More than a decade after the start of global financial crisis, we must reevaluate the Dodd-Frank Act – Laura Kodres

Laura Kodres, Golub Distinguished Senior Fellow and Senior Lecturer in Finance, MIT Sloan School of Management

From The Hill

Banking rules and regulations are rewritten every few decades, frequently following a crisis. The Great Depression gave rise to the Glass-Steagall Act, which separated investment and commercial banking activities. The Savings and Loan debacle led to significant industry reform, including a “Prompt Corrective Action” rule to close weak banks before their capital is completely depleted. And Black Monday resulted in trading curbs (so-called “circuit breakers”) to prevent panic-selling.

Yes, waves of post-crisis regulation are typical and often necessary. But in the aftermath of the most recent global financial crisis, Congress’s regulatory reaction was far bigger than a wave; it was more like a tsunami.

The 2,300-plus page Dodd-Frank Wall Street Reform and Consumer Protection Act made sweeping changes to the financial landscape. It created a consumer protection agency, installed new capital requirements for banks, and reined in poor mortgage practices and risks in over-the-counter derivatives trading. Some of these changes have improved conditions; others have had unintended consequences; and some have made things worse.

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Why 2015 Was a Bad Year for Banking Reforms — Oz Shy

MIT Sloan Senior Lecturer Oz Shy

MIT Sloan Senior Lecturer Oz Shy

From Fortune

Here’s what to watch in 2016

This year is ending the way it began for taxpayers without any sign of relief from the repeated burden of bailing out the banks during the financial crises and continued pressure to modify the Dodd-Frank Act in ways that favor bankers and lessen protections for taxpayers.

A year of continued concessions to the financial industry included: delaying a Dodd-Frank mandate that financial firms sell off bundled debt, known as collateralized loan obligations; exempting some private equity firms from registering with the Securities and Exchange Commission; and loosening regulations on derivatives. The recent requirement that banks increase their capital ratio to 16% or 18% in the next few years still leaves the taxpayer responsible for the remaining 80% of the losses.

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