Dodd-Frank Is One of the Biggest Regulatory Events Ever

Patrick McLaughlin, Oliver Sherouse, and Daniel Francis

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law as a response to the financial crisis of 2007–08. The statute, which itself was 848 pages long, directed dozens of regulatory agencies to revise or create new regulations addressing the financial system in the United States. Those agencies responded by creating hundreds of new rules to govern financial markets, on a scale that dwarfs the regulations that accompanied all other legislation enacted during the Obama administration.

In 2015, we used data from RegData 2.2, available on the Data page, to put the size of Dodd-Frank’s regulatory surge in context. Now that RegData has been updated (RegData 3.0 is now available at QuantGov.org), we can also update our analysis. A key feature of the RegData methodology is using textual analysis to quantify the words and phrases that typically signify a mandatory or prohibited activity—such as shall, must, may not, prohibited, and required. This approach permits us to more meaningfully measure the surge of regulation than by merely counting the number of new rules created or the number of pages added to the Federal Register. Because agencies must cite their legal authority for each regulation they promulgate, RegData can match the number of restrictions added to federal regulations by each regulatory agency while citing the Dodd-Frank Act as a legal authority for doing so.

The first chart below shows the number of new restrictions associated with all laws passed during the Obama administration through 2016.

Dodd-Frank stands out sharply from the crowd of enacted statutes. It is associated with more than three times as many new restrictions as any other law passed since January 2009, with a total of over 27,000. In fact, Dodd-Frank alone is associated with 74 percent as many restrictions as all other laws passed during the Obama administration combined, as shown in the second chart below.

The disproportionately large effect of Dodd-Frank on the pace of rulemaking is also evident when looking at the overall history of financial regulation. The third chart shows the number of restrictions in Title 12 and Title 17 of the Code of Federal Regulations, which contain regulations on banking and on securities, futures, and derivatives markets, respectively.

The passage of Dodd-Frank is marked with a dotted line. Restrictions in both Title 12 and Title 17 grew slightly between 1975 and 2010. The increase in restrictions following the passage of Dodd-Frank, however, dwarfs all previous increases. More restrictions were added to Title 12 from 2010 to 2016 than existed in all regulatory text in that title in 1980.

The extraordinary output of regulation caused by Dodd-Frank should give us pause. Such a large and sudden addition to financial regulation has doubtless increased its complexity, and few doubt that Dodd-Frank creates a significant compliance burden on regulated individuals and firms. And because such vast changes occurred in a relatively short time frame, we are only now beginning to understand the effects of these changes. Whether the increased government involvement in the financial sector that Dodd-Frank requires will prevent future crises or exacerbate them remains to be seen.