Connectedness and Contagion

An argument that contagion is the most significant risk facing the financial system and that Dodd-Frank has reduced the government’s ability to respond effectively.

The Dodd-Frank Act of 2010 was intended to reform financial policies in order to prevent another massive crisis such as the financial meltdown of 2008. Dodd-Frank is largely premised on the diagnosis that connectedness was the major problem in that crisis—that is, that financial institutions were overexposed to one another…