Fueled by federal policy, the six largest U.S. banks have grown 20-fold in just 30 years; in response, bank reform should make banks smaller, simpler, and safer—the opposite of what Dodd-Frank does.
In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was hailed by its champions as the solution to the problem of “too big to fail.” The text of the legislation itself claimed the act would “protect the American taxpayer by ending bailouts” of big banks, and the law created a host of new federal programs designed to improve accountability and transparency in the financial system—including an oversight body explicitly designed to eliminate investors’ expectations of government bailouts. Pointing to these innovations, Dodd-Frank’s proponents claimed to have ushered in a new era of financial regulation in which no bank’s recklessness would ever again be subsidized with a government guarantee.
Yet four years after the end of the Great Recession, and three years after the passage of the financial-reform legislation, America’s megabanks are even bigger. Wall Street is more concentrated and the financial sector is more politically powerful than ever before, and there is little evidence that the most important lessons from the 2008 financial crisis have been taken to heart. What happened?
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