by Norbert Michel
The Heritage Foundation
April 02, 2014
Backgrounder
History shows that more regulation does not inherently prevent financial panics and crises. Yet the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act provides more of the same old financial regulation. Much of this regulation is propagated through a multi-regulator Financial Stability Oversight Council. The council’s role of identifying large financial companies for special regulatory supervision under the Fed actually increases the likelihood of future financial crises and bailouts. Its designations for these firms minimize the extent to which potential losses figure into managers’ decisions and increase the likelihood of greater financial risk-taking. Ensuring that firms do not take undue risk requires stating credibly that owners and creditors—not taxpayers—will be responsible for financial losses. A great first step would be to acknowledge that a lack of regulation did not cause the 2008 financial crisis and that more regulation will not end future bailouts.



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