Case Study of Massey Ferguson Case

EF3331 Project 1

1. What does Dodd-Frank Act cover?

Dodd-Frank Act focuses on limiting systematic risks to combat 2008 global financial crisis and United State’s economic downturns, which was implemented by US former President Obama on 2010. The implementation was a huge revolution of economic policies in the US since 1930s, as it comprehensively enhanced the financial regulations in response to the range of problems exposed within US financial and supervision system during the financial crisis. The core contents can be generalized to four aspects as below.

1. Conduct regulatory reorganizations and expand powers of regulatory authorities to prevent systemic risks and solve the “too big to fail” problem

Under The Act, the Financial Stability Oversight Council was established, which can corporate with the Federal Reserve in preventing systematic risks. It is responsible for regulating market disciplines, identifying uncertainties in the financial system and dealing with potential risks.

Meanwhile The Act enhances the power of the Fed, all systemically important financial institutions that are associated with the US financial system are incorporated under the regulation of the Fed with more strict and comprehensive regulatory standards, in case to solve the “too big to fail” problem. For solving the problem, The Act also limits the Fed’s emergency loans while gives the Federal Deposit Insurance Corporation Orderly Liquidation Authority in the case of bankruptcy of large financial institutions. The Fed will supervise corporate executives’ salaries as well to ensure the salary system does not lead to pursuit excessive risks.

1. Establish the US Consumer Financial Protection Bureau to strengthen the protection of consumers and investors

CFPB has independent regulatory authority and can independently formulating regulations. It conducts the supervision of institutions providing personal financial products and services such as mortgage loans and credit cards, testing the risk to ensure that consumers indeed understand the financial related decision-making, thus prevent the predatory terms and fraud from those institutions.

1. Adopt the Volcker Rule to limit the speculative transactions of banks

Volcker Rule limits the size of commercial banks. It also restricts the use of own capital by proprietary trading, which caused serious market risk in the financial crisis, as well as prohibits banks from owning or conducting investments in private equity and hedge funds. These draw a clear line between traditional lending business and high-risk investment activities such as high leverage, hedging and private equity for banks.