Photo credit: Leader Nancy Pelosi cc
Full Effect of the Act Not Seen Yet
Four years ago on July 21st, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was signed into law. The Act’s reason for being was to save our nation’s financial system from great ruin. Four years later and after major changes to our country’s monetary system, has Dodd-Frank delivered its promise?
According to a SNL Financial report titled “Dodd-Frank: Behind schedule and under scrutiny.” SNL Analysts J. Daniel Young and Jasmine Castroverde wrote, “As a Davis Polk & Wardwell LLP progress report on the legislation indicates, the deadlines for 280 rulemaking requirements have passed as of July 18. Of those, 127 deadlines were missed. Of the 398 total required rulemakings contained in the bill, 96 have yet to be proposed.”
The Consumer Financial Protection Bureau (CFPB), a key initiative of the Dodd-Frank Act, has been under significant scrutiny by Congress. The focus of this scrutiny ranges from the Bureau’s collection of personal data on U.S. citizens, not being transparent and their controversial $185 million renovation on an office building it does not own and the fact that the renovation costs more than the building itself.
See CFPB and Dodd-Frank related stories:
CFPB Issues New Rule to Prevent Heirs from Foreclosure
CFPB Announces RFI on Mobile Financial Services
CFPB Director Presents Semi-Annual Report to Senate Committee
Two Agencies Merge Resources to Collect Data on Mortgage Holders
New Federal Rule on Appraisals Should Help Home Buyers
House Financial Services Committee Chairman Jeb Hensarling, R-Texas says, “Properly designed, the CFPB is capable of great good on behalf of consumers. It is also capable of great harm. In just three years, the CFPB has grown into an unaccountable federal leviathan of nearly 1,400 employees with over a half billion dollar budget and the unrestrained power to dictate which Americans can receive credit and which Americans cannot. Knowledgeable Americans are rightfully alarmed as the threat and the harm begins to mount.”
Attorney Oliver Ireland of Morrison & Foerster said Dodd-Frank’s costs “significantly outweigh the benefits in terms of overall financial stability. We are looking at a huge piece of legislation, imposing a lot of costs and a lot of changes in the system and it’s not clear what the benefits are. The effective dates tend to be off into the future and you don’t really see the effects of them until after the effective date. We are a ways off from seeing what the post-Dodd-Frank financial system looks like.”
While Dodd-Frank has naysayers, the Act has underlined the need for better protections aimed at shoring up bank bottom lines. The Act now requires that banks hold higher levels of capital than they were previously expected to maintain. This capital provides a cushion to protect the banks from losses, to make a bank failure more manageable and to stay solvent during a crisis. The consensus has moved toward high capital requirements being a main tool for protecting the financial system but many still think the higher capital requirements fall short. There will be additional rules later this year outlining how banks will need to carry more capital in the form of unsecured debt. This would give regulators more room to maneuver in case of a failure.
Although Dodd-Frank elicits a variety of opinions and emotions; four years may not be long enough to truly gauge how effective this game-changing Act will be on the financial system.
Resources:
Housing Wire. “Happy 4th birthday Dodd-Frank! Everyone hates you” 22 July 2014. http://www.housingwire.com/blogs/1-rewired/post/30721-happy-4th-birthday-dodd-frank-everyone-hates-you
New Republic. “Ignore the Naysayers: Dodd-Frank Reforms Are Finally Paying Off” 22 July 2014. http://www.newrepublic.com/article/118814/dodd-frank-reforms-are-finally-paying