by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Drafted and enacted in response to the 2007–2009 financial crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) became law in 2010. Dodd-Frank’s drafters hoped the law would repair the flaws in the financial system that had so painfully manifested themselves during the financial crisis. Rather than addressing the regulatory failures that led to the crisis, Dodd-Frank’s core solution was to shift decision-making from the private sector to regulators—the same regulators whose lapses had contributed to the crisis. Dodd-Frank has been costly in the short term, as any major regulatory overhaul would be. The financial industry and regulators have poured countless hours and dollars into implementing the new law. Of greater concern than these short-term implementation costs are Dodd-Frank’s potential long-run costs. Rather than averting crises, Dodd-Frank’s rejiggering of the financial system has created the preconditions for a future crisis, while inhibiting economic growth and dynamism.