Dodd-Frank Act

Play The 2008 Financial Crisis →

What Is Dodd-Frank Act?

The Dodd-Frank Wall Street Reform and Consumer Protection Act was a sweeping U.S. financial reform law signed by President Obama in July 2010 in response to the 2008 financial crisis. It aimed to reduce the risks that had brought the financial system to the brink by tightening oversight of banks and markets, regulating derivatives more closely, and creating new tools to wind down large failing firms. Among its creations were the Consumer Financial Protection Bureau, to oversee lending and protect borrowers, and the Financial Stability Oversight Council, a body charged with monitoring systemic risk across the entire financial system.

Why It Matters

Dodd-Frank matters as the most significant overhaul of U.S. financial regulation since the reforms of the Great Depression. It sought to address weaknesses the crisis had exposed: opaque derivatives like credit default swaps, inadequate capital, and the too big to fail problem of institutions whose collapse could threaten the whole economy. The law introduced stress tests and resolution authority to make large-bank failures more manageable and less catastrophic. Like the Depression-era Glass-Steagall Act before it, Dodd-Frank became a focus of ongoing political debate, with supporters crediting it for a safer system and critics arguing parts of it were too costly or complex.

Test Your Knowledge

Questions on this topic from the EconRecall fact bank: