It is important to emphasize that the Congress enacted the Dodd-Frank Act largely in response to the “too big to fail” problem, and that most of its provisions – regarding, for example, capital, liquidity, and risk management – apply only, or principally, to the largest, most complex, and internationally active banks.
Drivers of pro-cyclical behaviour need to be addressed, to restrain financial institutions’ excessive risk-taking in upturns and to discourage their excessive conservatism when credit to companies and households is most needed. Elements of financial regulation, such as capital requirements, provisioning rules and valuation standards, can act as contributing factors in this regard.