ON JULY 21, 2010, THE DODD-FRANK BILL WAS SIGNED INTO LAW BY PRESIDENT OBAMA. This law represents the most comprehensive Federal Government response to the Financial Crisis. Understanding the law’s intent, philosophy and implementation is critical to assessing the new landscape which banking now occupies. This Section summarizes key elements of the Act and describes how its architects designed the law to remedy what they perceived to be the causes of the Crisis.
The general purpose of the law is to forestall systematic failures among large U.S. financial institutions. In political terms, it seeks to avoid bailouts of the banking system. Its concern with systemic risk extends the law beyond prior legislation, which was primarily geared towards protecting depositors and handling individual bank failures. Dodd-Frank also recognizes that various non-bank financial institutions have become “systematically important.”
The law’s philosophy is to regulate the financial sector with more detailed rules and oversight. This choice foregoes the alternative paths of breaking up large universal banks or the Glass-Steagall approach of setting regulatory walls around different financial activities, e.g., commercial and investment banking.
Dodd-Frank treats the causes of the Crisis as multifaceted. Thus, the law is exceptionally broad in terms of what it treats and extremely detailed ...