The Dodd–Frank Wall Street Reform and Consumer Protection Act (commonly referred to as Dodd–Frank) is a United Statesfederal law that was enacted on July 21, 2010. The law overhauled financial regulation in the aftermath of the financial crisis of 2007–2008, and it made changes affecting all federal financial regulatory agencies and almost every part of the nation’s financial services industry.

The Wall Street Reform and Consumer Protection Act was enacted in response to the worst financial crisis since the Great Depression, caused by years of lax enforcement of regulations and zero accountability for the nation’s financial institutions. 

Responding to widespread calls for changes to the financial regulatory system, in June 2009 President Barack Obama introduced a proposal for a “sweeping overhaul of the United States financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression”. Legislation based on his proposal was introduced in the United States House of Representatives by Congressman Barney Frank, and in the United States Senate by Senator Chris Dodd. Most congressional support for Dodd-Frank came from members of the Democratic Party, but three Senate Republicans voted for the bill, allowing it to overcome the Senate filibuster.Dodd-Frank reorganized the financial regulatory system, eliminating the Office of Thrift Supervision, assigning new responsibilities to existing agencies like the Federal Deposit Insurance Corporation, and creating new agencies like the Consumer Financial Protection Bureau (CFPB). The CFPB was charged with protecting consumers against abuses related to credit cards, mortgages, and other financial products. The act also created the Financial Stability Oversight Council and the Office of Financial Research to identify threats to the financial stability of the United States, and gave the Federal Reserve new powers to regulate systemically important institutions. To handle the liquidation of large companies, the act created the Orderly Liquidation Authority. One provision, the Volcker Rule, restricts banks from making certain kinds of speculative investments. The act also repealed the exemption from regulation for security-based swaps, requiring credit-default swaps and other transactions to be cleared through either exchanges or clearinghouses. Other provisions affect issues such as corporate governance, 1256 Contracts, and credit rating agencies.

Dodd-Frank is generally regarded as one of the most significant laws enacted during the presidency of Barack Obama.[1] Studies have found the Dodd–Frank Act has improved financial stability and consumer protection, although there has been debate regarding its economic effects. In 2017, Federal Reserve Chairwoman Janet Yellen stated that “the balance of research suggests that the core reforms we have put in place have substantially boosted resilience without unduly limiting credit availability or economic growth.” Some critics have argued that the law had a negative impact on economic growth and small banks, or failed to provide adequate regulation to the financial industry. Many Republicans have called for the partial or total repeal of the law.

Wall Street Reform or Financial Reform, commonly called the Dodd-Frank Bill, was signed by President of the United States Barack Obama on July 22, 2010. Since the economic crisis of 2008-present (including jobs lost, businesses failed, house prices dropped, and personal savings affected), there has been an ongoing debate on whether there was sufficient oversight and regulation of the US financial system, non-regulated OTC derivative market, and consumer protection authority which was viewed by some as the major cause of the financial crisis. The law was passed with the intent of making the US financial system more transparent and accountable, avoiding another economic crisis, and ensuring that there is a system in place that works towards protecting investors’ money. Some of the major topics it includes are: creation of the Consumer Financial Protection Bureau and the Financial Stability Oversight Council, limiting large complex financial instruments and making derivative market more transparent, many new requirements and oversight of Credit Rating Agencies, giving shareholders a say on CEO’s bonuses (and many others) – with the main purpose of strengthening the economy, and protecting consumers.

The Glass-Steagall Act of 1933

The Glass-Steagall Act of 1933 placed a “wall of separation” between banks and brokerages, which was largely repealed by the Financial Services Modernization Act of 1999. Though some commentators regard the restoration of the 1933 bill as crucial, even calling it “the most vital element of Wall Street reform”, House Democratic leaders refused to allow an amendment by Rep. Maurice Hinchey (D-NY) to restore Glass-Steagall as part of the 2009 Frank bill. Hinchey introduced his proposal as a separate bill, the Glass-Steagall Restoration Act of 2009. Nonetheless, the “Volcker rule” proposed by the Obama administration has been described as a “new Glass-Steagall Act for the 21st century”, as it establishes stringent rules against banks using their own money to make risky investments.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act, by Sen. Paul S. Sarbanes (D-MD) and Rep. Michael G. Oxley (R-OH), was signed into law by George W. Bush in July 2002. The bill was enacted as a reaction to a number of major corporate and accounting scandals including those affecting Enron and WorldCom.

2009 and 2010 reform

As of May 2010, both the House and Senate bills had been passed, but the differences between the bills were to be worked out in United States congressional conference committee. Differences which must be resolved include: whether the new consumer protection agency would be independent (Senate) or part of the Federal Reserve; whether to require banks to issue credit derivatives in separately capitalized affiliates (Senate); how exactly the Federal Deposit Insurance Corporation (FDIC) will wind down or bail out large institutions which fail; the circumstances under which large institutions could be broken up; a 15 to 1 leverage limit in the House bill; the terms of a Fed audit (continuous as in the House bill or one-time as in the Senate bill); both bills include the Volcker rule which prohibits proprietary trading by bank holding companies, but both have a caveat which allow for regulators to overrule the rule; both bills propose to regulate credit rating agencies, but the Senate’s bill is much stronger.

House bill

H.R. 4173, the Wall Street Reform and Consumer Protection Act of 2009 by Rep. Barney Frank (D-MA), passed by the House of Representatives in December 2009, and awaiting action by the Senate as of April 2010.

Senate bill

S.3217 was introduced by Senate Banking Committee chairman Chris Dodd (D-CT) on April 15, 2010. Dodd’s bill included a $50 billion liquidation fund which drew criticism as a continuing bailout, which he was pressured to remove by Republicans and the Obama administration. The Senate bill passed on May 20, 2010.

Volcker Rule

The “Volcker Rule” was proposed by President Barack Obama based on advice by Paul Volcker, and a draft of the proposed legislation was prepared by the U.S. Treasury Department. It limited any one bank from holding more than 10% of FDIC-insured deposits, and prohibited any bank with a division holding such deposits from using its own capital to make speculative investments. The Volcker rule faced heavy resistance in the Senate and was introduced as part of the subsequent Dodd bill only in a limited form.

Financial Stability Oversight Council

Chaired by the United States Secretary of the Treasury, a new multi-authority oversight body called the Financial Stability Oversight Council of regulators will be established. The council will consist of nine members including regulators from the Federal Reserve System, U.S. Securities and Exchange Commission, Federal Housing Finance Agency, and many other agencies. The main purpose of the council is to identify risk in the Financial system. Also, the council will look at the interconnectivity of the highly leveraged financial firms and can ask companies to divest holdings if their structure poses a great threat to the Financial system. The council will have a solid control on the operations of the leveraged firms and also help in increasing the transparency.