48 Harv. J. on Legis. 515 (2011)
The Dodd-Frank Act Restrictions on Proprietary Trading and Conflicts of Interest: New Tools to Address Evolving Threats

handle is hein.journals/hjl48 and id is 517 raw text is: POLICY ESSAY
THE DODD-FRANK ACT RESTRICTIONS ON
PROPRIETARY TRADING AND CONFLICTS
OF INTEREST: NEW TOOLS TO
ADDRESS EVOLVING THREATS
SENATOR JEFF MERKLEY* & SENATOR CARL LEVIN**
I. INTRODUCTION
Proprietary trading' played a critical role in the recent global financial
crisis and subsequent recession. The major global financial firms' proprietary
trading losses contributed significantly to the freezing of global financial
markets, helping to precipitate more than $17 trillion in investment losses
and necessitating bailouts by governments all over the world.2 While a mas-
sive economic collapse was prevented, the subsequent recession was none-
theless extraordinarily severe, and the recovery has been slow.
Congress responded to this financial crisis by enacting the broadest fi-
nancial reforms since the 1930s. These reforms, which constitute the Dodd-
Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank
Act),3 seek to protect: (1) the U.S. economy from suffering another
debilitating financial crisis; and (2) taxpayers from again being called upon
to rescue failed financial firms. Critical to those efforts are the Merkley-
* Member, U.S. Senate (D-Or.). B.A., Stanford University, 1979; M.P.P., Woodrow Wil-
son School of Public and International Affairs, Princeton University, 1982. Senator Merkley
was elected to the Senate in 2008 and has been a member of the Committee on Banking,
Housing, and Urban Affairs since 2009.
** Member, U.S. Senate (D-Mich.). B.A., Swarthmore College, 1956; J.D., Harvard Law
School, 1959. Senator Levin was first elected to the Senate in 1978 and serves as chairman of
both the Senate Armed Services Committee and the Senate Permanent Subcommittee on In-
vestigations. The Authors acknowledge Andrew Green and Tyler Gellasch of their staffs, who
assisted in the drafting of this Policy Essay.
' Unless otherwise indicated, for the purposes of this Policy Essay, the term proprietary
trading means the purchase or sale of financial instruments for the firm's own account, in-
cluding investments in separate private funds managed or sponsored by the firm.
2 Press Release, Dep't of the Treasury, Statement for the Treasury Borrowing Advisory
Committee of the Securities Industry and Financial Markets Association by Alan B. Krueger,
Assistant Sec'y for Econ. Policy & Chief Economist (May 3, 2010), available at http://www.
treasury.gov/press-center/press-releases/Pages/tg683.aspx; see, e.g., Jeffrey E. Garten, The Big
Bang of Bailouts, NEWSWEEK (Dec. 13, 2008), http://www.newsweek.com/2008/12/12/the-big-
bang-of-bailouts.html; Bob Ivry, Taxpayer Pledges Fall to $8.2 Trillion in U.S. Bailout,
BLOOMBERG (Dec. 23, 2009), http://www.bloomberg.com/apps/news?pid=newsarchive&sid
=A7484bxHz7Bk.
3 Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124
Stat. 1376 (2010).

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