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July 10, 2015

Three Major Pillars of the Dodd-Frank Wall Street Reform and Consumer Protection Act

Five years ago, on July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law to implement rules of the road on Wall Street and prevent a repeat of the 2008 financial crisis. This law put into place sensible safeguards between families on Main Street and the highest-risk activities of Wall Street’s largest too-big-to-fail banks.

A new blog post by the Treasury Department highlights the three major pillars this historic law was built around:

“1. Financial Stability – New rules put in place over the last five years require banks to be better capitalized and more focused on the business of banking, so that they are better able to serve as safe places for families to deposit their savings and to extend credit to consumers and businesses. Wall Street Reform means that the costs of excessive risk-taking in the financial system will not be borne by taxpayers. Further, the new Financial Stability Oversight Council sheds light on potential emerging threats that were previously hidden.

2. Transparency in Financial Markets – Prior to Wall Street Reform, the $600 trillion derivatives market was an opaque web of hidden interconnections. Losses connected to derivatives, and fears of widespread contagion, played a central role in the crisis—accelerating the panic dramatically after Lehman Brothers failed and AIG nearly collapsed. Today, standardized derivatives are required to be centrally cleared and traded transparently. Wall Street Reform is bringing increased disclosure of executive pay practices and hedge fund and private equity activities, and the new Office of Financial Research is helping to bring financial reporting into the information age.

3. Consumer Protection – In the run-up to the financial crisis, abusive lending practices and unclear underwriting standards resulted in risky mortgages, which hurt consumers and ultimately threatened financial stability. Wall Street Reform bans many of the abusive practices in mortgage markets contributed to the crisis, and requires lenders to determine that borrowers can repay their loans. To make sure these rules are followed, Wall Street Reform established the Consumer Financial Protection Bureau (CFPB), the first-ever regulator dedicated to protecting consumers from predatory practices in consumer financial products and services.”

Since then our economy has slowly been digging itself out of this hole. Since the worst of the crisis when unemployment hit 10%, we have now had a new record of 64 straight months of private sector job growth, creating 12.8 million new jobs.  

The Treasury Department has also compiled a presentation that outlines the impacts of the 2008 financial crisis and the many key provisions of the financial reform law, including the creation of the Financial Stability Oversight Council, which is designed to prevent unsuspected, unexpected, unregulated, and costly disasters from ever again threatening our financial system.

For more of the Treasury Department’s in-depth analysis on the Dodd-Frank Wall Street Reform and Consumer Protection Act, check out their blog post here, and click here to view their presentation. 

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