Final answer:
Securities regulatory agencies, primarily the SEC, faced criticism for regulatory oversights revealed by Bernie Madoff's Ponzi scheme. The 2008-2009 financial crisis underscored these shortcomings, leading to the Dodd-Frank Act's enactment to reform financial regulations and prevent future crises.
Step-by-step explanation:
The case of Bernard L. Madoff involved a multi-billion dollar Ponzi scheme that led to significant scrutiny of securities regulatory agencies, particularly the U.S. Securities and Exchange Commission (SEC). The SEC charged Madoff with securities fraud in 2008, but the case raised questions about the effectiveness of regulatory oversight. Laws passed in the 1990s necessitated that bank supervisors disclose their findings and act promptly upon discovery of issues. Yet, the 2008-2009 recession revealed inadequacies in regulation and supervision, prompting criticism of regulators for not anticipating the financial instability that led to the crisis and large bank losses, evident in the failure of institutions like Lehman Brothers and Wachovia.
As a response to the financial crisis, the Dodd-Frank Act was enacted, aiming to overhaul the financial system and address regulatory shortcomings. This legislation was intended to enhance the transparency and accountability of the financial industry, and to prevent a similar crisis from occurring in the future.