Dodd-Frank: Washington, We Have a Problem
The Dodd-Frank Act is the most far-reaching financial regulatory reform in the U.S. since the nation emerged from the Great Depression in the 1930s. The act aims to limit systemic risk, allow for the safe resolution of the largest intermediaries, submit risky nonbanks to greater scrutiny, and reform derivatives trading.
Nearly six years after the birth of the act, significant progress can be observed. However, the act itself remains highly controversial. With many of the bill’s original supporters in Congress no longer in office and the urgency of the 2008 financial crisis fading from the public memory, the implementation of the remaining parts appears challenging, as shown by Congress’ rollback of the “swaps push-out” rule and the recent federal court ruling against designating MetLife as a systemically important financial institution (SIFI). Furthermore, the weaker coordination among regulators combined with the forthcoming presidential election may trigger a change in regulatory regime, moving away from crisis driven policy.
The public debate is often highly politicized and opinionated when it comes to Dodd-Frank. With that in mind, this paper seeks to assess Dodd-Frank implementation with respect to its initial goal of building “a safer, more stable financial system,” in which proprietary trading and the business of banking are separated, and in which taxpayers and small businesses will not have to bail out failing large financial firms. To make the assessment, this paper first establishes a timeline summarizing the Dodd-Frank final rule milestones and then compares their implementation with the initial goals.