What is the Dodd-Frank Act?


Quick Answer

The Dodd-Frank Act is a financial reform law meant to avert another economic catastrophe. The bill is named after the politicians who introduced it, Senator Chris Dodd and Congressman Barney Frank.

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Full Answer

The Dodd-Frank Act is also known as the Dodd-Frank Wall Street Reform Act, and it was signed into law in 2010 by President Barack Obama. The law also regulates the derivatives market, which was responsible for the economic downfall of 2008. Derivatives like credit default swaps fall under the jurisdiction of the Securities and Exchange Commission, and derivatives must be traded in public view for proper oversight.

One aspect of the bill is the creation of the Consumer Financial Protection Bureau, which monitors payday loans, credit cards, debit cards and credit reporting agencies. The bureau also oversees fees associated with such transactions as mortgages and loans.

Another agency is the Financial Stability Oversight Council, which regulates hedge funds and prevents a company from becoming so large that its downfall could affect the entire economy. If a company gets too large, the agency recommends that the Federal Reserve intervene and regulate the firm.

The bill also includes the Volcker Rule, which restricts banks from using their own monetary resources to gain profit through hedge funds. This is meant to protect the money of depositors, because banks use those funds to amass more profit on the market.

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