The Dodd-Frank Act, Too Big to Fail, Regulations

The Dodd-Frank Act, Too Big to Fail, Regulations

The Dodd-Frank Wall Street Reform and Consumer Protection Act or the Dodd-Frank Act for short is a federal law that was passed by U.S. Congress in 2010. Passed under the Obama administration, the Dodd-Frank Act was created in response to the financial crisis of 2007-2008. As the financial crisis that occurred in 2007-2008 led many citizens of not only the U.S. but around the world to lose their jobs, life savings, and homes, the Dodd-Frank Act was enacted to both regulate the actions of the financial industries within the U.S. that had led to such a collapse, as well as provide consumers with protections that would aid in prevent any future economic collapse. As such, the Dodd-Frank Act introduced a number of standards provisions that were geared towards effectively overseeing various aspects of the U.S. financial system, including mortgage lenders, banks, and credit rating agencies.

What are the provisions of the Dodd-Frank Act?

The Dodd-Frank Act is a unique piece of legislation that implemented a number of agencies and legal mechanisms with the aim of promoting financial stability and reform. A large reason for this need for reform was in part due to the Too big to fail TBTF theory within banking and finance, which states that certain corporations and financial institutions have become so large and interconnected with the world economy that their individual failure would be disastrous to the greater economic system of the world. Subsequently, such institutions must inevitably be bailed out through government intervention, albeit at the expense of the everyday working person, as was the case with the Emergency Economic Stabilization Act of 2008, known colloquially as the bank bailout of 2008.

With all this being said, the Dodd-Frank Act set forth the following provisions for the purposes of protecting American consumers from future economic crises:

Why Did former President Donald Trump repeal the Dodd-Frank Act in 2018?

While the provisions set forth in the Dodd-Frank Act had many supporters, there were some critics who opposed the regulations set forth by the law. Such arguments hinge on the idea that regulating the U.S. financial institutions and industries in such a stringent way as was set forth by the Dodd-Frank Act could potentially harm the competitiveness of U.S. businesses and firms in regards to their foreign counterparts, particularly as it relates to smaller banks and financial institutions. Subsequently, Donald Trump and the U.S. Congress ultimately sided with the views of critics of the Dodd-Frank Act and enacted the Economic Growth, Regulatory Relief, and Consumer Protection Act in 2018. Under this new law, significant portions of the Dodd-Frank Act were rolled back, as many requirements and regulations that were imposed on financial institutions were significantly eased.

As the 2007-2008 financial crisis was the most significant and widespread financial crisis since the Great Depression of the late 1920s and early 1930s, wide-scale legislative changes were all but inevitable. These legislative changes took the form of the Dodd-Frank Act, which was passed with the purpose of preventing the financial harm that many American consumers experienced during the 2007-2008 financial crisis. As the Trump administration made the decision to repeal many of the provisions set forth by the Dodd-Frank Act, the effectiveness of the Economic Growth, Regulatory Relief, and Consumer Protection Act will have to be monitored in the future, as the factors that led to the financial crisis of 2007-2008 were many years if not decades in the making.

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