US financial market reform: The economics of the Dodd-Frank Act

With the Dodd-Frank Act the US has set the pace and an important yardstick for the regulatory response to the crisis. It provides a comprehensive reform of America’s existing oversight framework, broadly in line with the priorities agreed in conjunction with its partners in the G20. The economic impact of the Act will be substantial. Most importantly, financial stability will be strengthened markedly, through a reformed institutional framework, new macroprudential oversight, systemic risk regulation and more and better bank capital.

The EU is more systematic about institutional reform, more compliant with international standards, stricter on alternative investors, harsher on compensation. Key differences are in the offing on critical topics, incl. financial transactions taxation, bank levies, short selling. The EU should be careful to avoid deviations from the G20 consensus.