The Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as Dodd-Frank, was signed into law by US President Obama in 2010. A response to the ‘Great Recession’ of 2008 onwards, Dodd-Frank was designed to reform the financial sector, with a focus primarily on regulation and legislation.
Dodd-Frank is split into 16 different titles and requires the creation of 243 new rules pertaining to the financial sector. The purpose of these rules is to promote financial stability and safety, protect customers, properly regulate large financial institutions, and end the era of tax-paid bailouts.
One of the main ways that Dodd-Frank altered regulatory institutions in the United States was creating new agencies, removing agencies that were no longer effective, and merging multiple agencies together. It was hoped that this process would quickly and efficiently overhaul the entire financial system without having to start wholly from scratch. All agencies—new and preexisting—are now required to report all of their annual findings to Congress. These reports include both what the agencies have accomplished in the past year and their goals for the next. The most important agencies established by Dodd-Frank include the Bureau of Consumer Financial Protection, the Financial Stability Oversight Council, and the Office of Financial Research.
Dodd-Frank also amended the Federal Reserve Act, which helped to further strengthen the newly-created regulatory standards. These amendments closed some of the major loopholes that contributed to the financial crisis of 2007-08 and the Great Recession, and they work to build a system that monitors the economy and ensures it is functioning in a safe and optimal manner.
In addition to banks, there are also certain non-financial institutions that must abide by the new Dodd-Frank regulations. The United States federal government will supervise businesses that play important roles in the economy and carry out large transactions, such as insurance agencies and currency exchanges companies, as if they were financial institutions. This will further strengthen regulations on the economy and prevent large-scale bailouts from becoming common.
Like most major pieces of legislation geared toward financial reform, Dodd-Frank has faced major criticism. Many have argued that the Act is simply insufficient to prevent another financial crisis and that it will do little to decrease the likelihood of banks requiring bailouts. There have also been complaints on the other end of the spectrum; some believe that Dodd-Frank’s requirements are too stringent and infringe on certain institutions’ rights.