The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in July 2010 in response to the 2008 financial crisis, aims to improve financial regulation and increase consumer protection in the United States. Key components of the Dodd-Frank Act include:
- Financial Stability Oversight Council (FSOC): Establishes a council to monitor systemic risks in the financial system and identify institutions that could pose a threat to financial stability.
- Volcker Rule: Prohibits banks from engaging in proprietary trading and limits their investments in hedge funds and private equity funds to reduce risk.
- Consumer Financial Protection Bureau (CFPB): Creates an independent agency to oversee consumer financial products and services, ensuring transparency and fairness in lending and financial practices.
- Enhanced Regulation of Financial Institutions: Implements stricter capital and liquidity requirements for banks, particularly those deemed "too big to fail," and requires stress testing to assess their resilience in economic downturns.
- Derivatives Regulation: Introduces new regulations for derivatives trading, requiring many derivatives to be traded on exchanges and cleared through central counterparties to increase transparency and reduce counterparty risk.
- Executive Compensation: Mandates greater disclosure of executive pay and gives shareholders a non-binding vote on executive compensation packages.
- Whistleblower Protections: Establishes protections and incentives for whistleblowers who report misconduct in the financial sector.
- Mortgage Reform: Implements stricter regulations on mortgage lending practices to protect consumers from predatory lending and ensure borrowers can repay loans.
Overall, the Dodd-Frank Act aims to promote financial stability, protect consumers, and prevent future financial crises through comprehensive regulatory reform.