Risk glossary

The Dodd-Frank Wall Street Reform and Consumer Protection Act was introduced by two Democrat politicians, Representative Barney Frank and Senator Chris Dodd, and passed into US federal law under President Barack Obama on July 10, 2010. This sweeping legislative package enacted the US version of a host of reforms agreed by the Group of 20 nations in the aftermath of the financial crisis. Dodd-Frank’s rules, aimed at decreasing risk in the financial system and preventing another crisis, are not yet entirely implemented.

Among others, Dodd-Frank regulates the clearing, execution and reporting of over-the-counter swaps; establishes the Orderly Liquidation Authority (OLA), a new way of resolving large financial institutions; and imposes more stringent capital requirements and stress-test exercises on financial institutions deemed to be systemically important. The act established new agencies, including the Financial Stability Oversight Council, which is tasked with co-ordinating several federal regulatory agencies to better monitor the financial stability of the US. It enhanced the powers of the Commodity Futures Trading Commission to oversee the swaps market.

Many of Dodd-Frank’s rules are controversial, including a key component, the Volcker rule, which bans proprietary trading by insured depository institutions, and the OLA, whose emergency funding facility some Republican lawmakers have argued constitutes a taxpayer-funded bailout.

Critics of certain aspects of Dodd-Frank hoped that a Republican administration could herald an era of lighter financial regulation, and indeed, some months after becoming president of the United States, Donald Trump pledged to repeal and replace Dodd-Frank. In 2017 Trump ordered the Treasury Department to review post-crisis reforms under the rubric of making regulation efficient, effective and appropriately tailored. The result was a series of four reports that made recommendations on how to ensure the regulations are simpler and less burdensome for the covered institutions, but did not call for outright repeal. Neither did a separate report on the OLA call for its repeal.

Click here for articles on the Dodd-Frank Act.