Research Question: Why doesn’t the Dodd-Frank Act eliminate the possibility of another financial crisis in its current form?

The Dodd-Frank Wall Street Reform Act was signed into law by President Obama on July 21st, 2010 as a response to the economic crisis of the late 2000s. It was held up as a savior, a financial superhero of sorts, that was supposed to bring sweeping change to an unruly financial industry. But as it stands, the bill does not appear to have the superhuman strength to prevent another economic crisis. This can be attributed to many factors which will be discussed in this paper.

Since being signed into law, the act has been stagnated with over 60 percent of it not actually in place. Lobbyists from large financial institutions have been working non-stop to roll-back or lessen the regulations within the act. And to be blunt, some of the policies within the bill may just be ineffective by nature. Due to its seeming inefficiency the bill has been subject to much scrutiny. Even Presidential hopeful Mitt Romney proclaimed that he would “repeal and replace” Dodd-Frank if he succeeded in winning the Presidency. But the Dodd-Frank Act is just what is needed to regulate current financial services and it is essential to the financial future of the United States. This paper will defend the strengths of the Act, highlight reasons much of the bill is still inactive and recommend ways the few weaknesses in the bill can be amended.

Firstly, I will highlight some of the important features of the bill and why they are so important to the financial health of the economy. Next, the paper will shine light on the reasons why most of the act is still inactive. Lastly, the paper will discuss measures that can be taken to save the bill, either from its own inherent weaknesses or save it from stagnation and get more or the entire bill active.

4 thoughts on “Research Question: Why doesn’t the Dodd-Frank Act eliminate the possibility of another financial crisis in its current form?

  1. I really like the fact you spoke of the Dodd Frank Act, and I think one of the parts you should highlight is the Volcker Rule which rule aims to minimize conflicts of interest between banks and their clients through separating the various types of business practices financial institutions engage in.

    I found this rule very interesting because it was supposed to stop financial institutions from making risky bets but it didn’t stop JP Morgan from losing 2 billion dollars and receiving no harsh penalty. The Dodd Frank Act really has no punishment for large financial institutions and also designates certain large institutions as “too big to fail” which is how banks received a bailout in the first place.

    • Although I agree that extremely risky decision making is unruly for consumers that generally don’t appreciate the volatility that comes with such action, we must also consider what we’re dealing with. Investment banks deal on multi-million dollar and even billion dollar levels at relatively frequent times. JP Morgan’s net worth is 2.3 trillion which indicates to me that the 2 billion might be a drop in the old bucket there.

      Financial institutions will never stop making ‘risky’ bets so long as there is an investment banking sector of it. I wonder if you would agree with me that compartmentalizing banks may be a more suitable response? Imagine JP Morgan being separate from Chase. Wouldn’t the lower income individuals subscribing with Chase not have to worry about the volatile ‘bets’ being made by JP Morgan under such compartmentalization strategies? Food for thought! Best wishes on the paper
      -IW

  2. How can you prove the main research question? Another crisis has not occurred yet. Narrow down your question as to the specific financial regulatory reforms included in the Dodd-Frank Act and try to find what real reforms have been skipped to prevent the future financial crisis.

    Also, try to formulate your main research question by using a “WHY” question format and try to provide a direct answer to that question (argument). Look over the Dodd-Frank Act quickly and check out what reforms have been missing or lack and reformulate your main research question again.

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