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Auditing

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Submitted By MakingLoves
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Guohui Huang
ACCT 431-Fall 2014
09/19/2014
Dodd-Frank Act

The Dodd-Frank Act, also known as the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act was introduced in the House of Representatives by Financial Services Committee Chairman Barney Frank, and by the Senate Banking Committee former Chairman Chris Dodd and therefor named after the two men. The Dodd-Frank represents the most comprehensive financial regulatory reform measures taken since the Great Depression; it was initiated in response to the devastating Financial Crisis of 2007-2008. In simplest terms, the Dodd-Frank Act is a law that places major regulations on the financial industry. In general, the 2,300-page act covers virtually every aspect of the financial services and banking industries. The Act imposed restrictions and reforms upon the industries that had previously been lacking of any substantial regulations. In 2010, President Barack Obama signed the Dodd-Frank Act in to Law to help secure the future economy of the U.S.
However, before the official passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, America had gone years without accountability for Wall Street and other large banks. The country suffered its worst financial crisis since the Great Depression due to this failure to hold these banks liable for their actions. Businesses failed, the housing market crashed, personal savings were wiped out, and millions of jobs were lost. There are just a few of the repercussions that America suffered due to the financial crisis of 2007-2008. The passing of the Dodd-Frank Act helped reestablish confidence in the country’s financial structure. People could be guaranteed that financial institutions were acting responsibly and appropriately.
Generally, one of the most significant aspects of the Act is that it gives U.S. governmental authorities more funding, more information and more power. In broad and significant areas, the Act endows regulators with wholly discretionary authority to write and interpret new rules. The Act also extends the reach of the Federal Reserve’s authority beyond the banks and gives the Reserve the power to monitor all agencies that engage in financial activities.
Another important component of the Act is its consumer protection provisions that safeguard the American public from abusive financial practices. The Act also created the Consumer Financial Protection Bureau, which further regulated retail financial products and services geared towards to public. At the same time, The Consumer Financial Protection Bureau has many other important attributes. It is led by an independent director appointed by the President of the United States. The fact that it is run by an independent director strengthens consumer protection responsibilities that were previously handled by the Office of the Comptroller of the Currency, the Federal Reserve, and other forms of oversight in the finance industry.
Perhaps the most significant power of this bureau is the fact that it can write rules for consumer protections governing all financial institutions that offer products or services. For the first time, consumers are now able to report problems with financial products and services more easily due to the creation of a consumer hotline. Also, the bureau acts fast in response to consumer’s problems and bad business practices. People will no longer have to wait for Congress to enact specific protection laws that deal with their exact situation.
Personally, I believe that the Dodd-Frank Act was justified and necessary. It may impose more costs upon the financial/banking industry, but there is always a cost associated with regulation. These large financial institutions cannot continue to operate without any accountability or system of checks and balances. Since investors are risk-adverse by nature, you would think that they would take comfort in the fact that the financial markets are answering to a higher authority. Taxpayers should also hope for more restrictive regulation in the financial markets, since it is their tax-dollars that will ultimately be paying for any future bailouts that could potential arise.
On the other hand, Dodd-Frank is without a doubt still a work in progress. Although the instant gratification of quick implementation would be ideal, regulators should take a cautious approach to finalizing the rules. The financial collapse of 2008 was a very complex problem that should be met with a comprehensive and focused solution. Regulators should address all of the complexities of the legislation by conducting market research and seeking consultation from outside experts and international regulators. The final rules must be written with mindfulness of both domestic and international economies.
In conclusion, the Dodd-Frank Act is the most extensive piece of financial services legislation to be passes in decades. It has placed accountability and responsibility for consumer protections above all else. With many agencies sharing responsibility, it is hard to know who is responsible for what, which leads to emerging problems. This situation, along with many others, brought the worst financial crisis experienced by the United States since the Great Depression. The regulations defined in the Dodd-Frank Act is an imperative reaction to what needed to change in order for America to experience growth and development again. It is a formula for achieving a more efficient level of risk and reward. Preventing another financial crisis is the result of creating a complete economic foundation to developing and growing jobs, protecting consumers, and holding firms and regulatory agencies accountable for their actions.

References

Pierce, H. (2013, January 7). 10 Ways Dodd-Frank Will Hurt the Economy in 2013.

Koba, M. (2012, May 11). Dodd-Frank Act: CNBC Explains.

Klobucher, D. (2012, November 12). Dodd-Frank and the Global Culture Change.

Acharya, Viral, Thomas F. Cooley, Matthew Richardson, Richard Sylla, and Ingo Walker. (2013, October 30). Dodd-Frank: A critical assessment.

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