Corporate Social Responsibility and Financial Institutions: Beyond Dodd-Frank

Abstract

The financial crisis introduced a new phrase into the banking industry's lexicon - "too big to fail." "Too big to fail" describes financial institutions so important to the financial markets that their collapse or bankruptcy would disrupt the capital markets in such catastrophic ways that it would push the U.S. economy into recession or depression. The risk of failure of these financial institutions requires the federal government to intervene and manage the overall systemic risk to capital markets for all financial institutions.

Government efforts to manage the collapse of financial institutions and to monitor credit risk to capital markets include enactment of the Emergency Economic Stabilization Act in 2008, which infused taxpayers' dollars into financial institutions to prevent bankruptcy - the "bailout" and the passage of the Dodd-Frank Act in 2010, which explicitly prohibits taxpayers' dollars from being used to bailout financial institutions in the future. The Dodd-Frank Act, among other provisions, establishes the Financial Stability Oversight Council (Council) charged with identifying risks to the financial stability of the market; promoting market discipline; and responding to emerging threats to the stability of the financial system. The article goes on to discuss corporate social responsibility, securitization and sub-prime loans as an acceleration of the financial crisis, and the necessary regulation and disclosure.

Keywords: financial crisis, recession, depression, economy, sub-prime loan, Emergency Economic Stabilization Act, corporate social responsibility, securitization, bailout, bankruptcy, Dodd-Frank Act

JEL Classification: K22, E44, E47, G2, G00, G30, G33, G38, H61