Research & Commentary: The Effect of Dodd-Frank

Published July 1, 2011

The Wall Street Reform and Consumer Protection Act, also known as the Dodd-Frank Act, is a law with consequences for every part of the financial system. Its new regulations are far-reaching, imposing many new restrictions on financial instruments and activities and a new group of government regulators with enforcement powers over various sectors of the market. The new regulatory powers include a consumer protection agency and a single federal bank regulator. 

Before Dodd-Frank was passed, supporters of the new regulations argued the current regulatory system had not done enough to prevent or mitigate the recent financial crisis. They stated the nation would suffer widespread damage to the economy unless Congress imposed greater government intervention in preventing predatory lending practices and directly ameliorated the fallout from financial institution failures by guiding their sale or dissolution. 

Opponents of the new Dodd-Frank regulations argue the policies repeat many of the government’s recent mistakes and still fail to address the most pressing problems of the regulatory system. The law’s critics also say the additional regulatory barriers to lending and higher capital requirements for banks will deepen the credit crunch by making new credit less available to investors and entrepreneurs. 

Certain portions of the new regulatory system under Dodd-Frank remain unimplemented, but the economy is now beginning to experience some of the effects of the new regulations. Financial institutions across the country are fighting to prove themselves not “too big to fail” and avoid the new regulations. 

The following articles discuss the effect of the new Dodd-Frank regulations on several areas of the economy.

Dodd-Frank Act: How Financial Reform May Be Going Wrong
This article by Jesse Eisinger and Jake Bernstein from ProPublica discusses several causes for concern in the implementation of Dodd-Frank, including its effects on derivatives markets and credit rating agencies. The authors also discuss the problems created by poorly defined regulations such as the Volcker rule.

The Dodd-Frank Act: What it Does, What it Means, and What Happens Next
This article by John Lester and John Bovenzi of Oliver Wyman Financial Services examines several new regulations created by Dodd-Frank and outlines their possible effects on the banking industry. While acknowledging some claims about Dodd-Frank’s effects may be overblown, they warn negative unintended consequences are a real risk that must be taken seriously.

Insurance Regulation and the Dodd-Frank Act
This paper by Scott Harrington of Networks Financial Institute discusses several key issues regarding implementation by the Financial Stability Oversight Council (FSOC) and the Federal Insurance Office (FIO) of the Dodd-Frank Act’s provisions affecting insurance.

Dynamic Federalism and Consumer Financial Protection: How the Dodd-Frank Act Changes the Preemption Debate
This paper by Jared Elosta examines how Dodd-Frank changes the relationship between state and federal consumer financial protection authority and helps resolve the preemption dilemma. It argues Dodd-Frank promotes “dynamic federalism,” in which overlapping authority and competition between state and federal regulators of consumer financial protection can make the preemption dilemma much less difficult.

Towards an Alternative Regulatory Culture
Anthony Randazzo of the Reason Foundation discusses several problems with the Dodd-Frank regulations and suggests how to solve them.

The GOP’s (Quiet) Wall Street Reg Rollback
Eli Lehrer, vice president for Washington, DC operations at The Heartland Institute, discusses efforts by congressional Republicans to turn back several provisions of the Dodd-Frank Act.

The Dodd-Frank Act: Creative Destruction, Destroyed
This Financial Services Outlook paper from the American Enterprise Institute discusses several of the most serious policy problems created by the Dodd-Frank Act. 

GAO: Implementing Dodd-Frank Could Cost $2.9 Billion
This article from The Wall Street Journal by Victoria McGrane discusses the possible cost of implementing Dodd-Frank. According to a report from the Government Accountability Office, it could cost federal taxpayers as much as $2.9 billion over five years.

The Dodd-Frank Wall Street Reform & Consumer Protection Act of 2010: Is It Constitutional?
C. Boyden Gray and John Shu of the Federalist Society consider the constitutional issues raised by three of the Dodd-Frank Act’s central grants of regulatory power: the Financial Stability Oversight Council and its powers in Title I, the Federal Deposit Insurance Corporation’s related liquidation authority in Title II, and the Bureau of Consumer Financial Protection in Title X.

The Dodd-Frank Act: How it Impacts Specific Industries, Entities and Transactions
This Overview Memorandum from Cadwalader, Wickersham & Taft provides a summary of the provisions of the Dodd-Frank Act, discussing various aspects of the act and how they will affect different industries, types of entities, and transactions. 

Financial Reform Bill Won’t Stop Next Crisis
Mark Calabria of the Cato Institute argues Dodd-Frank fails to address many of the real causes of the financial crisis, including Freddie Mac and Fannie Mae.


Nothing in this document is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Web site of FIRE Policy News at, The Heartland Institute’s Web site at, and PolicyBot, Heartland’s free online research database, at 

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