Implications of the Dodd-Frank Act*

Abstract

In this review, we provide an economic assessment of the Dodd-Frank Act of 2010 in terms of the likely efficacy of the financial-sector regulation it proposes. We focus in particular on its ability to contain systemic risk, the risk that many financial firms may fail en masse, and discuss the tools it employs. Namely, we examine enhanced capital requirements for systemically important financial firms, the separation of proprietary trading from bank holding companies (the Volcker rule), the resolution authority for orderly management of large complex financial institution (LCFI) failure, and attempts to contain risks in the shadow banking system. We relate the Act to its most important predecessor, the Banking Act of 1933, and consider the desirability and implications of the Dodd-Frank Act's all-encompassing approach to the reform of financial-sector architecture and regulation.

Determinants of Financial Distress in U.S. Large Bank Holding Companies

“…Thus, it seems from our results that the positive relationship between non-interest income and DD shows the complexity of our examined bank holding companies. On the other hand, off-balance-sheet activity can be used as a reliable factor for detecting the default risk of BHCs, which is in line with the stringency of provisions related to off-balance-sheet exposures within the Dodd-Frank Act (Acharya and Richardson, 2012).…”

“…Some studies, such as Acharya and Richardson (2012) and Greenwood and Scharfstein (2013), show that short-term wholesale funding is an important factor reflecting systemic risk, which is also considered a vital factor for formulating related provisions within the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, i.e. the Dodd-Frank Act.…”

Financial Consumer Protection Regime in Malaysia: Assessment of the Legal and Regulatory Framework

“…While some studies explore the theoretical underpinnings of regulations related to protecting consumers, others examine institutional developments. 1 In the latter category, several studies have appeared on the newly created Consumer Financial Protection Bureau in the USA (Acharya and Richardson 2012;Braucher 2012;Graham 2010;Kennedy et al 2012;Levitin 2012Levitin -2013Mierzewski et al 2010;Worrell 2010Worrell -2011Zywicki 2013) and the approaches taken to protect financial consumers in the UK (Akinbami 2011;Consumers International 2013).…”

A tale of regulatory divergence: contrasting transatlantic policy responses to the alleged role of alternative investment funds in financial instability

“…151 It follows that the Volcker Rule can be subject to most of the criticisms pointed to the Glass-Steagall Act, which culminated in its erosion through time and its repeal in 1999. 152 For instance, the Volcker Rule's prohibition on proprietary trading might increase systemic risk, because it would not allow banking entities to adequately diversify their risks.…”

“…153 However, the concerns about adverse effects of the Volcker Rule on diversification of banking entities and its overall impact on financial instability is unfounded, because it is only idiosyncratic or firm-specific risk (and not systemic risk) that can be diversified away. 154 In the same vein, it is argued that although diversification, originating from mixing bank and nonbank activities, can reduce the likelihood of individual banking default, it increases the likelihood of systemic risk. 155 In other words, the fact that integrated conglomerates composed of both banks and non-banks are financed by risk-insensitive (or information-insensitive) deposits weakens market discipline on their non-bank divisions.…”