Dodd-Frank is the largest overhaul of the financial regulatory system since the Great Depression. It is 2,319-pages long, compared to Glass-Steagall (47 pages), Gramm-Leach-Bliley (145 pages), and Sarbanes-Oxley (66 pages). It will take financial institutions more than 58 million hours to file all the necessary paperwork — the equivalent of 29,000 full time employees working year round on compliance. It creates multiple new regulatory bodies in Washington costing taxpayers millions of dollars each year.
Dodd-Frank’s effects on the economy, industry, and consumers are far-reaching. AEI scholars Peter Wallison, Phil Swagel, Charlie Calomiris, and Alex Pollock, have been following implementation closely. Here is a collection of their work and other selected pieces on the topic.
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If the American people come to recognize that the financial crisis was caused by the housing policies of their own government—rather than insufficient regulation or the inherent instability of the U.S. financial system—Dodd-Frank will be seen as an illegitimate response to the crisis. Only then will it be possible to repeal or substantially modify this repressive law.
The Treasury’s Office of Financial Research issued a study on asset management companies. It paints an alarmist portrait of an industry that has never caused the failure of a large bank, let alone a systemic financial crisis, and so it is unclear why it should be the target of increased scrutiny by the Financial Stability Oversight Council.
Should banking regulations ever have forced the use of bond credit ratings from certain ratings agencies for investment decisions and risk-based capital requirements? No. Mandatory use of credit ratings was a big regulatory mistake.
The Dodd-Frank Act gave the Financial Stability Oversight Council the power to designate non-bank financial firms as systemically important financial institutions. But there is no economic analysis that demonstrates that FSOC-designated non-bank financial SIFIs will pose reduced financial stability risks if they are required to follow standards similar to those required by bank SIFIs.
There are many reasons to be critical of the Dodd-Frank Act, but in at least one respect its drafters had the germ of a good idea. They recognized that in order to create a stable housing finance system it was necessary to have a high quality mortgage that would result in few defaults.
The fifth anniversary of the financial crisis has come and gone. There was much discussion about safety and soundness of big banks and progress of new safeguards, such as the Dodd-Frank Act and the Consumer Financial Protection Bureau (CFPB).
Since the International Accord on Capital Adequacy in 1987, the Basel Committee on Banking Supervision and US regulators have published thousands of pages on capital regulation and how to make it more risk-sensitive.