On Fifth Anniversary, Dodd-Frank Financial Regulations Appear to Be Here to Stay

Backers of the 2010 financial overhaul point to numerous attempts to repeal Obamacare as one of their chief arguments the banking law is here to stay. They note there have been dozens of attempts to repeal the health care law, but Congress has not taken a single vote to repeal the greatest changes in financial regulation since the Great Depression.

Republicans “don’t like it, but they know [repealing it] wouldn’t work politically,” said Barney Frank, the retired chairman of the House Financial Services Committee, who was one was the lead authors of the Dodd-Frank legislation.

Since it became law five years ago, Dodd-Frank has undergone only a handful of modest changes — mostly because of provisions that emerged as bargaining chips attached to unrelated must-pass bills to guarantee bipartisan support. That’s likely to remain the case for the 114th Congress, and perhaps beyond.

A combination of lingering public anger toward Wall Street from the financial crisis, a grudging acceptance of new regulations from the financial industry and the increasing focus on implementing the law’s roughly 400 rules make it unlikely Dodd-Frank will undergo a rewrite until the next major financial crisis occurs. Instead, Republicans will continue their efforts to whittle away at chunks of the law, while Democrats line up heartily behind it.

As the landmark law turns 5 years old Tuesday, the betting is it will be largely intact for its 10th anniversary and perhaps, for decades to come.

Political Reality

Elizabeth Warren, the Massachusetts Democrat who as an adviser to Obama helped write many of Dodd-Frank’s consumer-protection provisions before being elected to the Senate, drew laughs at an event this month organized by the left-leaning Americans for Financial Reform.

“I am here today to say two cheers for Dodd-Frank,” she said. “It would be three cheers, but there is still a lot of work to be done.”

Warren was underscoring a point she and other liberal allies have made repeatedly: They don’t believe the law went far enough.

The legislation created powerful new financial regulators, established a new consumer protection agency and set more stringent lending standards in the wake of the 2008 financial crisis.

Warren believes the law has made real progress toward creating honest markets, but says more should be done to prevent future crises and bailouts of large banks. Her main goal remains to effectively break up the biggest banks by reinstating a ban on banks having both commercial and investment operations, originally imposed by the 1933 Glass-Steagall law.

Warren knows lawmakers are unlikely to resurrect Glass-Steagall, which was repealed in 1999, or back more oversight only five years after Dodd-Frank altered the regulatory landscape. But her populist rhetoric against the “powerful insiders” opposed to stronger financial supervision has resonated with voters, reshaped the campaign for the Democratic presidential nomination and helped her party fend off even modest GOP proposals to change the law in Congress.

Call it the Warren effect. A recent poll by Lake Research, commissioned by Americans for Financial Reform, found nearly 80 percent of likely voters favored increased oversight in the wake of the crisis and most say they would favor more, not less, regulation of financial markets. Warren’s popularity among the Democratic base fueled talk earlier this year that the first-term senator would seek the White House. Though she has said she won’t, merely her presence has had an impact on those who are making a run.

Hillary Rodham Clinton, who has been criticized for being overly friendly with Wall Street, used a recent speech to say “stories of misconduct by individuals and institutions in the financial industry are shocking” and cannot be tolerated. Other Democratic presidential candidates — Vermont Sen. Bernard Sanders and former Maryland Gov. Martin O’Malley — regularly mention their hopes for reinstating Glass-Steagall on the stump.

GOP lawmakers have a different assessment of the impact of Dodd-Frank. Banking Chairman Richard C. Shelby says the regulatory overhaul has been a failure and hurt the economy, but admits securing major changes to the law is a challenge for Republicans.

“I don’t know about repeal — that’s a big thing — that depends on the political landscape,” says the Alabama Republican. “We are going to certainly keep chipping away at it because it’s not a perfect document.”

House Financial Services Chairman Jeb Hensarling has criticized the law at every turn and is holding a series of hearings this month to argue the law has made the nation less free, less prosperous and less financially secure. But the conservative Texas Republican has only moved relatively narrow bills through his committee, rather than push a wholesale repeal of Dodd-Frank. Aides say Hensarling knows scrapping the law would not fly in the Senate, could face opposition from more moderate and populist Republicans and would give House Democrats a platform for their anti-Wall Street rhetoric.

“Broadly speaking, Dodd-Frank is not going anywhere,” says Justin Schardin, associate director of the Bipartisan Policy Center’s financial regulatory reform initiative.

Seeking Certainty

The financial services industry has spent hundreds of millions of dollars lobbying against Dodd-Frank over the past five years, but what it might prize even more than changes in the regulatory framework is some certainty. As the law ages, analysts and legal experts say, a desire for stability and a payoff from investing in compliance costs may be a big reason it won’t be repealed.

“There is a value to certainty in regulations and rules,” says Heath Tarbert, a lawyer who heads Allen & Overy’s U.S. banking regulatory practice. “While, yes, there would be benefit to changes, you have to take into account the uncertainty. There is a cost to uncertainty.”

Tarbert, who worked as a Shelby aide during the Dodd-Frank debate, says many large financial companies have already invested tens of millions of dollars to comply with it. He said large banks might prefer those known costs to new rules, which would bring their own costs and would force them to delay mergers, acquisitions and other business activities as the new rules were finalized. In many cases, financial institutions are only now beginning to be able to make those decisions again after waiting for Dodd-Frank to be implemented, he adds.

“From the Wall Street perspective, the devil you know is better than the devil you don’t know,” says Mark Calabria of the libertarian Cato Institute.

James Ballentine, a lobbyist with the American Bankers Association, says the banking industry has moved beyond seeking a repeal to pushing for more targeted changes on what he says are particularly onerous pieces of the law.

The industry has had some of its best success in influencing Dodd-Frank by lobbying on the hundreds of rules being issued by federal regulators to carry out the law, says Isaac Boltansky, an analyst at the investment firm Compass Point Research & Trading.

And industry still has a chance to win lenience on many more regulations. Out of the nearly 400 rules to come from the law, only about 60 percent have been finalized.

With Dodd-Frank hard to gut in Congress, the Senate Banking panel’s top Democrat Sherrod Brown of Ohio, too, says he’s seen some of the fight shift to the regulators. That’s where opponents have had partial victories and slowed implementation, he says, adding, “That’s where they think they can win.”