The Liquidity Crisis and Government Reaction

Abstract

This chapter begins with a discussion of the buildup to the crisis and the background of the Dodd-Frank Act. On July 21, 2010, President Obama signed the Wall Street Reform and Consumer Protection Act (WSRCPA), widely known as the “Dodd-Frank Act,” a massive piece of financial legislation encompassing a wide range of reforms intended to stabilize financial markets through enhanced oversight, reduction of risk, and improved consumer protection. Its 2,200 pages direct enactment of over 200 new or expanded regulations by federal agencies. The remainder of the chapter covers the Federal Reserve's provision of liquidity and stabilization of financial markets, and regulatory reaction at the height of the financial crisis (Emergency Economic Stabilization Act (EESA) and American Recovery and Reinvestment Act (ARRA)).