Five years down the line: Dodd-Frank

While it was hailed as a watershed reform at the time, research released by the American Enterprise Institute has found that many are not aware of its implications. Asking the questions: "How familiar are you with Dodd-Frank law which regulates the financial markets?", 39% of sample groups said that they had never heard of it. Just 4% were familiar with the act. So what has it managed to achieve since its inception five years ago? 

Most significantly, Dodd-Frank has enabled regulators to control financial firms irrespective of their corporate form. This has put out a clear message to the financial services industry that certain fringe companies would not be able to exploit operational loopholes any longer. 

The legislation has also given the government and regulators the means they need to sort out financially limping firms, without going to bail-out or sending them through the ordeal of bankruptcy. In addition, the largest firms now have to meet stress tests and increased capital limits. 

A key aspect of Dodd-Frank has been its improvement of market transparency. New laws have implemented increased regulation on derivatives markets by shifting the market into exchange trading and central clearing, thus revealing the underbelly of the shadow banking sector. 

Furthermore, the Financial Stability Oversight Council was set up in conjunction with the Office of Financial Research, bringing an added dimension of supervision. Also created to galvanise consumer and investor protection was the Consumer Financial Protection Bureau which controls the consumer financial marketplace. 

The US financial system is now more robust but motions in Congress to repeal the Frank-Dodd Act illustrate that its advent has not been welcomed by all. 

In the past half decade, around 40% of the 390 regulations drawn up have yet to be worked out completely, according to research published at Davis Polk. The Act is still a work in progress, but this has been hindered by $2.5bn of lobbying spent by the financial services over the last five years.

However the legislation has also failed to stave off the need for another government bailout of the banks considered 'too big to fail'. Dodd-Frank calls on large, potentially at risk banks, to devise 'living wills' to enable them to scale down operations without emptying the tax payer's pocket. 

Eleven of the largest banks have sent regulators three stages of proposed wills, although none of these has so far been considered workable. Fears also remain that parts of the Act ask too much, needlessly placing further burden on an already strained financial services industry. 

Closer regulation has reduced liquidity in the bond market and smaller banks have complained of having to deal with an unfair disadvantage because the regulations have been designed to clip the wings of big banks. 

Debates in Congress ask whether to repeal or amend both parts of the law, over 20% of which want the entire act to be abolished. May 2015 saw the Senate Banking Committee approve a bill that proposed the biggest readjustment of the Act since it came into being, a bill allowing more institutions to avoid heavy regulations, supervision for capital standards and a requirement to show restraint on balance sheets. 

Much still needs to be done but the further we go from the financial crisis which brought Dodd-Frank into being, the more distant become the calls to maintain its existence or combat those who want to see it snuffed out for good.