Does the Dodd-Frank Act Address the Problems in the Financial Markets?
Please cite the paper as:
“David E. Franasiak, (2012), Does the Dodd-Frank Act Address the Problems in the Financial Markets?, World Economics Association (WEA) Conferences, No. 3 2012, Rethinking Financial Markets, 1st November to 31st December, 2012”
The Dodd-Frank Act (“Dodd-Frank”), enacted in the wake of the financial crisis of 2008, aims to address problems in the markets that government regulators face. During this financial crisis, key large financial institutions required governmental assistance to stem the systemic impact on the markets from problems generated by them. Though government officials acted to stem the systemic risks in some cases, there were others for which government officials did not intervene, which then exposed the risk that some of these large financial institutions posed to the market.
The intent of Dodd-Frank was to prevent the occurrence of these sorts of events again, but the key driver of the effectiveness of the Dodd-Frank Act will not be known until there is another financial disaster. To at least have an idea as to its effectiveness, it is important to examine some key features of the law including: orderly liquidation authority; the Volcker rule; data standardization; derivatives; and international regulatory impacts.
Even if all of the rules are implemented in accordance with the law, it would not likely prevent another crisis as there are areas not addressed by the law, such as: housing; tri-party repos; cyber-security; and high speed trading, which need to be addressed.