What are ways that financial institutions can reduce the agency problems discussed in question 1? How is this being done under the Dodd-Frank Act and Basel III?

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The Answer is Financial institutions help to reduce these problems by providing information, analysis, and monitoring services, and designing contracts that reduce these problems. To help to avoid adverse selection and moral hazard problems for instance, insurance policies may include a large deductible, whereby an insurance policyholder has a stake in taking precautions and reducing potential risks. Similarly, requiring a significant down payment or setting the loan up with a higher loan to value ratio for a borrower taking on a home mortgage loan, gives a borrower a stake in to reduce incentives for the borrower to walk away from the loan.
Under Dodd-Frank, new regulations attempt to reduce information asymmetries between consumers and financial institutions by establishing the Bureau of Consumer Financial Protection for greater consumer finance protection and oversight. Dodd-Frank also includes more stringent oversight regulation and capital requirements for over the counter derivatives, and credit rating agency reform, and regulations for the securitization market. Other regulations apply greater corporate governance rules for executive compensation for financial institutions, and the registration of advisers of private funds, among others.
Basel III includes higher capital requirements, quality of capital rules, and new capital conservation and countercyclical capital buffers and risk coverage in terms of strengthening the capital treatment for complex securitizations and more rigorous credit analysis for securitization exposures that are externally rated, higher capital for trading and derivatives activities, strengthening the counterparty credit risk framework and risk weights for banks to hold more capital exposure to central counterparties.
Basel III also requires supplemental capital for off-balance sheet risk exposure and securitization activities, along with better incentives in place for better risk management over the long-term including sound compensation practices, valuation practices, and stress testing accounting for financial instruments and improved corporate governance. Under market discipline, Basel III also revised disclosure requirements for securitization exposure and the sponsorship of off balance sheet vehicles.

What Are Ways That Financial Institutions Can Reduce the Agency