5 Years of Dodd-Frank

It’s been 5 years since Congress passed the Dodd-Frank Act reforming the U.S. financial regulatory system. Since then, we’ve been busy examining almost every aspect of this law and its impacts. Today’s WatchBlog shares a few of our regulatory lessons learned.

Lessons learned

We recently analyzed what regulators learned from the 2007-2009 financial crisis as well as other past banking-related crises. The lessons?

• Take early and forceful action. Bank regulators frequently found problems early on but weren’t good at getting banks to make changes before things got out of hand. For example, examiners didn’t always impose timely enforcement actions to help nudge banks to be better actors.
• Look ahead for risks. Bank examiners need the right tools to find risk before those risks become crises. Yet, time and again, financial crises revealed limitations in monitoring and addressing emerging risks.
• Think big. The same way you never have 1 mouse (it’s always mice), it’s also typically not just 1 bank or group that results in a crisis. Regulators must look across the financial system to identify potential problems.

Regulators told us they took a number of steps to try to identify and respond to emerging risks—such as incorporating more forward-looking elements into supervisory tools—and we’ll continue to review regulators’ work.

Moving forward

To help us and others see whether regulators are staying on top of these lessons, we developed a 2-part framework for monitoring efforts to identify and respond to emerging risks to the banking system.

1. The first part employs financial indicators that can help track and analyze emerging risks, as well as sources of information on emerging risks—such as regulatory reports and industry and academic studies.
2. The second part monitors regulators’ responses to emerging risks, such as new or revised agency guidance, to help flag issues for further review when questions arise about the effectiveness of these responses.

We plan to implement this framework in our future work.

And lots more!

If you’re interested in more Dodd-Frank insights, check out our reports on

• reforms intended to limit future government support for failed financial institutions, as well as how the U.S. bankruptcy code would handle such failures;
• whether large banks have benefited from relative funding advantages during the financial crisis and since the passage of the act;
• The Financial Stability Oversight Council’s process for identifying insurance companies and other “nonbanks” that should be supervised by the Federal Reserve;
• regulators’ efforts to implement Dodd-Frank rulemakings;
• what steps the newly created Consumer Financial Protection Bureau should take to protect and secure its collection of data and oversee virtual currencies; and
• the effects of new bank capital standards on U.S. banks.

We have made numerous recommendations concerning financial regulations and steps have been taken to implement some of them. Explore the ones that agencies still need to address, in our blog@gao.gov.