“The basic model hasn’t changed much, and it’s still fragile,” said Anil Kashyap, an economics professor at the University of Chicago Booth School of Business. “The banks need much more capital and liquidity. They’re still way short of being safe.”
One reason is the intensity of Wall Street’s pushback. Bank executives, lobbyists and lawyers logged more than 700 meetings with regulators on a section of Dodd-Frank that seeks to curb banks’ trading for their own account, according to data compiled by Kimberly Krawiec, a Duke University law professor. An October 2011 proposal for implementing the rule, named after former Fed Chairman Paul A. Volcker, generated more than 18,000 letters, many from banks complaining it was too complex and could hurt economic growth.
Unfinished Volcker
Regulators still haven’t finished the Volcker rule. The Securities and Exchange Commission has to conduct a cost-benefit analysis, which could lead to further delays. The current proposal has so many exemptions that even Volcker has said he isn’t sure it will do what he wanted.
“It’s just the complexity and difficulty of the rule that has made it so hard to complete,” Mary Schapiro, chairman of the SEC from 2009 until last year, said in an interview. “A lot of agencies with different viewpoints have been involved.”
The Volcker rule isn’t the only one held up. As of Sept. 3, more than three years after Dodd-Frank was enacted, just 40 percent of 398 rulemaking requirements were completed, according to law firm Davis Polk & Wardwell LLC, which monitors progress.
Lack of coordination among regulators and their poor supervision of derivatives, money-market funds and bank capital helped tear the system apart in 2008, according to the Financial Crisis Inquiry Commission. Regulatory authority was stripped away or blocked, the congressionally appointed panel wrote, with much of what remained undermined by infighting, loopholes and influence that the financial industry bought with $2.7 billion of lobbying and $1 billion of campaign contributions in the decade before the crash.
Softened Rules
Since the crisis, regulators more than doubled the highest quality capital the biggest banks are required to hold and subjected them to stress tests.
Even so, Wall Street has found ways to soften or delay the impact. It found allies among European policy makers, who sought to curtail the reach of proposed derivatives rules, and asset- management firms that opposed changes to the money-market funds that banks rely on for short-term funding.