Global financial system reform: the Dodd‐Frank Act and the G20 agenda

Abstract

PurposeThe Dodd‐Frank Act of 2010 is the keystone policy response directed at reforming US financial system activities and oversight in the wake of the 2007‐2009 financial crisis. The USA also has financial system reform policy commitments in the international arena, including in particular by virtue of its membership in the G20. The purpose of this paper is to consider US policy initiatives related to a core dimension of financial system reform: risks posed by systemically important financial institutions (“SIFIs”).Design/methodology/approachThe paper provides a deta‘iled comparison of SIFI policy initiatives and timetables under both the Dodd‐Frank Act and the G20 agenda, as reflected in the ongoing work plan of the Financial Stability Board (FSB), and poses the question “Are US domestic and international financial system reform commitments in sync?”FindingsThe study finds that, fundamentally, the answer is “yes.” However, the comparison yields two caveats with potential policy implications. First, the two agendas differ in their relative emphasis on the coverage of both banks and nonbanks. The G20/FSB focus, at least over the near‐term, is bank‐centric compared with the Dodd‐Frank Act, which consistently addresses both bank and nonbank financial firms. Second, implementation of Dodd‐Frank Act provisions is subject to long‐established US law mandating that there be sufficient opportunity for public input into the rulemaking process, whereas the G20/FSB process has been less systematic and transparent on public consultation and feedback.Practical implicationsThese observations may be relevant to the current debate over the speed and scope of Dodd‐Frank Act implementation measures, and to the discussion about the future international competitiveness of US banks and nonbank financial firms.Originality/valueThis study is the first to present a detailed, comprehensive comparison of financial system reform initiatives and provisions in the Dodd‐Frank Act and the G20 agenda.