Presidents George W. Bush and Barack Obama signed into law several major legislative responses to the financial crisis of 2008. The most influential and controversial of these was the Dodd-Frank Wall Street Reform and Consumer Protection Act, which introduced a raft of measures designed to regulate the activities of the financial sector and protect consumers.
Other notable laws include the Emergency Economic Stabilization Act, which created the Troubled Asset Relief Program; the Helping Families Save Their Homes Act; and the Homeless Emergency Assistance and Rapid Transition to Housing Act (HEARTH). All of these laws are separate from the unprecedented actions taken by the Federal Reserve, which were not governed by any particular legislation.
Dodd-Frank was signed into law in July 2010 and brought sweeping reforms to the U.S. financial sector. One of its provisions, the Volcker Rule, was designed to limit speculative investments. The law created the "Sifi" (systemically important financial institution) designation for banks and non-banks, which places additional regulatory burdens on institutions considered "too big to fail." It attempted to increase market transparency by mandating clearing for certain derivatives. It gave the Federal Reserve oversight powers and created the Consumer Financial Protection Bureau to curtail practices that take advantage of consumers.
Supporters have defended these measures, arguing that the law had an overall positive effect on the financial sector and made another crisis less likely. Critics have found a number of faults with the law, the complexity of which has given rise to unintended consequences. The Volcker Rule, for example, has acted as a de facto ban on proprietary trading by depository institutions, decreasing profits and arguably making the banking system more fragile, even as it has decreased the risk that speculative investments will blow up. Increased compliance costs have weighed on smaller banks, handing the big banks an advantage and perhaps exacerbating the "too big to fail" problem.
According to a 2014 assessment of Dodd-Frank's impact by the Brookings Institution, the law achieved a "clear win" by increasing the levels of capital that banks keep on hand, leading to greater stability for the system as a whole. Another success, according to Brookings, was the creation of the CFPB. Restrictions on the Fed's emergency lending abilities, on the other hand, were a "clear loss," while the Volcker Rule and other provisions represented "costly trade-offs."
As of October 2017, Republicans control both chambers of Congress and the White House and are pursuing a rollback of major Dodd-Frank provisions, through both Congress and the executive branch. A Treasury report issued in October identified regulations that could be scrapped to encourage growth, and in June the House passed the Financial Choice Act, which would repeal the Volcker Rule and the Sifi designation.
Emergency Economic Stabilization Act
On Oct 3, 2008, a divided Congress passed the Emergency Economic Stabilization Act, which provided the Treasury with approximately $700 billion to purchase "troubled assets," mostly bank shares and mortgage-backed securities. The Troubled Asset Relief Program (TARP), as the program was known, ultimately spent $426.4 billion bailing out institutions including American International Group Inc. (AIG), Bank of America Corp. (BAC), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and General Motors Co. (GM). The Treasury recovered $441.7 billion from TARP recipients.
The program was extremely controversial. For some critics, the temporary nationalization of banks and carmakers amounted to socializing key portions of the economy. For others the bailout recipients' largesse – Washington Mutual CEO Alan Fishman was paid $20 million in 17 days on the job, after which the company was taken over by the federal government – contrasted shamefully with the lack of support for families who lost their homes.