Era 06 · 1994 — 2010

Dodd-Frank

Lag

16-year warning

Pulse cycle

4.5s

The risk was named in 1994. Brooksley Born, chair of the CFTC, warned that unregulated derivatives could threaten the financial system. She was overruled by Greenspan, Rubin, and Summers. In 2008 the thing she warned about happened. In 2010, two years after the crisis, Congress passed Dodd-Frank.

Events in this era

May 1998

Brooksley Born's Warning

CFTC chair published a concept release on over-the-counter derivatives, asking whether the growing, opaque market needed oversight. The response from Treasury and the Fed was to publicly attack her position and move to strip the CFTC of jurisdiction.

Warning ignored; CFTC effectively defanged

Jul 2010

Dodd-Frank Act Signed

Signed July 21, 2010, almost two years after Lehman's bankruptcy. The law ran roughly 2,300 pages and required regulators to write hundreds of implementing rules. Most standardized derivatives moved to central clearing. The Consumer Financial Protection Bureau was created. Systemically important banks faced new capital, liquidity, and stress-testing requirements. The Financial Stability Oversight Council was given authority to designate non-bank firms as systemic. Full implementation took nearly a decade, and several provisions were later loosened under the 2018 rollback.

Most significant reform since 1934

Jan 3, 2018

MiFID II takes effect

The Markets in Financial Instruments Directive II went live across the European Union on January 3, 2018, after seven years of drafting and a one-year delay. The directive ran to 1.7 million paragraphs of rules, the most ambitious financial-services regulation in EU history. It required transaction reporting on roughly 28,000 fields per trade, mandated unbundled research payments (forcing investment banks to charge separately for analyst reports rather than bundling them with trading commissions), and tightened best-execution requirements across European venues. The unbundling rule alone reshaped the global research industry: research budgets at major US asset managers fell roughly 30 percent in the following two years, and several hundred sell-side analysts lost their jobs.

EU recasts post-2008 banking regulation; research industry contracts ~30%

Jul 21, 2015

Volcker Rule takes effect

Banks could no longer engage in proprietary trading with customer deposits. The most fought-over provision of Dodd-Frank. Its implementation took five years of lobbying, amendment, and extended compliance timelines. A 2020 revision loosened several provisions.

Proprietary trading at major banks effectively ended

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