Research & Commentary: Wall Street Reform and Consumer Protection Act

Published July 12, 2010

Sen. Chris Dodd’s (D-CT) and Rep. Barney Frank’s (D-MA) sweeping Wall Street Reform and Consumer Protection Act of 2010, currently under consideration in the U.S. Senate, is both ambitious and controversial. The legislation would expand the government’s role in regulating banking and financial services while consolidating some existing regulatory bodies, creating new ones, and attempting to promote accountability and transparency.

The new regulations are far-reaching, creating 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 regulators include a consumer protection agency and single federal bank regulator, into which is merged the responsibilities of several existing regulators.

Supporters of the proposed regulations say the current regulatory system did not do enough to prevent or mitigate the recent financial crisis. They seek greater government intervention in preventing predatory lending practices and directly ameliorating the damage from failing financial institutions by guiding their sale or dissolution.

Opponents say the new regulations repeat many of the government’s recent mistakes and fail to address the most pressing problems of the existing regulatory system. According to the Cato Institute, the bill neglects to address the growing problems posed by Freddie Mac and Fannie Mae, the government-sponsored companies that securitized many of the bad mortgage loans, and it does nothing about the loose monetary policy and cheap credit that fueled the housing bubble. The bill’s critics also say the additional regulatory barriers to lending and higher capital requirements for banks would deepen the credit crunch by making new credit less available to investors and entrepreneurs.

The following articles examine the Wall Street Reform and Consumer Protection Act and financial reform from multiple perspectives, including the effect of the reforms on the financial industry and the prospects for passage of the bill.

Financial Crisis and Public Policy
This policy analysis from Jagadeesh Gokhale, a senior fellow at the Cato Institute, explains the antecedents of the current global financial crisis and critically examines the reasoning behind the U.S. Treasury and Federal Reserve’s actions to prop up the financial sector.

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

Fixing Wall Street, Protecting Main Street
Pat Garofalo of the Center for American Progress contends the new regulations under the Dodd-Frank financial reform bill are necessary to combat excesses of companies like AIG and Lehman Brothers.

The Recovery Prevention Act of 2010
Nicole Gelinas of the Manhattan Institute contends the Dodd-Frank bill will prolong the current economic crisis and stunt economic recovery.

The Dodd-Frank Financial Reform Bill is a Valuable Step Forward
This article by Douglas J. Elliott of the Brookings Institution examines the Dodd-Frank financial reform bill, suggesting that if the Dodd regulations had been in effect, the last crisis might not have been prevented but the effects would have been milder.

Dodd Financial Regulation Bill: Super Regulators Not the Answer
David C. John of The Heritage Foundation questions the ability of super-regulators to manage the financial sector effectively under the Dodd-Frank bill. He advocates a slower, gradual reform of the financial regulatory system.

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