed.
Lehman Brothers failed. The stock market plummeted. Fear went through the credit markets like a lightening strike.
The government responded, nationalizing American International Group (AIG). It injected capital into the nation’s leading banks. In this environment, Dodd-Frank was born.
Heavily supported by Democrats, it was opposed by Republicans.
Dodd-Frank was to ensure a financial crisis would not happen again. The act increased the amount that capital banks must hold in reserve. This gives a resource to handle loan losses. It also requires banks to keep a larger portion of their assets invested in things that can be easily liquidated.
The “big banks” have been subjected to more regulatory requirements not brought up with regional or community banks. Banks with more than 50 billion dollars worth of assets on their balance sheets must submit to an annual stress test.
The Dodd-Frank Act created the Consumer Financial Protection Bureau. The purpose of this entity is protecting consumers from deceptive financial products and services.
The big question is whether or not Dodd-Frank should still exist.
This usatoday.com story was the source for this post.