There seems to be no end in sight to the financial crisis that started several years ago. Numerous banks have failed in the process, thousands of homes have been repossessed and large numbers of ordinary men and women have lost their jobs. Most of these people are now finding it virtually impossible to qualify for finance to buy homes, cars or durable goods.

Many causes have been identified for what happened; banks and finance providers went on a lending spree and ordinary citizens were, in many instances, only too willing to accept the unrealistic wealth promised by excessive credit.

Another reason often cited for the crisis is the fact that many investment banks involved themselves in so-called ‘proprietary trading’. This simply means that they often risked substantial portions of their capital on risky investments, not on behalf of clients, but for their own accounts. Many of these trades were in derivatives; leveraged investments, where a small percentage move against the trader would result in the loss of their entire account.

Everything went well until the markets started to become unstable and price increases were no longer the norm. At that point, many of these banks suddenly had to face up to huge losses, in many instances leading to either their bankruptcy or a government bailout, using taxpayers’ money. This quite rightly infuriated millions of taxpayers, since their hard-earned money had to be used to bail out banks that took unnecessary risks. Among these institutions were Lloyds TSB, RBS, HBOS and in the USA, Bank of America, JP Morgan, Goldman Sachs and UBS.

It was often claimed that investment banks tried to hide such transactions by claiming they were made on behalf of fictitious clients. The government reacted by investigating the whole investment banking system and certain steps were taken to rectify the situation and to prevent a recurrence of what had happened.

One of these steps was the Dodd-Frank Wall Street Reform and Consumer Protection Act. This Act was widely touted as being the most comprehensive overhaul of financial regulation in the US since the Great Depression. It affected virtually every aspect of the country’s financial service industry. However, some financial and legal experts were critical, claiming that the Act did not do enough to prevent a recurrence of what happened.

The Act tries to regulate, amongst other practices, capital investments by insurance companies and investment banks. In addition, it introduces new regulations to govern hedge funds, changes the definition of ‘accredited investors’, requires companies to report the ratio of CEO compensation compared to the average employee remuneration, tries to ensure equitable credit access for consumers and to create incentives to promote banking among medium and low income citizens.

Not everyone was positive about the new banking regulations, one of them being the president of the American Bankers Association, Ed Yingling, who described the reforms as dangerous and haphazard. He said, “To some degree, it looks like they’re just blowing up everything for the sake of change. If this were to happen, the regulatory system would be in chaos for years. You have to look at the real-world impact of this”.