July marks the four year anniversary of the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The law, which was passed by the Obama administration with the intent to prevent the recurrence of events that caused the 2008 financial crises, has been a divisive issue in Washington and Wall Street since its initiation.
So what exactly does Dodd-Frank do, and what has it been able to accomplish up until its fourth birthday? Unfortunately, it has fallen short of many of its goals. According to Davis Polk’s annual Dodd-Frank progress report, 280 of the 398 rulemaking deadlines for the bill have already passed. Of those 280, 127 (45%) of the deadlines have been missed. Nearly a quarter of these missed deadlines have yet to even be proposed or initiated in order to meet the rule-making requirements.
The bill has made most of its progress in finalizing rules with the Commodities Future Trading Commission, with 50 out of 60 rules being successfully finalized. On the other end of the spectrum, progress in banking and securities regulation has been limited. Regulators such as the Securities and Exchange Commission have seen only 42 out of 95 rules be finalized.
The controversial implementation and questionable progress made by Dodd-Frank has been a consistently contentious issue on Capitol Hill. According to Rep. Patrick McHenry, a Republican in his fifth term representing North Carolina’s 10th Congressional District, “regrettably, Dodd-Frank has done little to address the root causes of this (2008 financial) crisis. Instead, by institutionalizing bailouts and undermining a competitive and fair marketplace, this law has joined Obamacare as another example of big government overreach that has ultimately done more harm than good for the American people.”
Opponents of the bill cite poorly managed bureaucracy leading to Dodd-Frank’s failure to reach almost half of its deadlines. Furthermore, many on Washington and Wall Street believe that Dodd-Frank has done more harm than good attempting to reform America’s financial institutions. According to McHenry, “since its enactment, Dodd-Frank has imposed $21.8 billion in compliance costs while producing regulations that require nearly 60 million hours of paperwork with which to comply. These compliance costs can be devastating to small community banks and credit unions.”
At least 30 bills have been proposed to the House during the 113th Congress, aimed at chipping away at aspects of Dodd-Frank. Most measures will stall upon reaching the Senate Banking Committee, which supports Dodd-Frank.
Despite the significant amount of vehement opposition against the bill, it must be understood that it’s quite difficult to overhaul the world’s largest financial system. However, while this is certainly the case, Dodd-Frank did not make the process any easier when Congress left many of the tough decisions presented to the bill up to squabbling regulators. “The burdens that Congress put on regulators through Dodd-Frank are incredibly complex. It’s really the largest change to the financial sector’s regulation since the Great Depression. So it’s going to take a long time,” said Gabriel Rosenberg, an associate in Davis Polk’s financial institutions group.
On its four year anniversary, the current legacy of Dodd-Frank is somewhere between a destructive bureaucratic hindrance undermining the foundations of America’s financial institutions and a slow, but progressive, process of making these institutions stronger and more effective. Perhaps by the law’s next birthday we will have a better idea about its effectiveness, or lack of it.