Question

Explain the reasons for enacting the Dodd-Frank Act. What are some of the implications of this law to managers in the real estate industry and managers in the financial services industry? Please illustrate with examples from each industry referred to above

Answer 1

The Dodd-Frank Act (completely known as the Dodd-Frank Wall Street Reform and Consumer Protection Act) is a United States administrative law that spots guidelines of the monetary business in the hands of the legislature. The enactment, which was sanctioned in July 2010, made money-related administrative procedures to constrain chance by upholding straightforwardness and responsibility.

Since the Great Recession of the late 2000s was expected to some extent to low guideline and high dependence on huge banks, one of the fundamental objectives of the Dodd-Frank Act was to expose banks to progressively stringent guidelines. The Act made the Financial Stability Oversight Council (FSOC) address determined issues influencing the budgetary business and anticipate another downturn.

By holding the financial framework under a closer watch, the Act tries to dispose of the requirement for future citizen supported bailouts. To both guarantee participation by budgetary insiders and battle debasement in the monetary business, the Dodd-Frank Act contains a whistleblowing arrangement to energize those with unique data about security infringement to report them to the legislature. Informants get a monetary prize.

The Dodd-Frank Act pursued various money related guideline bills passed by Congress to ensure customers, including the Sarbanes-Oxley Act in 2002 and the Gramm-Leach-Bliley Act in 1999. Dodd-Frank made the Consumer Financial Protection Bureau (CFPB) shield shoppers from enormous, unregulated banks and merge the purchaser insurance obligations of various existing agencies.

The Consumer Financial Protection Bureau works with controllers in huge banks to forestall unsafe strategic approaches that at last hurt buyers. Notwithstanding administrative controls, the CFPB gives shoppers access to honest data about home loans and FICO assessments alongside a 24-hour, cost-free customer hotline to report issues with money related administrations.

Different arrangements of Dodd-Frank incorporate the making of the Financial Stability Oversight Council (FSOC), which is entrusted with checking the money related strength of enormous organizations whose disappointment would adversely affect the United States economy and the Volcker Rule, which requires monetary establishments to isolate their venture and business capacities.

The Dodd-Frank Wall Street Reform and Consumer Protection Act has numerous segments. These are a portion of its key arrangements and how they work:

Money related solidness

Under Dodd-Frank, the Financial Stability Oversight Council and Orderly Liquidation Authority screen the money related solidness of major monetary firms whose disappointment could have a genuinely negative effect on the U.S. economy (organizations considered "too large to fall flat"). The law likewise accommodates liquidations or restructurings using the Orderly Liquidation Fund, set up to help with the destroying of money related organizations that have been set in receivership and avoid charge dollars from being utilized to prop up such firms.

The gathering has the position to separate banks that are considered so enormous as to represent a fundamental hazard; it can likewise compel them to build their hold necessities. Correspondingly, the new Federal Insurance Office was entrusted with recognizing and observing insurance agencies considered too enormous to fall flat.

Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau (CFPB), set up under Dodd-Frank, was given the activity of forestalling ruthless home loan loaning (mirroring the across the board notion that the subprime contract advertise was the basic reason for the 2008 calamity) and make it simpler for customers to comprehend the provisions of a home loan before consenting to them. It stops contract merchants from procuring higher commissions for shutting credits with higher charges and additionally higher financing costs and necessitates that home loan originators not direct potential borrowers to the advance that will bring about the most noteworthy installment for the originator.

The CFPB additionally oversees different kinds of buyer loaning, including credit and charge cards, and addresses purchaser objections. It requires loan specialists, barring car banks, to uncover data in a structure that is simple for customers to peruse and comprehend; a model is the improved terms currently on Visa applications.

The Volcker Rule

Another key part of Dodd-Frank, the Volcker Rule, confines the manners in which banks can contribute, restricting theoretical exchanging and wiping out exclusive exchanging. Banks are not permitted to be associated with flexible investments or private value firms, which are considered excessively unsafe. With an end goal to limit conceivable irreconcilable situations, money related firms are not permitted to exchange exclusively without adequate skin in the game. The Volcker Rule is unmistakably a push back toward the Glass-Steagall Act of 1933, which initially perceived the intrinsic perils of budgetary substances expanding business and speculation banking administrations simultaneously.

The demonstration additionally contains an arrangement for managing subsidiaries, for example, the credit default swaps that were broadly accused of adding to the 2008 monetary emergency. Dodd-Frank set up brought together trades for swaps exchanging to lessen the plausibility of counterparty default and required more prominent exposure of swaps exchanging data to build straightforwardness those business sectors. The Volcker Rule additionally manages money related firms' utilization of subsidiaries trying to forestall too huge to fizzle establishments from going out on a limb that may unleash ruin on the more extensive economy.