Dodd-Frank law: general provisions, requirements and features

In 2011, the financial system of the United States has undergone the greatest changes since the Great Depression. The law of Dodd-Frank on the reform of Wall Street and consumer protection came into force. The signing of this act by Barack Obama is designed to increase the transparency of the financial system. At the center of the corner this time the state set the interests of taxpayers. Simple people should not suffer because of unfair actions and short-sighted strategy of top management of various companies.

Objectives

The law strengthens supervision of large financial institutions, the bankruptcy of which is equivalent to the collapse of the entire system, as happened during the recent global financial crisis, which began with problems in one of the world's leading investment banks Lehman Brothers.

New bodies

The purpose of the functioning of any commercial structure is profit. And very often this aspiration is incompatible with the work for the benefit of society and each of its individual members. Therefore, the Dodd-Frank law provides for the creation of a number of new institutions whose purpose is to monitor the activities of systemically important financial institutions, reduce risks and protect taxpayers. Changes have also affected the existing bodies. They touched on, in particular, the Securities Commission, the Federal Reserve and the Investor Protection Corporation. Also, such an organ as the Council for the Supervision of Financial Stability was created. Its main task is to identify existing risks, find ways to reduce them and implement appropriate measures.

Creation tasks

The first of 15 sections of the Law is entirely devoted to maintaining financial stability. He regulates the creation of two new bodies. This is the Office of Financial Research and the Council for Stability Supervision. Each of them has its own functions, but they work on the general idea of increasing the stability of the system. The Ministry of Finance supervises their activity. The Board analyzes the information received from the subsidiary agencies and on its basis makes a risk assessment. Its chairman now, with the consent of a qualified majority of members, can transfer to the control of the Fed those financial companies that arouse suspicion that they carry the risk of stability of the national economy. The Council also controls all standard-setting acts that relate to this sphere, and regularly makes a report at a meeting of the Congress. The objective of the Office is to coordinate the activities of bodies in the field of data collection and research aimed at developing a monitoring and risk assessment toolkit. Within the framework of this body, it is planned to create two centers: data processing and scientific and analytical.

OTC trading

If you read the Dodd-Frank law in Russian, it becomes clear that now the operations of US residents in the Forex market are illegal. This act generally provides for a complete waiver of OTC trading. And both currency and precious metals. This prohibition also affects the activities of companies that enable their US resident clients to trade among themselves in the Forex market. These transactions were not registered in the stock exchange before and completely passed inside the companies. Such changes should lead to a reduction in fraud, increase the transparency of the financial system and guarantee the protection of investors' rights.

Liquidation procedure

The global financial crisis of 2008 was largely due not only to the provision of loans to unreliable borrowers, but also to the panic that arose after the bankruptcy of such a large investment concern as Lehman Brothers. Therefore Volcker's rule and the Dodd-Frank law regulate the activity of system-forming institutions and its cessation. Consumer lending is separated from investment banking services, private capital and own hedge funds of financial institutions. The Dodd-Frank law and Volcker's rule relate to the need to protect ordinary American taxpayers. The first introduces new rules for liquidation of backbone companies, while the second limits the ability of banks to invest their own depositors in hedge funds. Now they can own only 3% of the capital of the latter. The Dodd-Frank Act provides for a special regime for the liquidation of large financial institutions, the bankruptcy of which may lead to the collapse of the entire system. The entire procedure should now be funded by the United States Government. It is assumed that in this way it will be possible to avoid panic in the market and sell the bank's assets at a lower cost. After the termination of the liquidation, the owners compensate the expenses. If, shortly before the declaration of bankruptcy, the latter attempt to transfer part of the property or funds to third parties, now there is a process of returning such values.

Introduction of foreclosures with management

The law also provides for the personal responsibility of top managers whose actions led to the collapse of the company. Of course, they are removed from management, and sometimes they can be prohibited from holding similar positions in other financial institutions. According to the Dodd-Frank law, even the damage inflicted on the company can be recovered from them.

Structure

The Dodd-Frank law consists of 15 sections. The first of them is devoted to ensuring financial stability. It provides for the creation of two new bodies. The second section describes the liquidation procedure. The third is the transfer of authority. It presupposes the liquidation of the existing bodies in order to reduce duplication of duties on regulation of the sphere in question. The fourth section is devoted to monitoring the activities of financial advisers. Since it was formerly regulated only at the regional level, this gave scope for fraudulent reporting and other abuses. The fifth section assumes monitoring of all aspects of insurance. The Dodd-Frank law on financial reform presupposes better regulation. Its sixth section is also called the Volcker Rule. The seventh section assumes expansion of regulation of the market of credit derivatives and default swaps. In the final analysis, their trade must become fully stock exchange. The eighth presupposes the supervision of clearing and settlement. The Fed should develop common risk management standards for systemically important financial institutions. This will increase the stability of the economy as a whole. The Dodd-Frank Consumer Protection Law supposes the improvement of control over the securities market. The ninth section is devoted to this. The tenth focuses on the establishment of a consumer protection bureau within the FRS. It should regulate the provision of financial products last. The eleventh section introduces new powers of the Fed, related to the orderly liquidation of large companies. The twelfth involves simplifying the access of citizens with an average or even low income to the financial system. The thirteenth section amends the 2008 Stabilization Act. Fourteenth is reforming mortgage loans. The fifteenth section is different.