Dodd-Frank Act
The 2010 US financial reform law enacted in response to the 2008 financial crisis, significantly expanding financial regulation.
What is Dodd-Frank?
The Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) is the most sweeping US financial regulatory reform since the Glass-Steagall Act of the 1930s, enacted in response to the 2008 financial crisis. Key provisions include: creation of the Consumer Financial Protection Bureau (CFPB); the Volcker Rule restricting banks' proprietary trading; enhanced oversight of derivatives and swaps; living wills for systemically important financial institutions (SIFIs); enhanced capital and liquidity requirements; say-on-pay shareholder votes on executive compensation; and the Orderly Liquidation Authority to wind down failing large banks. The law significantly increased compliance costs for banks, particularly large institutions, and has been partially rolled back through subsequent legislation.
Example
Before Dodd-Frank, credit default swaps — which amplified the 2008 crisis — were traded in opaque over-the-counter markets with no central clearing or reporting. Dodd-Frank required most standardized derivatives to be cleared through central counterparties and reported to trade repositories, increasing market transparency and reducing systemic risk.
Source: US Congress — Dodd-Frank Wall Street Reform and Consumer Protection Act