One Step Forward, Two Steps Back? The Institutional Structure of U.S. Financial Services Regulation after the Crisis of 2008

Abstract

This book chapter provides an overview of the key changes in the structure of U.S. financial services regulation in the wake of the global financial crisis of 2008. The crisis exposed numerous weaknesses in the U.S. system of regulatory oversight of the country’s rapidly growing and complex financial services sector. In response, the U.S. Congress adopted the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act), a wide-ranging reform statute that explicitly pursues the objective of systemic risk mitigation. Among other things, this large-scale reform effort involved a rearrangement of the federal administrative apparatus in charge of overseeing the U.S. financial services sector.

At this stage in the implementation of the Dodd-Frank regime, it is difficult to predict how successful the new financial regulatory structure will be in safeguarding systemic financial stability in the long run. Without claiming to offer any definitive judgments, this chapter draws some preliminary assessments of the Dodd-Frank Act as a major milestone on the path of financial regulation reform in the United States. Placing the discussion of this latest agency restructuring in its broader historical, institutional, and intellectual context is particularly instructive. Against that broader backdrop, the Dodd-Frank Act can be viewed, somewhat paradoxically, both as an important advance and as a regrettable retrenchment on the road toward a better regulatory system.

Keywords: financial regulation, regulatory structure, financial crisis, regulatory reform, FSOC, Federal Reserve, consolidated regulation, systemic risk