How The Dodd-Frank Wall Street Reform Bill Works

The Dodd-Frank Wall Street Reform bill controls market finances, making it a safer place for both taxpayers and consumers. The bill dictates that the financial stability oversight council (FSOC) will help point out the risk that disturbs the whole finance industry. If any firm's size becomes too big, such a firm will be turned over to the Federal Reserve by the FSOC.

The bill requires that the FSOC oversees credit and debit card agencies, the activities of consumers' loans, and paydays apart from loans that come from dealers. Banking fees are not excluded since they are placed under the Consumer Financial Protection Bureau's (CFPB) purview. This consists of payments that are connected with the following:

  • Underwriting
  • Mortgage
  • Credit
  • Debit and lots more

The reform bill also protects homeowners and those applying for mortgages. It increases the safety of applying for mortgages by requiring banks to offer homeowners better details of what loans mean for them financially. Banks are responsible for proving that people who borrow have an idea of the risk. Also, they must verify the following details of the borrower:

  • Status of job
  • History of credit
  • Income

Real Life Example of the Dodd-Frank Financial Regulatory Reform Bill

Under the treasury department, the Dodd-Frank created the Office of Federal Insurance (FIO). This office helps identify insurance companies that are responsible for creating a risk to the whole system. The FIO also works to collect information about the industry. For example, they issued a report in December 2014 about the effect of market reinsurance to Congress.

The prevention of discrimination against minorities is one of the things the FIO ensures doesn't happen as well. It is a representation of the policies of insurance in the affairs of other countries of the world. The FIO teamed up with US states to streamline how agencies will regulate insurance and excess lines insurance.

The bill also requires that covered institutions run stress tests per the Office of the Comptroller of the Currency (OCC). These stress tests, held February 15 every year, give these covered institutions insights as to what the future could hold for them. It also gives them a good look at their capital adequacy and risk profile.

History of Dodd-Frank

President Barrack Obama signed the Dodd-Frank Act into law in 2010. It came as a reply to the financial sector crisis, which was later referred to as the Great Recession. There were regulations placed on the industry of finances by Dodd-Frank and the creation of programs to terminate mortgage companies and lenders from capitalizing on consumers.

This specific topic became widespread throughout US politics, though some refer to it as dense and hot. Those who supported the act did so to put the restrictions required on Wall Street. However, people who criticize the bill said it placed a heavy burden on investors with lots of laws and rules, which brings prolonged development to the economy.