6.) It Didn’t Effectively Constrain Future Bailouts — Although Dodd-Frank tightened constraints on future bailouts, even greater constraints are needed on the design of and accountability for emergency government rescue programs. Clear, credible constraints would limit moral hazard and lessen the likelihood of harmful government intervention.
7.) It Didn’t Reform Money Market Funds — A run on money market funds during the crisis prompted the government to put a temporary taxpayer-backed insurance program in place. Dodd-Frank avoided the subject. Sensible, workable reforms are needed.
8.) It Didn’t Reform the Repo and Securities Lending Markets — Dodd-Frank failed to address the repo (repurchase agreement) and securities lending markets, which played a substantial role in the financial crisis. Financial firms relied heavily on the repo market, which offers very short-term secured financing. During the crisis, the inability to roll over repo funding wreaked havoc at financial firms, and AIG’s massive, troubled securities lending program contributed substantially to its failure.
9.) It Didn’t Improve Capital Regulation — Rather than taking a fresh approach to capital regulation, Dodd-Frank perpetuates the approach that helped to lay the groundwork for the financial crisis. Dodd-Frank should have established straightforward capital regulations that are less susceptible to manipulation and less likely to encourage the financial industry to concentrate its assets in homogenous, risky securities.
10.) It Didn’t Effectively Sever Government Support for Credit Rating Agencies — Dodd-Frank took the positive step of removing rating agency references from statutes and regulations, but it should also have dismantled the government’s rating agency certification system. Instead, it gave the SEC more power to approve or disapprove rating agencies, thus cementing the relationship between the government and approved rating agencies.
Hester Peirce is a senior scholar at the Mercatus Center and the co-author of the book Dodd-Frank: What It Does and Why It’s Flawed. She served as a senior counsel on the minority staff of the Senate Banking Committee during the drafting of Dodd-Frank.