A Year After Dodd-Frank, Too Big To Fail Remains Bigger Problem Than Ever

Shahien Nasiripour
HuffPost

WASHINGTON -- A year after Congress passed a landmark law intended to tame the excesses that produced the financial crisis, some experts contend that a crucial vulnerability remains: The largest financial institutions are still so enormous that their failure could again bring the financial system to the brink of disaster.

The passage of the Dodd-Frank law has sowed a perception of safety that has spawned a dangerous complacency, they add.

"The next crisis will happen sooner rather than later," said Anat Admati, a professor of finance and economics at the Stanford Graduate School of Business. "We're not safer and there's still a lot of systemic risks in large banks and in the financial sector overall."

A central aim of the law, known as the Wall Street Reform and Consumer Protection Act, was to undercut the assumption that some institutions are so big that their potential failure could again force the government to rescue them, rather than allow their troubles to trigger another crisis. The very perception that the government stands ready to rescue the largest banks tends to be construed by the markets as a government insurance policy -- one that encourages the executives at such institutions to take bigger risks.

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