Problem
The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed by Congress in response to the 2008 Financial Crisis. It established numerous new government agencies that were tasked with overseeing various components of law and the financial system. Its main goal was to make the financial system in the U.S. safer for consumers and taxpayers. When it came to designating which companies fall under the systemically important financial institution (SIFI) category, it's a bank, insurance or other financial institution that federal regulators determine would be a big risk to the economy if they were to fail. Essentially, a SIFI is too big to fail and companies with that designation have extra regulatory burdens imposed on them.
MetLife was an insurance company that federal regulators deemed to be a SIFI. It was an effect of the aftermath of the 2008 financial crisis where when large companies like Lehman Brothers and Bear Stearns failed, it had an immense effect on the economy and triggered the Great Recession. As part of the Dodd Frank Act, regulators sought to identify companies whose impact was large enough where if they were to default, they could trigger an economic downturn. Metlife was ultimately identified as one of them. Many companies though, would do everything in their power to remove themselves from the SIFI designation as the extra regulatory requirements and increased scrutiny, such as strict oversight by the Federal Reserve, higher capital requirements and frequent stress tests can be burdensome and difficult for the company to operate like they normally would. In response to the regulators, Metlife began to divest its life insurance unit and this proved to be beneficial as they won a legal battle over federal regulators that tried to label them as a SIFI in March 2016.
I think overall the Dodd Frank Act has had more positive implications than negative. A large part of the 2008 Financial Crisis was due to the lack of regulations the government had in place to monitor the larger institutions and so a reasonable response as a result of that was to scrutinize them more and impose tighter regulations. With more government oversight and stricter regulations in place that larger institutions have to meet, it could help the government catch any issues or irregularities before they become too large to combat quickly. In addition to that, firms are now more aware of their operational practices and are more in tune with what is expected of them. It can be difficult to operate with the additional regulations placed on the SIFI firms but in the long-run, it can help prevent financial crises from occurring. Especially when looking back at history, the U.S. was not short of financial schemes and crises, and so with regulations like the Dodd Frank Act, it can help decrease the amount of financial crimes occurring in the U.S.
After reading the opinion above, what is your response? What may be some risks or drawbacks? Please be detailed in your opinion.