Since the 2008-2011 financial crises, banks have become leery of lending to cons
ID: 2653631 • Letter: S
Question
Since the 2008-2011 financial crises, banks have become leery of lending to consumers. There has been much research completed on this subject and the blame has been a subject of much controversy. Fast-forward to 2013 and 2014. Has anything changed in the banking industry to open the lending activity? Has there been any new legislation passed to encourage banks to lend? How about consumer protection legislation? Research this issue using several scholarly articles to use as References in the preparation of your initial post. Please cite according to APA citation requirements.
Explanation / Answer
A compendium of federal regulations, primarily affecting financial institutions and their customers, that the Obama administration passed in 2010 in an attempt to prevent the recurrence of events that caused the 2008 financial crisis. The Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as simply "Dodd-Frank", is supposed to lower risk in various parts of the U.S. financial system. It is named after U.S. Senator Christopher J. Dodd and U.S. Representative Barney Frank because of their significant involvement in the act’s creation and passage.
Dodd-Frank established new government agencies such as the Financial Stability Oversight Council and Orderly Liquidation Authority, which monitors the performance of companies deemed “too big to fail” in order to prevent a widespread economic collapse. The new Orderly Liquidation Fund provides money to assist with the liquidation of financial companies that have been placed in receivership because of their financial weakness. Additionally, the council can break up large banks that may pose a risk to the financial system because of their size. It can also quickly and neatly liquidate or restructure firms it deems too financially weak. Similarly, the new Federal Insurance Officeidentifies and monitors insurance companies that may pose a systemic risk.
The new Consumer Financial Protection Bureau (CFPB) is tasked with preventing predatory mortgage lending, improving the clarity of mortgage paperwork for consumers and reducing incentives for mortgage brokers to push home buyers into more expensive loans. The CFPB has also changed the way credit card companies and other consumer lenders disclose their terms to consumers. It requires loan terms to be presented in a new, easy-to-read-and-understand format.
The Volcker Rule, another key component of Dodd-Frank, restricts the ways banks can invest and regulates trading in derivatives.
The goal of the new SEC Office of Credit Ratings is to improve the accuracy of ratings provided by the agencies that evaluate the financial strength of businesses and governments.