The Dodd-Frank Act: What It Does, What It Means, and What Happens Next

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22 July 2010



After much partisan wrangling, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law on July 21, 2010. It is the most significant change to US financial regulation since the New Deal. Regulators will gain new powers, financial firms will be subject to new demands, and every financial market will be affected.

Enactment of Dodd-Frank marks only a new stage of financial reform, as the debate shifts to the rulemaking efforts of federal agencies. The complexity of the law and the many decisions delegated to regulators make it difficult to predict which of the law’s many provisions will come to be the most significant.

In many areas, the law marks the beginning of a new stage of regulatory reform rather than an endpoint. Many provisions will take effect only over months and years. Some major questions, such as the fate of Fannie Mae and Freddie Mac, are left to future lawmaking. More importantly, large parts of Dodd-Frank explicitly or implicitly depend on rulemaking by federal agencies, and much of the specific impact of the law will become clear only as regulators interpret and implement it. Critical issues – such as the level of new prudential standards and their applicability to large nonbanks, the severity of the proprietary trading ban, and the scope of new consumer protection rules – are largely left to regulators’ discretion.

Ultimately, it will be up to the leadership of the major regulatory agencies to rise to the challenge of reshaping their institutions, and thereby determine the lasting impact of financial regulatory reform. This paper presents a point of view on what it means and the road ahead for firms.