Bank Reform Five Years Later: Still Incomplete

This post first appeared at the Campaign for America’s Future.

Today marks the fifth anniversary of Dodd-Frank, the complicated legislation designed to reform Wall Street after the financial crisis. Five years later, the debate still rages.

Republicans denounce the reforms as a failure: “the big banks are bigger, the small banks are fewer and the economy remains moribund,” says Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, a leader in the unrelenting effort of Republicans to weaken or repeal the act. The administration hails the reform as a grand success. The Treasury Department report card concludes “our financial system is stronger, safer, more resilient, and more supportive of sustainable economic growth.”

Americans, for the most part, are divorced from this debate. A recent review of opinion research reports 39 percent haven’t even heard of Dodd-Frank, and Americans basically split on whether financial regulation has gone too far or done too little.

But Americans do express common sense attitudes about Wall Street. Nearly two-thirds (63 percent) believes the financial system is no more secure than it was before the crash. Only 9 percent have a lot of confidence in the federal government’s capacity to regulate Wall Street, while 58 percent have little confidence or none at all. Seven in 10 think people on Wall Street aren’t as honest as regular folks and would be willing to break the law if they could make a lot of money and get away with it. In comparison to other institutions, confidence in banks and Wall Street is in the pits, ironically ranking above only the presidency and the Congress.

On the campaign trail, curbing Wall Street has been a centerpiece of the debate among Democratic contenders. All agree that Dodd-Frank must be defended; all agree it doesn’t do enough. Bernie Sanders and Martin O’Malley call for breaking up the big banks and support passing a modern version of the Glass-Steagall law, limiting what banks can do with taxpayer guaranteed deposits. Hillary Clinton hasn’t gone there, but argues she’ll appoint regulators who know that Too Big to Fail is still a problem, and promises that bankers who break the law will face perp walks and criminal prosecution if she is president.

How can citizens make sense of this? Here’s a short field guide on where we are.

1. Dodd-Frank is still not fully in operation.

Five years later, only 63 percent of the rules required from the Securities Exchange Committee and other regulators are in place. The “Volcker rule” – designed to limit the gambling banks do with taxpayer guarantees – only goes into effect this week. The Fed hasn’t fulfilled its mandate to break up banks that are too big to put together a plausible “living will” – that is too big to fail. Despite repeated promises, the rule requiring corporations to reveal the ratio of CEO to worker pay is still not done, as SEC Chair Mary Jo White seems to be employing a four-corners-delay offense waiting for the Republicans to repeal the provision.

2. The alarms raised by the bank lobby and Republicans are still false.

Better regulation hasn’t dried up capital. Small business is getting more financing. Protection of consumers by the new Consumer Financial Protection Bureau hasn’t limited access to consumer credit. And the CFPB has returned billions to consumers who were victims of financial frauds and abuse.

3. Dodd Frank has made the banking system somewhat safer.

Banks are required to have more capital. Derivative trading has, to some extent, come out of the shadows. Big banks face more severe scrutiny. The new Financial Stability Oversight Council has at least looked at potentially threatening big lenders in the shadow economy, from insurance companies to hedge funds.

4. The financial sector is still dangerous.

No one should be deceived. Our financial sector is still bloated, captures too much of corporate profits, and wallows in excess pay. The big banks are bigger and more concentrated than ever. Banks still have too much leverage and too little capital. Huge liabilities are still shunted to off-balance-sheet entities. A big share of asset backed securities are sold in private markets will little transparency or oversight.

Despite what the FBI called an epidemic of fraud, no major banker has been prosecuted. Banks paid the fines, while bankers walked away with their money intact. The SEC continues to grant favors to repeat offenders. Violating the law is too often simply a small cost of doing business.

5. Wall Street money still dominates our politics.

The banks still “frankly own the place,” in Sen. Richard Durbin’s immortal words. Sen. Elizabeth Warren has only begun to unveil the revolving door between Wall Street and it regulators that often neuters the law. Wall Street continues to deploy legions of lobbyists to avoid sensible regulation. It remains the leading source of dough for the leading presidential candidates in both parties. The Wall Street Journal reports that in the first month of reporting, Clinton raised about $300,000 from people working in the six biggest banks, while Bush pocketed $144,000 from Goldman Sachs employees alone. And that’s not counting the big money donations for their superPACs.

That’s why all progressives should be pushing for greater reforms, even while fending off efforts of the bank lobby to cripple the Consumer Financial Protection Bureau, to cut budgets of regulatory agencies, and to weaken or repeal core elements of Dodd-Frank. You don’t have to be an expert to demand that the next president – and the next nominee of both parties – pledge at least the following:

● Too big to fail banks are too big to exist – and must be broken up.

● Gambling with taxpayer guaranteed deposits must be limited: so a new Glass-Steagall bill as introduced by Sens. Elizabeth Warren and Bernie Sanders is needed.

● Independent regulators are vital, so every candidate should pledge to appoint only those already demonstrated to be independent of the bank lobby and Wall Street’s agenda. The Federal Reserve governors should include leaders who represent not just finance but consumers and workers.

● Consumers should not be gouged by extortionist interest rates imposed by payday lenders or credit and debt card peddlers. Merchants should not be fleeced by excessive fees based on monopoly power, not market competition.

● Bankers who break the law, conspire to fix markets, or defraud consumers should be held individually liable. Banks that violate the law repeatedly should lose their privileges. The corrosive culture of Wall Street will not change until bankers realize they are not too big to jail.

The views expressed in this post are the author’s alone, and presented here to offer a variety of perspectives to our readers.