CLE Materials for Panel #1 - George Washington University Law ...

WILMARTH
4/1/2011 1:11 PM
2011] The Dodd-Frank Act 1053
Dodd-Frank makes meaningful improvements in the regulation of
large financial conglomerates. As discussed in Part V, Dodd-Frank
establishes a new umbrella oversight body—the FSOC—that will
designate SIFIs and make recommendations for their supervision.
Dodd-Frank also empowers the FRB to adopt stronger capital
requirements and other enhanced prudential standards for SIFIs.
Most importantly, Dodd-Frank establishes a new systemic resolution
regime—the OLA—that should provide a superior alternative to the
“bailout or bankruptcy” choice that federal regulators confronted
when they dealt with failing SIFIs during the financial crisis.
In addition, Title X of Dodd-Frank reduces systemic risk by
creating a new federal authority, the Consumer Financial Protection
Bureau (CFPB), to protect consumers from unfair, deceptive, or
abusive financial products. 443 As the current financial crisis has
shown, ineffective consumer protection becomes a severe threat to
financial stability when regulators allow unfair and unsound
consumer lending practices to become widespread within the financial
system. 444 During the decade leading up to the financial crisis,
federal financial regulators repeatedly failed to protect consumers
against pervasive predatory lending abuses and thereby contributed to
the severity and persistence of the crisis. 445 Focusing the mission of
consumer financial protection within the CFPB significantly increases
the likelihood that the CFPB will act decisively to prevent future
lending abuses from threatening the stability of our financial
system. 446
Nevertheless, Dodd-Frank does not solve the TBTF problem.
Dodd-Frank (like Basel III) relies primarily on the same supervisory
tool—capital-based regulation—that failed to prevent the banking and
thrift crises of the 1980s as well as the current financial crisis. 447 In
addition, the supervisory reforms contained in Dodd-Frank depend for
443 See S. REP.NO. 111-176, at 11, 161–74 (2010).
444 See id. at 9–17; Bair FCIC Testimony, supra note 276, at 3–6, 9–12, 14–20, 47–50;
Elizabeth A. Duke, Governor, Fed. Reserve Bd., The Systemic Importance of Consumer
Protection, Speech at the Community Development Policy Summit (June 10, 2009),
available at http://www.federalreserve.gov/newsevents/speech/duke20090610a.htm.
445 See S. REP. NO. 111-176, at 9–19; see also JOHNSON & KWAK, supra note 137, at
120–44; Oren Bar-Gill & Elizabeth Warren, Making Credit Safer, 157 U. PA. L.REV. 1,
70–97 (2008); McCoy et al., supra note 14, at 1343–66; Wilmarth, supra note 15, at 19–
31.
446 See S. REP. NO. 111-176, at 9–11; see also Bar-Gill & Warren, supra note 445, at
98–101.
447 See supra notes 244–46 and accompanying text.