A New Political Economy Analysis Of Dodd-Frank Act

Dodd-Frank Wall Street Reform and Consumer Protection Act (Short forDodd-Frank Act) which was passed in2010is an important U.S. financial regulatoryreform bill after the2008financial crisis. The bill is a new issue in academic field.Based on the review of domestic and international research, this paper analyses from theNew Political Economy perspective which combines the regulatory political economy,theory of interest groups and theory of political parties, to take political factors intoeconomic analysis framework and emphasize the policy preference of the U.S. interestgroups and Political Parties and their impact on the bill.This paper suggests that Dodd-Frank Act is the result drawn from an interestconflict and compromise in the political market among U.S. financial interest groups,consumer groups, the Republican Party and Democratic Party. Interest groups andpolitical parties take a different stance on financial regulation from their own interests.Financial interests advocate financial liberalization and deny the bill. Consumer groupsrequire strengthening financial supervision on financial interests and support the bill.Those two interest groups affect the policy positions of political parties on the bill bythe means of political contributions, dissemination of information and vote. Meanwhile,to achieve to maximize the votes to win the2008election and the2010mid-termelections, the two political parties takes their policy stance in exchange for politicalcontributions, information and ballot support from the interest groups. Since DemocraticParty took the majority seats in the Senate and House, the bill was finally passedthrough ups and downs. The final version of the bill makes a major breakthrough on thekey issues of monitoring systemic risk, reasonable disposition on "too big to fail"financial institutions and reinforcing the protection on financial consumers. However,due to the strong obstruction of financial interests and the Republicans, the bill has beensignificantly weakened on the seven key provisions: the orderly liquidation fund,“banktax”, the Volcker Rule, corporate governance, executive pay, derivatives trading and thedisposition on Freddie Mac and Fannie Mae.Ever since the effective date, the bill has received a profound and persistent impactfrom interest groups and political parties. The concrete implementation of the effect ofthe bill and its impact on U.S. financial and economic and even the world economy, not only rely on various economic factors, but also depend largely on the political gameamong the interest groups and parties during the2012U.S. presidential election as wellas the election result.