Five Years Later: Lawmakers Sound Off on Dodd-Frank
July 2, 2015 7:30 AM
President Obama signed the Dodd-Frank Act five years ago this month, but the battle over the law's impact and legacy goes on . Several top lawmakers spoke to American Banker about how their views have evolved since the law's passage. Here are some highlights from those conversations.
Memories of the Crisis Are Still Fresh
Lawmakers were quick to point to the ravages of the financial meltdown to underscore the importance of the Dodd-Frank Act and subsequent reforms to the financial system.
"Given the crisis that we experienced in this country starting in about 2008, and given that we saw what happened to the housing market and that so many communities were destroyed with boarded up homes and the loss of homes and the loss of wealth. Given that we went through that and had to do such a tremendous bailout, I am surprised that some who oppose us seem to have forgotten so quickly what we experienced and what happened," said Rep. Maxine Waters, D-Calif.
"I just wonder if some of my colleagues that want to wholesale weaken Dodd-Frank, if they slept through the financial crisis and didn't know we had one," said Sen. Sherrod Brown, D-Ohio. "Because how can you go back and put the whole country at risk again? It's not just the banks that failed, it's the number of people in my state that lost their homes, it's the number of seniors who lost much of their life savings, it's the number of pensions that were downgraded, it's the number businesses that went out of business and people who lost jobs. We just can't take that risk again."
Wall Street vs. Community Banks
Democrats and Republicans alike have raised concerns that small financial institutions remain at a disadvantage. Some point to the tough new rules and standards that have trickled down to community banks, while others argue that Wall Street remains "too big to jail."
"Dodd-Frank was obviously a big overreach, a power grab by the regulators that was unnecessary, especially to the smaller and medium-sized banks around the country that posed no risk to the financial system," said Sen. Richard Shelby, R-Ala. "You have four or five good-sized apple trees in the orchard and they were causing trouble to the whole orchard, and now you've got sweeping regulations to cover the whole orchard."
"When small banks break the law, the regulators shut down those banks, toss the executives in jail and employees lose their jobs," said Sen. Elizabeth Warren, D-Mass. "When the big banks break the law, their shareholders end up writing a check and the CEOs get bonuses. Dodd-Frank did not end 'too big to fail' and it did not level the playing field."
Industry's Influence Game
Democrats detailed the difficulties regulators face getting Dodd-Frank rules out the door because of the banking community's immense lobbying power.
"Wall Street had a fair shot at legislative change, they have a lot of influence in the Congress, and for them to sort of childishly say, 'after it becomes law we're going to keep trying to weaken it' is unfortunate," said Sen. Sherrod Brown, D-Ohio. "Congress needs to stand strong and regulators need to stand strong."
"The big banks were spending more than a million dollars a day lobbying against financial reform at the time that Dodd-Frank was adopted," said Warren. "But they understood that while they weren't able to block Dodd-Frank they would get a second bite at the apple during the rule writing. And that's exactly what they've done. They've taken a second bite and a third and a fourth and pretty much chomped through the apple whenever they could."
CFPB Under Siege
The fight over the Consumer Financial Protection Bureau remains one of the most heated in Congress. Democrats praise the agency's efforts to make the financial system safer for consumers, but Republicans continue to see a powerful new regulatory force that could reshape key markets.
"The CFPB has the tools and expertise to make sure that consumer financial markets are fair and safe, mortgages are clearer and easier to read. The agency has forced the big financial institutions to return over $5 billion directly to people who were cheated," said Warren.
"The attempts to put the CFPB under a commission that fight has grown and it's gaining," said Waters. "What has happened is the opposition has found more than one way to attack some of those issues they don't like it is constant and they're creative about it."
Moving Beyond Dodd-Frank
While Democrats have resisted changes to key Dodd-Frank measures, like the creation of the CFPB, they've also signaled several areas where the system could be strengthened even further.
"The auto loan market looks increasingly like the pre-crisis housing market with loose underwriting standards, predatory lending, discriminatory lending practices, increasing repossessions. There's a real problem there," Warren said.
"I'm still interested in dealing with the issue of bank concentration, which has worsened," said Brown. "The fact that we're doing stress tests and the fact that we're doing living wills and that the Fed is moving on those helps us deal with that."
