Could regulation circa 2010 have averted the crisis?

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by Viral V. Acharya 

Slightly over two years since the collapse of Lehman Brothers, the financial sector reforms in developed economies are still evolving. One definitive piece of legislation has been the Dodd-Frank Act, passed earlier this year by the US Congress, to restore US financial stability. How effective would the Act's provisions have been, starting in 2003-2004 (years during which the housing credit boom took hold) and until the fall of 2008 (when the financial system had to be rescued)? Would the Act have prevented the enormous build-up of leverage on financial balance sheets all betting against a material correction in the US housing market?

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The Dodd-Frank Act, signed into law in July 2010, represented the most significant and controversial overhaul of the U.S. financial regulatory system since the Great Depression. Forty NYU Stern faculty, including editors Viral V. Acharya, Thomas F. Cooley, Matthew P. Richardson, and Ingo Walter, provide a definitive analysis of the Act, expose key flaws and propose solutions to inform the rules’ adoption by regulators, in a new book, Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance (Wiley, November 2010).

About Restoring Financial Stability

Previously, many of these faculty developed 18 independent policy papers offering market-focused solutions to the financial crisis, which were published in a book, Restoring Financial Stability: How to Repair a Failed System (Wiley, March 2009).

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