The Dodd-Frank Act: Immortalising bailouts

Abstract

The Global Financial Crisis saw an unprecedented level of government intervention to save failing financial institutions. Bailouts became synonymous with the Crisis. Despite promises of “no more bailout”, international efforts to implement resolution regimes to resolve systemically important financial institutions have failed to solve the bailout issue. This paper examines the Dodd-Frank Act and concludes that instead of providing a pathway for large financial institutions to fail, it has enshrined too-big-to-fail and ensured bailouts will be there when needed. If regulators truly want to eliminate bailouts, too-big-to-fail institutions must be broken up. Until financial institutions become less systemically important, governments will have little choice other than to bail them out. In this light, Dodd-Frank’s Orderly Liquidation Fund is an inevitable but necessary bailout procedure that provides a more organised approach than emergency measures in the face of a severe crisis.