Dodd-Frank Reform in the Second

¶ … Dodd-Frank Reform

In the second half of 2007, the American economy showed the first signs of recession. It commenced within the real estate and banking sectors and it soon expanded to all sectors and all countries across the globe. The Obama administration implemented the Troubled Asset Relief Program (TARP) as a bailout to the companies and sectors in most jeopardy of bankruptcy.

The funds injected into the market seem insufficient to restore economic balance and stability within the United States and the federal authorities have decided to develop and implement a more comprehensive plan. The aim of this plan is not only that of overcoming the crisis, but preventing it from occurring again.

The Dodd-Frank reform of 2010 is one integrant part of this plan and its scope is that of regulating the economy and the market in order to prevent the occurrence of other crises. The reform is named after its initiators, Barney Frank and Chris Dodd, and it is the most comprehensive reform in the field of financial regulations since the Great Depression.

The blueprint for the Dodd-Frank reform was prepared starting with 2008, but the legislation was only adopted starting with 2010. Throughout the years, the reform was discussed and reshaped in order to answer new challenges. The primary scope of the continued changes and reevaluations was represented by the desire to fight of criticism, to increase the applicability and clarity of the reform and to ensure that it is best able to serve the purpose for which it was created.

The initial blueprint of 2008 was a rather incipient form of the Dodd-Frank reform, but it was an extensive document containing numerous proposals for financial regulations. Some examples in this sense include the regulation of financial intermediaries, fiscal restructuring or the modernization of the regulatory framework.

"The short-term recommendations focus on taking action now to improve regulatory coordination and oversight in the wake of recent events in the credit and mortgage markets. The intermediate recommendations focus on eliminating some of the duplication of the U.S. regulatory system, but more importantly try to modernize the regulatory structure applicable to certain sectors in the financial services industry (banking, insurance, securities, and futures) within the current framework" (The New York Times).

Some of the propositions made in the blueprint were further on included in the adopted reform, whereas others were drastically modified or even left out. The more relevant features which were included in the final reform refer to the following:

The protection of the customers with the use of authority as well as independence

The exclusion of situation in which the taxpayers' money would be used to bailout corporations

The creation of warning systems

The promotion of transparency and accountability for exotic instruments

The compensation of organizational executives and the alignment of corporate governance principles and standards

The protection of the investors throughout new rules of accountability and transparency, and last

The enforcement of regulators to better identify and fight "financial fraud, conflicts of interest and manipulation of the system that benefits special interests at the expense of American families and businesses" (Brief summary of the Dodd-Frank Wall Street Reform and Consumer Protection Act).

Some of the provisions in the Dodd-Frank reform were already present in the pre-existent legislations, and the new law has focused on their reinforcement and strengthening. Such is for instance the case of the provisions regarding the accountability and transparency of the financial operations of the economic agents. Aside from these however, the Dodd-Frank reform also introduces new elements in the supervision of the fiscal sector. These refer mainly to the following:

A massive restructuring of the regulatory system

The focus on merging some of the regulatory agencies, while others would be eliminated all together

The focus on the streamlining of the control and regulation

The enforcement of standards for corporate governance and the pay of managerial executives

The elimination of the possibility for bailouts

The requirements for some of the regulatory agencies (both old ones and new ones) to report to the Congress one or twice a year