Reflections on Dodd-Frank, Two Years Later

Catherine Dunn

Corporate Counsel

07-19-2012

Two years ago this week, the largest financial reform package in U.S. history became law: the Dodd-Frank Wall Street Reform and Consumer Protection Act. Passed in the wake of the 2008 financial crisis under a highly partisan vote count (just three Republicans voted “yay” in the House of Representatives), the doorstopper law prescribes regulations on everything from derivatives and conflict minerals to the creation of the Consumer Financial Protection Bureau.

To date, about 30 percent of Dodd-Frank rulemaking requirements have been met—generating a wealth of lobbying, commentary, and controversy along the way. Bookending sentiments on the law, President Barack Obama has called for even tougher reform in the future, while his Republican rival Governor Mitt Romney has vowed to get the act repealed.

Below is a roundup of what’s being said by those in the know about Dodd-Frank on its two-year anniversary:

The Namesakes

Former Senator Christopher Dodd (D-Connecticut), now chairman and CEO of the Motion Picture Association of America, told the Association of Certified Fraud Examiners last month that he doesn’t actually like having his name on the bill, according to Accounting Today: “It’s not that I don’t want to have my name associated with it. I just think it personalizes these matters in a manner I’m not enamored of.”

That aside, Dodd also said that the law’s controversial whistleblower provisions produce tips to the Securities and Exchange Commission that are “yielding significant benefits in developing enforcement cases.” Though he does fear the provisions will lack for funding in the future: “Those who don’t like regulations, those who don’t like the law, will basically starve it of funding.”

Speaking of money, Dodd-Frank’s other half, Representative Barney Frank (D-Massachusetts), told New York magazine earlier this year: “The biggest thing I would have changed was how you paid for it—that $20 billion that’s now on the taxpayers, not the banks. But we needed those Republican votes.”

The Regulators (Past and Present)

SEC Commissioner Troy Paredes last week told the Society of Corporate Secretaries & Governance Professionals: “I have been and remain troubled that the Dodd-Frank regulatory regime goes too far,” The Daily Caller reported. Paredes went on to say that regulators have to be wary of the “unintended consequences” of their choices. “In other words, the SEC must engage in rigorous cost-benefit analysis—rooted in economics and the available data—when fashioning the securities law regime,” he said.

Sheila Bair chaired the Federal Deposit Insurance Corporation between 2006 and 2011, and then went on to found the nonprofit Systemic Risk Council, a watchdog group on government and industry. On American Public Media’s Marketplace this week, she said lobbyist input has a lot to do with why the rules are so long, but that progress is being made toward a “bailout-free future”: “You know, we don’t really end ‘too big to fail’ until we convince the market that they are going to take losses if these big banks get into trouble . . . So, I think that there is more work to be done, but yes, we are making progress.”

Industry

“What Dodd-Frank has succeeded in doing is replacing the financial crisis with a regulatory crisis,” Wayne Abernathy, executive vice president for financial institutions policy and regulatory affairs at the American Bankers Association, told The Fiscal Times. He also said regulators are bogged down in the rule-writing process instead of monitoring companies—and that with so much room for subjective judgment about bank practices, there’s no end in sight for rule implementation. “It’s like downtown Manhattan—it will never be finished,” he said.

Employing a slightly different analogy, Tom Deutsch, executive director of the financial industry trade group American Securitization Forum, defended industry input to that process: “It’s not that the industry is trying to delay the regulators,” Deutsch told The Boston Globe. “But if you stick a patient with 20 different needles, the interaction of all those regulatory medicines may end up being more lethal than helpful.”

The Bird’s-Eye View

If there’s one thing Davis Polk & Wardwell associate Gabriel Rosenberg has observed in his time working on the firm’s Dodd-Frank Regulatory Tracker, it’s that writing regulations is really, really hard. “And the reason is the huge number of interconnections between any rules you’re going to create,” he says. Recently, the firm tabulated that every page of the Dodd-Frank Act has generated 10 pages of rule-writing—amounting to 8,843 pages of rules and regulations as of July 1. “The amount of work that's been done over the past two years is just so enormous,” he says. “And we’re not done.”