Monday, September 26, 2011

Dodd-Frank at One Year

Last month, the Dodd-Frank Wall Street Reform and Consumer Protection Act "celebrated" its one year anniversary. Thirteen months after passage, how is the legislation doing? Or how has Dodd-Frank impacted the financial industry? Has it turned out to be akin to "a nuclear bomb killing an ant" as Speaker Boehner proclaimed at passage? Or does it promise to end "Too Big To Fail" forevermore, as claimed by President Obama at signing?

According to the Wall Street Journal article The Truth (and Lies) About Financial Regulation it is too soon to tell. "Much of Dodd-Frank has yet to be implemented. More than 200 provisions of the law haven't been enacted, while 23 that should have been enacted are overdue and 121 changes to previous law are still in the proposal process. Just 38 rules have actually been implemented, according to Davis Polk, a law firm tracking the law."

One of the reasons that the rulemakers appear paralyzed is that since passage of Dodd-Frank, the lobbying of regulators responsible for implementing Dodd-Frank has skyrocketed. According to Forbes: "While regulators, responsible for designing rules to implement laws 'laid out in principle' only, struggle with insufficient budgets and political pressure from both sides of the aisle, lobbying has exploded. According to the Center for Responsive Politics, the CFTC, the Fed, the FDIC, and the Office of the Comptroller of the Currency (OCC) have seen more lobbying activity in the first quarter of 2011 than at any other moment since Obama became president. The SEC saw it’s second most active month."

Further, despite the too early to evaluate nature of Dodd-Frank, the political rhetoric remains heated. The Wall Street Journal reports on the following:

Will Dodd-Frank end Too Big To Fail? "For the bill's defenders, we have Sen. Sherrod Brown. The Ohio Democrat said last April that the bill would end 'too-big-to-fail.' Speaking for the opposition, there is Sen. Mitch McConnell. The Kentucky Republican said that Dodd-Frank 'actually guarantess future bailouts of Wall Street banks.' He said the bill sets up a '$50 billion slush fund.' PolitiFact scored Mr. Brown's statement as 'barely true' and Mr. McConnell's as 'false.'"


  1. Kenneth W (memphis law_September 30, 2011 at 9:42 PM

    Dodd- Frank since its inception has created recourse to a system without rules. Major financial institutions who make high-risks decisions that impact the economy should be held accountable for their decisions. The government should have rules in place to prevent economic disasters by financial institutions especially when they seek tax payer dollars to save them when poor decisions backfire. Dodd-Frank creates a system of rules where there are none, so it should continue to be implemented step-by-step to limit the power of financial giants that make decisions that impact people.

    For example, the Dodd-Frank Act initially included a proposed provision called the Volcker Rule. This particular rule was aimed at prohibiting proprietary trading. This is when large financial institutions trade internally in order to gain a profit for itself. This type of trading does not seek to benefit customer, it is speculative in nature, and it was said that it played a key role in the financial crisis that we recently experienced. Later, the rule was implemented but in a weakened form that allowed trading but only up to a certain percent of banks' capital.

    Rules such as these are necessary because without recourse, financial giants are free to gain profit for themselves, while not taking customers or tax payers into consideration. These same tax payers are the ones that bail them out when risky investments go bad. Dodd-Frank includes provisions such as these that should be enacted to create boundaries for bank investments that result in bad outcomes for their customers.

  2. Jessica R (Memphis Law)September 30, 2011 at 10:31 PM

    Only time will tell if the Dodd-Frank Act will end Too Big to Fail.

    However, it seems as though the consumers are the ones that are currently held responsible for the provisions of the act. There has been much talk in the news recently about Bank of America and other large banks charging fees to debit card users. This action stems from the "Durbin Amendment", a provision in the Dodd-Frank Act which applies to banks with over $10 billion in assets. These banks would have to charge debit card interchange fees that are reasonable and proportional to the actual cost of processing the transaction. The bill aims to restrict anti-competitive practices and encourage competition.

    Many consumers have talked about switching to credit unions and other smaller banks. However, I doubt that many will make the switch because of smaller number of available ATMs at these banks. What consumers would save on debit card fees, they will likely spend on out of network ATM fees. In the end, the consumers will likely have incresed costs and we will likely see little change in the competition amongst banks.

  3. In all honesty, I'm not sure what to think about bailouts and the subsequent Dodd-Frank act. In all honesty, I'm a big enough Frank fan that I'm sure, if nothing else, it's well-intentioned.

    The whole debit card thing, pointed out above, it's a good point. Maybe I should switch to a credit union to avoid these fees...because it's ridiculous that anyone should pay $3.00 a month (First TN) (BoA is going to charge $5.00) to use their own "check card" (remember that term?) at a store.

    Tamara D (Memphis)

  4. Regarding the (desperately) needed financial regulatory reform that will (finally) be put into place by the Dodd-Frank Act…

    “Regulators have completed less than 20 percent of the 163 required rules that had statutory deadlines during the first year and only about 12 percent of all 400 rulemaking requirements in Dodd-Frank…”

    “[I]ndustry pressure has helped delay some of the most significant reforms for up to a year.”
    -Article from the Huffington Post, July 21, 2011

    Is anyone surprised? Anyone? Anyone?

  5. Lindsey G (Memphis Law)November 28, 2011 at 9:11 PM

    I agree with Kenneth that the Dodd-Frank act creates rules that, when violated, hold individuals responsible where they might not have been held responsible before. I think that those in banking and on Wall Street who have wrongfully mismanaged money held by millions should be held accountable for this. Such injustices are not going to end until these rules are implemented and individuals fear the consequences of their actions.