3 Years Later, There's Still Work Left To Be Done On Dodd-Frank

On Monday, President Obama summoned top financial regulators to the White House to get an update on the implementation of the Dodd-Frank Act. The legislation was passed in the wake of the financial crisis and is a sweeping overhaul of the nation's financial regulations. But three years after being signed into law, much of Dodd-Frank still isn't in place. Such is the difficulty of re-writing financial rules.

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From NPR News, this is ALL THINGS CONSIDERED. I'm Audie Cornish.

Today, President Obama called all of the country's top financial regulators to the White House to get a progress report on implementation of the Dodd-Frank Act. That's the set of reforms that were passed following the financial crisis. With the fifth anniversary of the financial meltdown nearing, the president wants to communicate a sense of urgency about following through on the reforms.

NPR's John Ydstie joins us to talk about how much is completed and what's left to be done. And, John, the Dodd-Frank Act, the main piece of financial reform legislation was passed back in 2010. Three years later, where are we?

JOHN YDSTIE, BYLINE: Well, it's clearly been a slow process. The law itself was essentially an outline. And since 2010, regulators with a lot of input from the financial industry and consumer groups have been formulating the rules to carry it out. At present, only about 40 percent of the rules mandated by Dodd-Frank have been finished, and more than half the regulatory deadlines in the law have been missed.

On the other hand, regulators have gained some momentum in the past six months. The president undoubtedly wants to keep the momentum going since the anniversary of the failure of Lehman Brothers, which triggered the most intense part of the financial crisis, is just a month away. And the president wants to be able to say we're safer now.

CORNISH: At the time, the big question is whether this law would end the idea of an institution being too big to fail. And are there still financial institutions that the government would have to bail out if they got into trouble, as they did with AIG and others back in 2008?

YDSTIE: Well, that is the big question. And, you know, Audie, actually, Dodd-Frank does specifically outlaw government rescue. So legally, government officials are barred from what they did in those cases of AIG and Bear Stearns and some other institutions. But only a month ago, Fed chairman Ben Bernanke and Treasury secretary Jack Lew both essentially said there are U.S. banks that remain too big to fail. And Lew said if we get to the end of this year and can't with a straight face say we've ended too-big-to-fail, we're going to have to look at other options.

CORNISH: Well, what do you think? Will the Treasury secretary be able to keep a straight face at the end of the year?

YDSTIE: Well, we'll see. There are a lot of components to this, and some parts are in better shape than others. One big step forward in the past couple of months was the finalizing of new capital rules. They require banks to have more of their own money set aside to offset potential losses if they get in trouble.

Another very important piece of ending too-big-to-fail is to make sure the FDIC has systems in place to go into one of these huge financial institutions and quickly wind it down without damaging the financial system, you know, the way the FDIC does now with big commercial banks. That is a work in progress. The FDIC has done some dry runs. But no one's going to really know whether they're ready until a big financial institution fails.

CORNISH: And when supporters were promoting this law, they talked a lot about consumer protections. What's the status of that?

YDSTIE: That's one area that's pretty well advanced. The new Consumer Financial Protection Bureau is in business and has developed a number of rules like the qualified-mortgage rule. That requires lenders and makes sure consumers get mortgages they can reasonably be expected to pay. Also, Congress finally confirmed the bureau's director, Richard Cordray, so it's got some leadership in place now.

CORNISH: Now, one of the markets that people think contributed to the financial crisis was derivatives. Those were those complicated financial products that most of us don't understand, including, as it turned out, a lot of people on Wall Street.

YDSTIE: Oh, exactly.

CORNISH: Any progress there?

YDSTIE: Well, this is another area where there's been a lot of progress in the past few months. The Commodity Futures Trading Commission has issued rules to regulate the trading of derivatives, putting them on exchanges and requiring more capital in that system as well. But another important regulation, the Volcker rule, which would keep the big banks from investing for their own benefit, is way behind schedule. So there's still lots of work to be done.

CORNISH: John, thank you for the update.

YDSTIE: You're welcome, Audie.

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