Skip to main content
No. of Recommendations: 8
The Dodd-Frank Act versus the Rule of Law

"In response to the 2008 financial collapse, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Dodd-Frank increased regulation of banks, stockbrokers, insurers and other financial institutions that are “too big — or interconnected — to fail” and that could require a government bailout to prevent a banking system collapse.

The Act created a board — the Financial Stability Oversight Council — composed mostly of the heads of various federal financial regulatory agencies, including some newly created agencies [see the table]. The Council has the responsibility to identify institutions whose failure might create systemic distress — and the discretion to impose “prudential” regulations on them different from the regulations imposed on other financial institutions.

Regulation is discretionary when the requirements imposed on privately owned institutions vary from firm to firm in ways that are difficult to explain or anticipate, particularly by the affected firms. In the extreme form, regulations could be imposed on specific firms, regardless of the type of business they conduct, or whether they are chartered by individual states or the federal government.

Discretionary regulation is contrary to the rule of law, but is consistent with the “rule of men” — in this case, experts in financial regulation. However, by their very nature, discretionary regulation cannot reliably produce the results its advocates desire; furthermore, these regulations will increase financial instability, rather than reduce it."

The rule of law is an antiquated notion anyway.
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.