What the Dodd Frank act is supposed to do
The Dodd-Frank Act implements a large variety of financial reforms, explains CNBC, including the Volcker Rule, regulation of derivatives, creation the Consumer Financial Protection Bureau and creation of the Office of Credit Ratings. The act also includes a large number of other reforms. The act’s authors based these reforms on the causes of the 2008 financial crisis to prevent similar future crises.
The Volcker rule stops banks from owning hedge funds for their own profit, states About.com. Dodd-Frank allows the Securities Exchange Commission the power to regulate risky derivatives, such as credit default swaps, which were partially to blame for the 2008 financial crisis. Dodd-Frank creates the Consumer Financial Protection Bureau to regulate consumer banking products, such as credit cards, payday loans and mortgage rules, in an attempt to stop predatory lending. The new Office of Credit Ratings regulates the credit rating industry, which is accused of providing inflated ratings to bad derivatives before 2008.
Many Wall-Street investors feel that Dodd-Frank hurts economic growth with overly strict new rules, reports CNBC. However, many other commentators feel that the new regulations do not go far enough to stop further financial crises.