Regulatory Reform

As part of the economic recovery effort, the Fed is targeting various policies to strengthen the financial system with the goal of enhancing the transparency of the Federal Reserve System while preserving the political independence that is crucial to monetary policymaking.

• ▼ What is being done to prevent another financial crisis?

  The Dodd-Frank financial reform signed into law in 2010 seeks to strengthen supervision of financial markets and directs regulators to protect against risks to the entire system.

  • Fill regulatory gaps
    The reform legislation aims to close regulatory gaps and moves trading of many complex financial instruments onto transparent exchanges.
  • Establish suitably heightened prudential standards
    The financial reform requires regulators to establish appropriate levels of capital, liquidity, and risk for large, systemically important financial institutions.
  • Emphasize a macro-prudential perspective
    In addition to focusing on individual firms, regulators will put more emphasis on the interconnectedness of the financial system and the exposure of firms to common risks, an approach known as "macro-prudential supervision."

  » Learn more

• ▼ How will regulators deal with firms deemed "too big to fail"?

  Regulatory reform aims to limit how much risk a financial firm can impose on the overall economy. If a firm does fail, the legislation creates an orderly process to shut it down that won't leave taxpayers footing the bill.

  • Identify and regulate systemically important institutions
    Firms whose size and interconnectedness threaten broader financial and economic stability will be identified by the new Financial Stability Oversight Council (FSOC) and supervised by the Federal Reserve.
  • Limit destabilizing failures
    By limiting bank size, risk, and interconnectedness, regulatory reform aims to make it less likely that financial institutions suddenly fail in a way that harms overall financial stability
  • Create an orderly resolution process
    Federal regulators have new tools to shut down ailing institutions in a way that prevents financial panic or burdens taxpayers.

  » Learn more

• ▼ What does regulatory reform mean for the Fed?

  The reform legislation enhances Federal Reserve accountability, expands supervisory authority, and consolidates consumer protection into a new bureau.

  • Increased transparency and changes to governance
    The Federal Reserve will be subject to greater oversight and will undergo structural changes to increase transparency and accountability.
  • Expanded supervisory responsibilities
    To better safeguard the economy, the Federal Reserve will now have supervisory authority for all financial institutions whose failure could jeopardize the financial system.
  • Transfer of consumer protection authority
    The newly created Bureau of Consumer Financial Protection will assume much of the Federal Reserve's consumer protection authority, with an expanded mandate to inform and protect consumers.

  » Learn more