The reformation: can Dodd-Frank Act live up to promise?

• Author: Forlenza, Joseph
• Position: Financialreform

after the 2008-09 banking crises, which was touched off by the collapse of Bear Stearns into the arms of JP Morgan-Chase, the country has been faced with the largest financial disaster since the Great Depression. Millions have lost jobs, businesses have failed, real estate prices have collapsed and net worths have been decimated.

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Perhaps the hardest hit have been young people graduating into a sour economy with limited job opportunities, which may result in a lasting mental outlook that stays with them for life, much like the one left with the greatest generation after the depression of the 1930s.

Government's attempt to stem the tide of economic deterioration and prevent a repeat of the catastrophe has resulted in S.3217 Restoring American Financial Stability Act of 2010, which was signed into law by President Obama July 21 under the new name, The Dodd-Frank Wall Street Reform and Consumer Protection Act.

Dodd-Frank Goals

The intent of this legislation is to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end "too big to fail." to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices and for other purposes.

The broad based goals of the legislation include:

* Create a tough Volcker Rule forcing big banks to sell hedge funds and to restrict U.S. banks from making certain kinds of speculative investments if they are not on behalf of their customers.

* New transparency, reporting and capital rules for derivatives.

* Liquidation mechanism for big failing banks to minimize market impact.

* Combine two bank regulators at the center of the crisis.

* Create a council of regulators to watch for systemic risk.

* Give shareholders more power in corporate governance and CEO pay.

* Audit of the fed's emergency and other lending facilities.

Now that it is signed into law; bank and securities regulators will begin work on writing and adopting 243 rules ordered by the legislation more than three times as many as those required by the landmark Sarbanes-Oxley Act.

Next Steps

The 2,323-page bill requires the establishment of a financial stability oversight council to work with the federal government to have "too big to fail" banks install new capital and leverage limits; it instructs the government to conduct unprecedented, ongoing audits of the central bank's lending programs; and sets up a tough...