Asta Pravilonytė

Every manager can call him or herself a good strategist if he or she only works within an environment that is favourable; however, it is only in times of stress that one truly learns what one's capabilities are!

















Tuesday, 27 November 2012

Will Dodd-Frank Wall Street Reform and Consumer Protection Act save the markets from the collapse?

Thanksgiving Day in the US last Friday, 23 November, opened the Christmas shopping season. Massive purchase brought confidence in the retail sector’s stocks. However, was the last Friday also the final rally? Historically, December is a weak month for stocks’ performance. Moreover, the ongoing US officials’ talks about the tighter fiscal discipline most likely will lead to the reduced consumption and decreased economic growth. Going further, the US Securities and Exchange Commission’s statement, published on Monday, 26 November, surprised with Mary Schapiro’s decision to leave the agency on the 14th of December. So, does it mean that the Chairman of the SEC abandoned started reforms? Then, who will safeguard the markets?

The Dodd- Frank Wall Street Reform and Consumer Protection Act which entered into force in July of 2010, was a response to the financial crisis in 2008. The legislative changes were approved as an economic foundation for job creation through increased investors’ confidence. Mary Schapiro, the former chairman and chief executive officer of the Financial Industry Regulatory Authority and chairman of the Commodity Futures Trading Commission, was appointed to lead the reforms at the SEC by President Barack Obama in January of 2009. The main changes according to the Dodd-Frank Wall Street Reform and Consumer Protection Act involved introduction of a new independent watchdog housed at the Federal Reserve; prevention measures those end bailouts of financial institutions and liquidate failed financial firms; establishment of a council for identification of systemic risks; increased transparency and accountability measures for over-the-counter derivatives, asset-backed securities, hedge funds, mortgage brokers and payday lenders; improvements in corporate governance and enhanced voting rights for executive compensation; improved transparency and accountability requirements of credit rating agencies; strengthened oversight on financial fraud, conflicts of interest and manipulation of accountancy books.

It was expected that imposed consumer protection measures will prevent from another financial crisis, but do the reforms include prevention measures from contracting economy? It may appear that shrinking economic growth will undermine stability of financial institutions and commitments to end the bailouts may lead to the increase of interest rates or the liquidation of an array of systemically failed financial firms.



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