Reference no: EM133325590

Case: Dodd Frank Act is considered the most comprehensive and severe financial reform act since the Great Depression, setting a new benchmark for global financial regulatory reform. The core content is to protect consumers in the financial system.

The core content includes three parts: expanding the power of regulators, solving the "too big to fail" dilemma of financial institutions, allowing the separation of so-called "too big to fail" financial institutions in trouble, and prohibiting the use of taxpayer funds to rescue the market; Can limit the remuneration of financial executives; A new Consumer Financial Protection Bureau will be set up to give it the power to go beyond the regulatory authority to comprehensively protect the legitimate rights and interests of consumers; Adopt the so-called "Volcker Rules", that is, restrict the speculative transactions of large financial institutions, especially strengthen the supervision of financial derivatives to prevent financial risks.

The Dodd Frank Act established the Financial Stability Regulatory Commission to monitor and deal with systemic risks that threaten the country's financial stability. The committee has 10 members, led by the Minister of Finance. The Committee has the right to determine which financial institutions may have a systematic impact on the market, so as to impose stricter regulatory requirements on these institutions in terms of capital and liquidity. A new Consumer Financial Protection Agency was established under the Federal Reserve to supervise financial institutions that provide consumer financial products and services such as credit cards, mortgages and other loans. Bring the OTC derivatives market, which previously lacked supervision, into the regulatory vision. Most derivatives must be traded on exchanges through third-party clearing. Restrict bank proprietary trading and high-risk derivatives trading. In terms of proprietary trading, banks are allowed to invest in hedge funds and private equity, but the capital size shall not exceed 3% of their tier one capital. In terms of derivatives trading, financial institutions are required to split the most risky derivatives trading businesses such as agricultural products swaps, energy swaps, and most metal swaps into subsidiaries, but they can retain interest rate swaps, foreign exchange swaps, gold and silver swaps and other businesses. The Federal Deposit Insurance Corporation is responsible for setting up a new bankruptcy liquidation mechanism, and instructing large financial institutions to make their own risk provisions in advance, so as to prevent the collapse of financial institutions from dragging down taxpayer assistance again. The Federal Reserve is entrusted with greater regulatory responsibilities, but it will also be subject to stricter supervision. The Government Accountability Office under the US Congress will audit and supervise the emergency loans and low interest loans granted by the Federal Reserve to banks, as well as open market transactions for the implementation of interest rate policies. The Federal Reserve will supervise the executive compensation of enterprises to ensure that the executive compensation system will not lead to excessive pursuit of risk. The Federal Reserve will provide programmatic guidance rather than formulating specific rules. Once it is found that the compensation system leads to excessive pursuit of high-risk businesses, the Federal Reserve has the right to intervene and prevent.

The Act makes it possible to have greater monitoring and transparency of derivatives. The Consumer Financial Protection Bureau was also established. The Dodd Frank Act had a good effect. The Dodd Frank Act requires these enterprises to evaluate their procedures and ensure compliance with security procedures to safeguard the safety of customers and taxpayers.

Question: After reading the opinion above, what is your response? What may be some risks or drawbacks? Please be detailed in your opinion.