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Making Crises Great Again

Although debates about financial regulation tend to focus on quantity, not quality, “more versus less” isn’t the issue; the details are. And when it comes to financial reform in the US, President Donald Trump is unlikely to get the details right.

CAMBRIDGE – Debates about financial regulation tend to focus on quantity, not quality. But “more versus less” isn’t so much the issue; the details are. And when it comes to financial reform in the United States, President Donald Trump is unlikely to get the details right.

Earlier this month, Trump issued an executive order directing a comprehensive review of the Dodd-Frank financial-reform legislation of 2010. The administration’s goal is to scale back significantly the regulatory system put in place in response to the 2008 financial crisis. This is a risky move.

Dodd-Frank’s key features – such as higher capital requirements for banks, the establishment of the Consumer Financial Protection Bureau, the designation of Systemically Important Financial Institutions, tough stress tests on banks, and enhanced transparency for derivatives – have strengthened the financial system considerably. Undermining or rescinding them would substantially increase the risk of an eventual recurrence of the 2007-2008 financial crisis.

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