By late 2009, interventions by governments and central banks around the world had restored calm to financial markets. However, huge damage had been done to the global economy. In much of the advanced world, countries suffered their deepest slumps since the 1930s. And all indications were that the typical pattern of slow recovery after a financial crisis would be repeated, with unemployment remaining high for years to come.

The banking crisis of 2008 demonstrated, all too clearly, that financial regulation is a continuing process—that regulations will and should change over time to keep up with a changing world. The dependence on very short-term loans, the lack of regulation, and being outside the lender-of-last-resort system made the shadow banking sector vulnerable to crises and panics. So what changes will the most recent crisis bring? One thing that became all too clear in the 2008 crisis was that the traditional scope of banking regulation was too narrow. Regulating only depository institutions was clearly inadequate in a world in which a large part of banking, properly understood, is undertaken by the shadow banking sector.

In the aftermath of the crisis, then, an overhaul of financial regulation was clearly needed. And in 2010 the U.S. Congress enacted a bill that represented an effort to respond to the events of the preceding years. Like most legislation, the Wall Street Reform and Consumer Protection Act—often referred to as the Dodd-Frank bill—is complex in its details. But it contains four main elements:

1. Consumer Protection One factor in the financial crisis was the fact that many borrowers accepted offers they didn’t understand, such as mortgages that were easy to pay in the first two years but required sharply higher payments later on. In an effort to limit future abuses, the new law creates a special office, the Consumer Financial Protection Bureau, dedicated to policing financial industry practices and protecting borrowers.

2. Derivatives Regulation Another factor in the crisis was the proliferation of derivatives—complex financial instruments that were supposed to help spread risk but arguably simply concealed it. Under the new law, most derivatives have to be bought and sold in open, transparent markets, hopefully limiting the extent to which financial players can take on invisible risk.

3. Regulation of Shadow Banks A key element in the financial crisis, as we’ve seen, was the rise of institutions that didn’t fit the conventional definition of a bank but played the role of banks and created the risk of a banking crisis. How can regulation be extended to such institutions? Dodd-Frank does not offer an explicit new definition of what it means to be a bank. Instead, it offers a sort of financial version of “you know it when you see it.” Specifically, it gives a special panel the ability to designate financial institutions as “systemically important,” meaning that their activities have the potential to create a banking crisis. Such institutions will be subject to bank-like regulation of their capital, their investments, and so on.

4. Resolution Authority The events of 2008 made it clear that governments would often feel the need to guarantee not only deposits but also a wide range of financial-institution debts in a crisis. Yet how can this be done without creating huge incentive problems, motivating financial institutions to undertake overly risky behavior in the knowledge that they will be bailed out by the government if they get into trouble? Part of the answer is to empower the government to seize control of financial institutions that require a bailout, the way it already does with failing commercial banks and thrifts. This new power, known as resolution authority, should be viewed as solving a problem that seemed acute in early 2009, when several major financial institutions were teetering on the brink. Yet it wasn’t clear whether Washington had the legal authority to orchestrate a rescue that was fair to taxpayers.

All this is now law in the United States, but two things remain unclear. (1) How will these regulations be worked into the international financial system? Will other nations adopt similar policies? If they do, how will conflicts among different national policies be resolved? (2) Will these regulations do the trick? Post-1930s bank regulation produced decades of stability, but will that happen again? Or will the new system fail in the face of a serious test?

Nobody knows the answers to these questions. We’ll just have to wait and see.