Three years after President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act on July 21, 2010, you’ll be hard-pressed to find anyone who believes the job of restoring financial stability and ending “too big to fail” is completed. While nearly all commentators from experts to casual observers agree that we are not there yet, there is great divergence of opinion as to what therefore needs to be done.
Some, including the Treasury Secretary Jack Lew (recently at a May Senate Committee hearing) urge us to be patient and wait for the law to be fully implemented before we make any big changes. Among the wait-and-see camp are those who strongly believe the new “resolution” authority granted to the FDIC can and will work to avoid future government-bailouts of a failing behemoth bank and who view the modest increase in equity capital in the banking system as sufficient.
Others insist further Congressional action is necessary. These action-advocates are of two schools. One includes those who argue Dodd-Frank should be rolled-back and further weakened. And, other action-advocates include those who believe more structural change is necessary to reduce the risks the largest banks are taking with federally-insured deposits, access to loans from the Fed and the “too big to fail” implicit taxpayer guarantee. Such proposals include implementing a strong Volcker Rule, substantially increasing the amount of equity capital from the current 3% permitted by statute (Admati and Hellwig), downsizing the banks (Senators Brown and Vitter), and re-instating a 21st Century Glass-Stegall separating deposit-taking from securities operations (Senators McCain, Warren, Kaptur and King).
Unlike adults who assure the impatient children in the back seat of the family car, that we will get there soon enough, it is unclear when it comes to financial reform if that promise can be fulfilled or if we are indefinitely stalled.
For a clear view of where were are now, Mike Konczal’s Washington Post Wonkblog column is instructive. As one of the “experts” with whom he conferred, I believe he captured the consensus that the journey continues. Here’s the link to “Does Dodd-Frank Work: We Asked 16 Experts to Find Out.”