The Pros And Cons Of Dodd-Frank Wall Street Reform

Coming off the worst financial crisis in the great depression, in which 8.8 million jobs and $19.2 trillion in household wealth were lost (“The Financial Crisis In charts”), the general population demanded congress take steps to prevent such a crisis from occurring again. Their response? The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Passed on July 21, 2010, with the intention of reforming financial institutions and protecting consumers, was this the answer that consumers wanted? Five years after its passage, consumers and financial institutions have been wondering alike: has the Dodd-Frank Act had a positive or negative impact on consumers and financial institutions? Ultimately, after examining Dodd-Frank in detail,

No taxpayer funds shall be used to prevent the liquidation of any financial company” (Dodd-Frank Sec. 214). Previously, taxpayer dollars were used to bail out or support large financial institutions that were considered “too big to fail”, such as Bank of America and Citigroup. Instead, the government will allows these institutions to be liquidated, assuming the powers granted to the FDIC will be sufficient in preventing a disruption of United States financial stability. Fortunately, we have not yet seen Title II in action with an institution that would have been considered “too big to fail”. However, the government is rolling the dice on whether Title II will be strong enough to preserve U.S. financial stability. The logic behind the title is mostly reasonable; “ shareholders and creditors to bear the losses of the failed financial company, removing management that was responsible for the financial condition of the company, and ensuring that payout to claimants is at least as much as the claimants would have received under a bankruptcy liquidation” (Cornell Law). Forcing the management team out of a failing corporation and making sure that liquidation payouts are at least equal to bankruptcy payments are reasonable and almost beneficial for consumers. However, forcing shareholders and creditors to endure the losses of the failing corporation without assistance is far less reasonable. Shareholders and creditors make investments on based on public information and their belief in management. If investors are punished for being deceived by the management of a corporation, then there is likely to be a decline in investment activity because investors will not be willing to absorb the entire loss of a failing corporation. Although Title II possesses some beneficial provisions, examining the title as a whole makes it clear that it neither does