In the latest issue of RSF, editor Michael Barr and other policy experts examine the causes of the 2008 financial crisis and set out proposals for comprehensive financial reform. Contributors suggest how to improve financial regulation, make markets more resilient, and increase protections for consumers and investors in order to lower the likelihood of a future crisis.

In their article, Martin Neil Baily, Aaron Klein, and Justin Schardin evaluate the Dodd-Frank bill, which mandated greater federal oversight of banks, increased regulation of credit rating agencies, and established the Consumer Financial Protection Bureau (CFPB), among other measures. The authors conclude that the bill’s measures requiring greater transparency and oversight in derivatives transactions have made financial institutions more resilient. Yet, they also find that the bill’s attempts to consolidate the fragmented financial regulatory system have not gone far enough.

Prior to the passage of Dodd-Frank, no single agency was responsible for taking an overall view of the financial system. As a result, significant gaps in oversight developed, and regulators failed to comprehend the broad risks that were building in the years leading up to the crisis. Furthermore, as the figure below shows, there was overlapping jurisdiction between a number of different regulatory agencies, which led to interagency friction, inefficient use of supervisory and regulatory resources, and duplicate requests and compliance responsibilities for financial institutions, among other issues.

[[{"fid":"6975","view_mode":"default","fields":{"format":"default","field_file_image_alt_text[und][0][value]":"","field_file_image_title_text[und][0][value]":""},"type":"media","attributes":{"style":"width: 700px; height: 467px;margin-bottom:20px;","class":"media-element file-default"}}]]

Dodd-Frank made some progress in addressing the problem of overlapping jurisdictions. First, it created the Financial Stability Oversight Council (FSOC), a new supercouncil of regulators designed to keep an eye on risk in the financial system as a whole and to better coordinate agencies. It also created the Consumer Financial Protection Bureau, which consolidated federal oversight of consumer financial products in a single agency, and closed a major gap by bringing derivatives products under the jurisdiction of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).

[[{"fid":"6976","view_mode":"default","fields":{"format":"default","field_file_image_alt_text[und][0][value]":"","field_file_image_title_text[und][0][value]":""},"type":"media","attributes":{"style":"width: 700px; height: 533px;margin-bottom:20px;","class":"media-element file-default"}}]]

Yet, the authors argue that the current financial system remains more fragmented and less efficient than it should be. They advocate streamlining the system through a plan proposed by the Bipartisan Policy Council, which would further consolidate agencies under the following oversight structure:

[[{"fid":"6977","view_mode":"default","fields":{"format":"default","field_file_image_alt_text[und][0][value]":"","field_file_image_title_text[und][0][value]":""},"type":"media","attributes":{"style":"width: 700px; height: 622px;margin-bottom:20px;","class":"media-element file-default"}}]]

Read the article in full on the RSF journal website.