Trump Administration Should Examine How Dodd-Frank Stifles Capital
A review by the new Trump administration and Congress of the 2010 Dodd-Frank legislation could address many of the stifling, unintended consequences of that law.
Although designed to address abuses in the financial system that led to the 2008 recession, the far-reaching legislation had problems from the start. And while experts of all political stripes have recognized the need for changes, Dodd-Frank has remained uncorrected largely due to partisan battles on Capitol Hill—resulting in current rules that restrict growth capital without achieving the stated goals of the legislation.
Today, overly broad definitions in the statute inadvertently prohibit many non-bank corporations from investing in venture capital funds, while banks and other financial institutions are arguably incentivized to take increased risk via direct venture investing in start-ups. Hopefully, the new administration will now dig into this legislation, and will more properly address systemic risk in the financial system without unnecessarily limiting the capital available to support entrepreneurship.
[Editor’s note: To tap the wisdom of our network of Xconomists, we asked a few of them to answer questions heading into 2017 about the most pressing issues facing the innovation community, such as: “Given the political climate around diversity in tech and innovation, do you plan to change any of your programs or hiring practices? Why?” You can see other questions and answers here.]