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Connectedness and ContagionProtecting the Financial System from Panics$
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Hal S. Scott

Print publication date: 2016

Print ISBN-13: 9780262034371

Published to MIT Press Scholarship Online: January 2017

DOI: 10.7551/mitpress/9780262034371.001.0001

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Dodd–Frank Act Policies to Address Connectedness

Dodd–Frank Act Policies to Address Connectedness

Chapter:
(p.59) 6 Dodd–Frank Act Policies to Address Connectedness
Source:
Connectedness and Contagion
Author(s):

Hal S. Scott

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262034371.003.0006

The Dodd–Frank Act was the principal response of the United States to the 2008 financial crisis. Despite the fact that the crisis actually had little to do with asset connectedness, many of the most important provisions of the Act are addressed to this form of systemic risk. This is not to say these policies are bad and may not address potential problems in the future, but contagion was the major problem in the crisis, and Dodd–Frank made this problem worse, not better. This chapter discusses some key provisions of Dodd–Frank that address connectedness: (1) the requirement for central clearing of over-the-counter derivatives; (2) the imposition of counterparty exposure limits; and (3) the designation of systemically important nonbank financial institutions.

Keywords:   Dodd–Frank Act, financial policy, 2008 financial crisis, systemic risk, central clearing, over-the-counter derivatives, exposure limits, financial institutions, connectedness

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