Tuesday, July 21, 2015

Happy 5th Birthday, Dodd-Frank!

I just read an excellent "explainer" at Vox that lays out how the Dodd-Frank legislation is addressing the issues of the 2008 financial melt down.  Here's a sample:
The Dodd-Frank bill has three pillars... :
  • Fixing the broken consumer finance system by ending a system in which consumer protection was a secondary mission for many agencies and making it the primary mission of one agency, the Consumer Financial Protection Bureau.
  • Fixing derivatives by having them "be traded on exchanges ... and cleared through central counterparties." Derivatives would be forced into regulated marketplaces, where the risk they posed would be limited.
  • Fixing "too big to fail" by "building high quality capital" to make large banks less likely to fail and "cross-border resolutions [of] systemically important financial institutions" so a large financial firm that did fail (like, say, Lehman Brothers) could be shut down in a noncatastrophic way, just as the FDIC does regularly with small banks.
Read the entire explainer at: http://www.vox.com/2015/7/21/9004155/dodd-frank-explainer

And on his blog at Mother Jones, Kevin Drum, notes that the Fed has ... 
announced new capital requirements for large, systemically important banks that could devastate the financial system if they failed. These new requirements can be met only with common equity, the safest form of capital, and are in addition to the 7 percent common equity level already required of all banks:

Read the whole post here: http://www.motherjones.com/kevin-drum/2015/07/big-banks-get-their-new-marching-orders-fed

Update: Better Markets has a PowerPoint presentation on the 5th anniversary of Dodd-Frank available for download here: http://www.bettermarkets.com/cocpowerpoint