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Dodd-Frank at a Glance

The Wall Street Reform and Consumer Protection Act​ (WCPA), commonly known as Dodd­Frank, became law on July 21, 2010. Signed into law by President Barack Obama, Dodd­Frank was renamed to honor its co­creators, U. S. Congressman (D­MA), Barney Frank and U. S. Senator (D­CT) and former Chair of the U. S. Banking Committee, Christopher Dodd. The dual goals of this transformative and voluminous series of rules and regulations, as stated in its original name, are to overhaul the financial services and banking industry (symbolized by “Wall Street”, the storied New York City financial district) and enhance federal consumer protections. Both goals attempt to address the lessons gleaned from the unprecedented financial industry meltdown in 2009, which impacted key business sectors such as banking, real estate, and manufacturing, especially automotive manufacturing.

 

There are over 300 Dodd­Frank rules that are documented in more than 5000 pages. Although six years have passed, rules continue to be drafted including rules that address the revamping of the housing finance sector. Interestingly, the authors of these new rules are several federal regulators, including the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Securities and Exchange Commission (SEC), the Federal Housing Authority, and the Commodity and Futures Trading Commission (CFTC), among others. Collectively, these rules focus on (1) preventing another financial crisis, (2) avoiding further taxpayer bailouts, (3) ensuring banks have enough capital liquidity to remain solvent during extreme market volatility, (4) enabling bank bankruptcies to proceed without adverse impact, (5) influencing executive compensation levels, and (6) curtailing derivative risks and excesses. 

 

Dodd­Frank also established a new federal regulator with broad, independent authority, the Consumer Financial Protection Bureau (CFPB). This powerful new agency regulates banks and non­bank financial institutions, authorizes the breakup of large, complex financial companies, bolsters and centralizes the consumer protection regulatory powers of other bank regulators, and wields broad enforcement authorities with very large banks and credit unions, non­bank financial institutions, and mortgage related businesses. 

 

Dodd­Frank is bellwether legislation. It comprises broad and sweeping legislative reforms. Its impact will continue to reverberate throughout the financial services industry as financial service providers adapt and adjust.

 

By: Dr. Sheryl Smikle

Sources

http://www.aba.com/Issues/RegReform/Pages/RR_Introduction.aspx

http://www.doddfrankupdate.com/DFU/DoddFrankSummary.aspx

www.thenation.com/article/how­wall­street­defanged­dodd­frank/

Dodd Frank, Prop Trading and the Volcker Rule

In the wake of the 2008 U. S. financial crisis, new legislation was ushered in to avoid a reoccurrence. Passed in 2010, Dodd­Frank imposes myriad new rules on the financial industry that will irreversibly change the industry’s market behavior and client interactions. In particular, Dodd­Frank has focused on safeguarding consumers. One tool created to do this is the Volcker Rule. Named after the former Federal Reserve Board Chairman, Paul Volcker, this rule is designed to prevent banks from using consumer deposits, on its own behalf, in speculative deals with high gain and loss potential. The final rule was passed in 2013 and also includes compliance program and reporting requirements.

 

Prior to Volcker, commercial banks, brokerages, or other financial institutions could engage in trading with their own financial resources for the sole purpose of making a significant profit. That is, buying and selling stocks, bonds, commodities or other financial instruments for the bank’s own trading book. Such transactions are called proprietary trading, prop trading ​for short.  

 

Prop trading was previously prohibited through the passing of the 1933 Glass­Steagall Act, which was promulgated during the depression era and repealed in 1999 during the Clinton administration. Essentially, Glass­Steagall limited speculative transactions by commercial banks. This act also gave birth to the Federal Deposit Insurance Corporation (FDIC), which guarantees consumer deposits of up to $250,000. As such, the Volcker Rule incorporates many of the prohibitions of the repealed Glass­Steagall Act. It is sometimes referred to “Glass­Steagall­lite”

 

Not only is prop trading curtailed, but also commercial banks cannot own, invest, or partner with either hedge or private equity funds. However, the Volcker rule does allow banks to trade in U.S. securities such as bonds, make trades on behalf of customers, and prevent against bank

losses, or ​hedge. Banks hedge to guard against potential losses using complex data points in order to make educated guesses on the direction of specific market activity, for example interest rates. Permissible hedging relies upon a large collection of data that is used to make educated guesses about the direction of market activity. However, hedging may sometimes be hard to separate from prop trading because of their common techniques. Nevertheless, the Volcker rule attempts to do just that.

By: Dr. Sheryl Smikle

Sources:

http://lexicon.ft.com/Term?term=proprietary­trading

http://blogs.wsj.com/marketbeat/2010/03/15/proprietary­trading­finally­a­definiton/

http://www.iflr.com/pdfs/a­users­guide­to­the­volcker­rule.pdf

 

 

What do Pokémon Go and Bitcoin have in Common?

Pokemon GoSeptember 13, 2016 - It is amazing to see how far humans have come from simple bartering and trading systems, to where we are currently, where money is more of an agreed upon virtual concept than something tangible which can be taken out of your wallet.

Bitcoin, the leading digital asset and payment system, is a fantastic example of this. It works like this: you purchase credits (aka Bitcoins) with real money, then use these credits to buy products. With bitcoins you can buy flowers for the special someone in your life from 1-800flowers.com, and even a plane ticket to California from Expedia.com. This user-friendly, peer-to-peer payment system is known as cryptocurrency.

As a newbie to the virtual currency world, it can be hard to wrap your brain around the idea of money that is not really money, at least in the traditional sense. To put it in perspective, bitcoins is to the online economy, as Poké Coins are to the highly popular Pokémon Go app.

For those of you who are unfamiliar, Pokémon Go is basically an exercise app that juxtapositions your real location via GPS with virtual monsters (Pokémon). Many Pokémon Go users, not wanting to miss out on a rare Pokémon (particularly the elusive Pikachu), spend real cash to purchase digital money, which is non-redeemable outside the game. This digital money, fondly called Poke Coins, can be used to buy in game items. Bitcoins work much the same way: you trade dollars for cyber money.

Many startup companies have emerged to capitalize on the valuable opportunities digital currency presents. Digital currency, also known as cryptocurrency, is still a fairly new concept. As a result, there are conflicting views on how this payment system should be regulated.

In the United States digital currency is regulated on a state level. This creates a complex situation. BitcoinAccording to Bitcoin Magazine, the choice to regulate on a state-by-state level can create an unclear regulatory framework for digital currencies. If you are in states like California or New Jersey, as a digital currency startup, you are in the clear. However, if you are operating out of Connecticut or New York in order to legally operate, you will need to secure a license, which can be a costly and time-consuming process.

One major concern consumers have is the high risk nature of digital currency and the lack of regulation. As a consumer, you stand to gain a lot of monetary value from this venture, but as an investor there are no guarantees. Some players within the virtual financial world are seeking to add security to their investments by purchasing gold via bitcoins. Bitcoin technology makes it easier and more affordable to purchase gold, and gold adds a certain level of stability Bitcoin tends to lack.

Outside the United States, many countries favor a more regulated approach. In May 2016, Japan’s national legislature approved a bill to regulate domestic digital currency exchanges. Moving forward virtual currency exchange operators will be required to register with the Financial Services Agency. This will implement on-site inspections and administrative orders.

Japan, The United Kingdom, South Korea, Singapore, Germany, and Switzerland are all on the same page, and working in tandem to protect the integrity of this new wave of the financial technology revolution. These countries have created a friendly network for fintech startups to discuss growing technology and market trends.

Whether you are personally invested cryptocurrencies on a business level or a gaming level, it will be interesting to see how regulations grow to match the strives technology makes in the financial sphere. Will the United States be inspired by the models its international counterparts use, or continue to forge its solutions on a state-by-state basis?

 by: Madelyn Fagan

Sources

Jiji. “Diet oks bill to regulate virtual currency exchanges.” The Japan Times. 25 May 2016. Web. 23 August 2016.

Pepijn, Daan. “Gold rush 2.0: is gold the missing Link in Bitcoin’s economy.” Business.com . 4 December 2016. Web. 23 August 2016.

Young, Joseph. “Without unified, federal regulations for digital currencies, the U.S. risks falling behind.” Bitcoin Magazine. 1 August 2016. Web. 23 August 2016.

Is Your Company Doing Marketing Right?

 

 

 

                August 4, 2016 - The dissemination of knowledge during the 16th century was largely controlled by the authorities of the printing market. The accessible information during World War II was censored by FDR’s absolute discretion. The threat of being accused of subversion during the Second Red Scare drove seditious content out of the public’s eyes. And even today, pioneers of the digital advertising market, such as Facebook and Google, are influencing election results through search engine optimization and suppression of relevant news. But when it comes to the marketing industry, consumers set the agenda.

 

This is the consumer's world. We’re all just living in it.

 

                Consumers, not companies, have the almighty dollars and are, consequently, the absolute controllers of the free market. So how can companies give the consumers what they want? When given engaging and relevant information, consumers don’t just invest in a product – they invest in an idea.

                Consider the content-driven marketing strategy that transformed Jell-O from an obscure gelatin product to “America’s Most Famous Dessert.” Back in the early 1900s, before the Internet age, most recipes that people used were either a passed-down family tradition or a self-discovered concoction. Since new recipes were in high demand, the manufacturers of Jell-O went door-to-door distributing free recipe books that included ways to incorporate Jell-O into meals. Unsurprisingly, the company’s sales increased by $1 million in just two years.

                Today, content-driven marketing takes a much different form. Many companies utilize blogs and social media to spread awareness. However, you will rarely see companies (or at least companies that know what they’re doing) posting articles about the 20 best reasons to invest in their products. Instead, they post tangentially-related articles that make consumers stop and think, “Thanks, Company X, for providing this insightful information that I would not have known if I hadn’t liked/subscribed to your page/blog!” (Ok, maybe not in that exact tone, but you get the point.) For example, Dove creates campaigns to promote positive self-images – these videos seldom mention Dove and rather focus on the target audience.

    Content-driven marketing can be as big as Red Bull sponsoring a BMX event or as small as your summer camp posting a blog about how to stay in touch with your summer friends during the school year; regardless, it incontrovertibly boosts sales and influences buyer behaviors. As Simon Sinek astutely observed in his TEDTalk about inspirational leadership, “people don’t buy what you do; people buy why you do it.” This process of taking a step back and incorporating the “Why” into marketing techniques has changed the marketing game, and it seems as though the leading players are the content-driven marketers.

By: Brittany Levy

Glass-Steagall, Dodd-Frank, Trump-Clinton: What Donald Trump and the Democratic Party Have in Common

July 28, 2016 - The Republican National Convention is over. The Democratic National Convention is over. The results: Donald Trump, the Republican nominee, will be running against Hillary Clinton, the Democratic nominee, in the 2016 election. All of this adds up to, what may be, one of America’s most historic and heated presidential races to date. It’s already been a long road and hopefuls have come and gone. Of those that remain, Donald Trump seemed the least likely to make it this far. Originally, Trump’s candidacy seemed more like publicity for Trump, with news media covering every word he said from every angle imaginable, instead of a serious bid for the presidency. Now, it’s obvious that Trump is to be taken seriously and that he has real ideas about policy that could have real affects.

                Recently, Trump’s policy views regarding the financial industry have been making headlines. Trump, apparently, wants to break up big banks, an idea often presented by U.S. Senator and 2016 Democratic candidate, Bernie Sanders and out of line with the historical lean of the Republican Party. Specifically, Trump wants to reinstate the Glass-Steagall Act and repeal the Dodd-Frank Act, both of which were born out of financial crises, and both of which regulate financial institutions.

                The Glass-Steagall Act, which usually refers to four provisions of the Banking Act of 1933, forced the separation of investment banking and commercial banking. It was signed by President Franklin Delano Roosevelt (famously a Democrat, unlike his older cousin: President Theodore Roosevelt) days after Roosevelt took office in 1933. Reeling from the Great Depression, the U.S. government recognized the need for banking reform and, subsequently, made the Glass-Steagall Act law. In 1999, The Gramm-Leach-Bliley Act, signed by President Bill Clinton, repealed part of the Glass-Steagall Act.

                After the Gramm-Leach-Bliley Act was signed, the recent financial crisis, known as the Great Recession, brought banking regulation to the forefront of American politics once again. In 2010, President Barack Obama signed the Dodd-Frank Act into law. The Dodd-Frank act regulates the financial industry in several ways, including the establishment of the Financial Stability Oversight Council (FSOC), which monitors risks that could affect the entire financial industry. The Act, among other things, also requires banks to have plans in place for a shutdown in the event of insolvency.

                Despite the apparent confusion of wanting to increase regulation and repeal it, Trump’s views are still incredibly important, even if it is highly unlikely that the Glass-Steagall act will be reenacted, or the Dodd-Frank Act repealed. This importance lies in the fact that the reinstatement of the Act is included in both the Republican and Democratic Party platforms. It seems strange, but it’s true; Donald Trump, the Republican Party, and the Democratic Party all want the same thing. The only person who isn’t on board is Hillary Clinton, who believes the Act does not have the reach needed to regulate Wall Street, which now consists of more than just banks.

                Regardless of whether or not Glass-Steagall, or any derivative of it, actually becomes law again, the fact that both the Republican and Democratic Parties have made this part of their platform, potentially has heavy implications for the financial industry. It seems that financial reform will be an important issue addressed in the coming election and the ensuing presidency, whichever party wins.

By: Ed Carr

 

 

Sources:

Kelly, Jack J., and Alyssa D'Agosto. "The Presidential Race Is Getting Crazier... Is Donald Trump Taking a Page Out of Bernie Sanders' Regulatory Playbook? - Compliancex." Compliancex. N.p., 19 July 2016. Web. 26 July 2016.

 

Koba, Mark. "Dodd-Frank Act: CNBC Explains." CNBC. N.p., 11 May 2012. Web. 26 July 2016.

 

Long, Heather. "Trump's GOP Supports Bringing Back Glass-Steagall Act." CNNMoney. Cable News Network, 19 July 2016. Web. 26 July 2016.

 

Marino, Jon. "Glass-Steagall: Wall Street Is Not Happy with Donald Trump." CNBC. N.p., 19 July 2016. Web. 26 July 2016.

 

Maues, Julia. "Banking Act of 1933, Commonly Called Glass-Steagall - A Detailed Essay on an Important Event in the History of the Federal Reserve." Federal Reserve History. N.p., 22 Nov. 2013. Web. 26 July 2016.

 

Sommer, Jeff. "G.O.P. Joins Democrats Urging Glass-Steagall’s Revival. (Don’t Hold Your Breath.)." The New York Times. The New York Times, 19 July 2016. Web. 26 July 2016

 

 

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