Politics of Regulatory Reform: The Enactment of Dodd-Frank

During the past three decades, the size of financial institutions and transactions increased tremendously in the US economy. Technological and economic changes played an important role in this process, but equally important, if not more, were the regulatory changes that took place since the early 1980s. The 2008 crisis has brought to light in all its nakedness the nature of this regulatory re-orientation, and its role in the rise and fall of a finance-oriented economy. Among the most salient issues was the inadequacy of the financial regulatory architecture in protecting citizens who, over the past few decades, had become consumers of a wide array of financial products and services. As the economic crisis deepened regulatory reform became a political necessity. In 2010, the US Congress passed the Dodd-Frank Act, which brought about a number of important changes including the creation of the Consumer Financial Protection Bureau (CFPB). The road to the enactment of Dodd-Frank was a bumpy one, however, and until fairly late in the process, the idea of establishing a new federal agency dedicated to consumer financial protection was one of the most controversial proposals on the table.

This article looks at the politics of regulatory reform. I first examine how policymakers, regulators and interest groups differed in diagnosing the causes of the crisis, and in the reforms they proposed. Then I examine how these different ideas and interests collided within the unique legislative structure of the US to give shape to Dodd-Frank, and attempt to explain how it is that a federal agency, not a popular cause at the outset of the crisis ended up being the central piece of a bill.