Question

Explain how the elimination of Dodd-Frank might increase the “supply” of financial services.

Explain how the elimination of Dodd-Frank might increase the “supply” of financial services.

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Answer #1
  1. Dodd Frank aims at stabilizing the financial system of the US to prevent any financial crisis in resemblance to the 2008 financial crisis.
  2. Imposes many regulatory compliances which require banks to keep higher reserves implying higher cash holdings and lower holdings in marketable securities
  3. Lowers market activity
  4. Restricts banks to invest in risky assets
  5. Limits mortgage loans

Elimination of such requirements allows bank to participate more in the financial market.

Easing restrictions let banks invest more and earn more.

Increase in lending activity.

Therefore leading to increase in supply of financial services.

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