Preventing the next financial system panic

Washington

THE hostility towards Wall Street remains so great that both major US political parties say, in their platforms, that they'd like to break up America's biggest banks. But before engaging in this drastic economic surgery, it's worth examining whether Dodd-Frank is working. Recall that the law - named after its congressional sponsors, former senator Christopher Dodd and former representative Barney Frank - overhauled the financial system to make it more panic-proof. Is it? The answer may surprise.

The Obama administration's position is clear: "We can say without question that Wall Street reform has made our financial system safer and sounder," Treasury Secretary Jacob Lew recently said on the sixth anniversary of the law's signing. Up to a point, this is true. Banks are required to have more capital than before the 2008-09 financial crisis, and this creates a larger buffer against losses.