Strategic Shortcomings of the Dodd-Frank Act

Abstract

Despite its broad ambitions, the Dodd-Frank Wall Street Reform and Consumer Protection Act is a piecemeal attempt to realign conflicting interests, rather than an effort to fundamentally address the systemic design questions in the current financial system. Some of the central difficulties involved in the legislation are the group-targeting method of bringing only some business entities under federal regulation, the inability of backward-looking legislation to respond to future market innovations, and the weakness of fines as a deterrent mechanism for actions that lead to future instability. A preferred alternative would be a functional approach to financial regulation, which acknowledges the role and limits of legislation and leaves discretion to both the administrative bodies and the courts to identify specific abusive acts.