Barney Frank has donated his papers; Christopher Dodd now hobnobs with Hollywood. The two are gone from the U.S. Congress, but the banking law they wrote remains a hot topic. With another election on the horizon, critics of the Dodd-Frank Act are signaling how they would try to rewrite and revise a law they say does little to prevent a repeat of the financial crisis that prompted it.
1. Why is Dodd-Frank back in the spotlight?
It never really left. Almost six years after the law took effect, federal regulators are still not done writing the often-dense rules to carry it out. Congressional critics of the law, primarily Republicans, have had only isolated success in winning changes. Now they’re reviving and repackaging their ideas to signal what could happen if the election turns out their way.
2. What’s the problem with Dodd-Frank?
Only three Republicans in the Senate and none in the House voted to approve Dodd-Frank in 2010. Specific pieces of the voluminous law that Republicans want to change include:
The Volcker Rule, which restricts banks with taxpayer-backed deposits from making “proprietary” trades, or ones based on the bank’s own discretion. The powers of the Consumer Financial Protection Bureau, which was created as a new regulator. It’s a “rogue agency” exempt from presidential and congressional oversight, says the Heritage Foundation. The authority given the Financial Stability Oversight Council to label insurers and other non-banks as “systemically important financial institutions,” subject to federal constraints.
3. Who’s got other ideas?
Donald Trump, the Republican presidential nominee, says he would dismantle Dodd-Frank and is proposing a temporary moratorium on new financial regulations. Jeb Hensarling, chairman of the House Financial Services Committee, would scrap the Volcker Rule, reshape the Consumer Financial Protection Bureau and let banks effectively escape Dodd-Frank if they raise several hundred billions of dollars in additional capital as cushioning for bad times.
4. How is it likely to play out?
Dodd-Frank isn’t bulletproof. Its congressional critics already killed rules on derivatives trading, and court challenges may weaken other sections of the law. On the other hand, Dodd-Frank has its share of vocal defenders, including Elizabeth Warren, and Republicans would need 60 votes in the Senate and a president who would sign, not veto, any Dodd-Frank rollback.
Dodd-Frank already survived the Republican election onslaught of 2010, defying some predictions, and the longer it’s in place, the more it becomes the accustomed way of Wall Street.