Dodd Frank - Nonbank-banks.hedge funds.otherwise not...

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4/9/2014 Nonbank-banks...hedge funds...otherwise not regulated by federal authorities Dodd Frank made it subject to regulation - Above a certain threshold (50B?), banks have to be regulated - Systemically significant Derivative securities allowed investment banks to capitalize on MBS The leverage ratios The amount of VAR that is given is based on the amount of diversification of your portfolio VAR - value at risk At the end of each day, each trader is evaluated to see how much risk their portfolio is Dictates the capital requirements of the financial institutions Big firms are able to invest up to 30x what their actual capital is Dodd Franks required banks to pass stress tests Set out and prove to regulators that if their value of their portfolio dropped a certain percentage, how would they recapitalize? In 2007 and 2008, the companies were writing down the asset values in a highly leveraged position...completely wiping out their capital base Even small declines in the investment wiped out their capital Another thing that made the problem bigger was that the companies went public...now had the
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