Dodd-Frank Act Becoming A Reality For Banks

One of the things Congress did in 2010 was pass a sweeping overhaul of financial market regulation. After a tough battle, the Dodd-Frank bill was passed and signed into law. Named after sponsors Barney Frank in the House and Christopher Dodd in the Senate, the law is supposed to prevent banks from becoming too big to fail, and reduce so-called systemic risk.

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Never again. No more taxpayer-funded bailouts. That was the goal earlier this year when Congress began work on a sweeping overhaul of financial regulations. It was a tough battle. And then, Congress passed the Dodd-Frank law. It's named for its sponsors, Barney Frank in the House of Representatives and Christopher Dodd in the Senate. Dodd-Frank is slowly becoming a reality for the banking industry, and we're going to look ahead now to what's next in the process in the coming year.

NPR's Brett Neely has our report.

BRETT NEELY: Congress had to act following the 2008 financial crisis. It threw together a massive bank bailout and then passed an $800 billion stimulus package to prevent the economy from sinking into a depression. When the dust settled, Congress took on the task of rewriting the rules that govern banking and finance in this country, a huge undertaking. Even though the details were complex, the goals were straightforward.

Here's one of the law's architects, Massachusetts Congressman Barney Frank speaking to NPR last summer as the bill neared completion.

Representative BARNEY FRANK (Democrat, Massachusetts): Banks are now making profits in ways that I do not think help the economy, and that can hurt average people. I would hope after a while they would shift, and they would get to a better business model in which they were doing more lending.

NEELY: The Dodd-Frank law is supposed to prevent the too-big-to-fail problem. Banks that take risky bets and lose could be closed down safely instead of needing a bailout. The new rules will require banks to hold larger cash cushions, and that should reduce the amount of leverage or borrowing that banks do and make them less risky. The idea is to increase stability, even if that means lower profits for the industry.

The law also creates a new agency to protect consumers from exploitation by banks, credit card companies and other financial firms, but it leaves a lot of the details to be worked out by federal regulators. That worries Travis Plunkett, the legislative director for the Consumer Federation of America.

Mr. TRAVIS PLUNKETT (Legislative Director, Consumer Federation of America): Imagine a situation where regulators operating often in the dark spend most of their days dealing with lobbyists. It's very easy to become overly influenced by their point of view.

NEELY: The law's opponents also worry about the role of regulators in coming up with the actual rules industry will have to abide by.

David Hirschmann is with the U.S. Chamber of Commerce, which lobbied aggressively to kill the bill.

Mr. DAVID HIRSCHMANN (President and CEO, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce): It left more questions unanswered than questions it answered.

NEELY: Hirschmann says businesses need certainty so they can make long-term plans. He says Dodd-Frank doesn't provide any.

Mr. HIRSCHMANN: When a new law of 2,300 pages creates 500 rule-making studies and reports, what they really did was leave all the important questions in terms of how this will work to the regulators.

NEELY: Those regulators have been busy since the bill became law. Just this past month, regulators issued proposals that would lower debit card fees and require banks to hold more capital. But even with the flurry of activity, some of the law's supporters worry that Dodd-Frank may not end the too-big-to-fail problem.

Mike Konczal is a fellow with the liberal Roosevelt Institute.

Mr. MIKE KONCZAL (Fellow, Roosevelt Institute): What we do know is that the banks are likely to be more international, more complicated and larger.

NEELY: And the same regulators who failed to police the banks before the last crisis are still around, says Mark Calabria of the libertarian Cato Institute.

Mr. MARK CALABRIA (Director of Financial Regulation Studies, Cato Institute): Despite massive failures on the part of the regulators, none of them have lost their jobs.

NEELY: When Republicans take control of the House in January, they plan to hold regulators' feet to the fire by calling them up to Capitol Hill regularly for testimony. Calabria, who also used to be a Republican Senate staffer, says with the Senate and White House in Democratic hands for at least two more years, Republicans won't try to rewrite Dodd-Frank, for now.

Mr. CALABRIA: You know, they will be able to make changes along the margin. They will not be able to make big changes, and a lot of this will be laying the groundwork for Republicans making changes in 2013, if they can.

NEELY: One area where Republicans can make a mark is in the funding of the regulators who are implementing Dodd-Frank. And already, they've signaled that reducing the deficit may take precedence over more money for financial regulators.

Brett Neely, NPR News, Washington.

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