This month marks a year since the Dodd-Frank financial reform bill was enacted by the United States Congress. Republicans in the Senate are attempting to stall its implementation though by refusing to appoint a director to the consumer protection bureau that was created under the legislation.
Last summer, lawmakers in the United States hammered out a financial reform bill that, according to one of its main sponsors, could have prevented the 2008 financial crisis if it had been in place earlier — even though the law changed nothing about the semi-government mortgage giants Fannie Mae and Freddie Mac which were at the heart of the housing bubble.
The sprawling legislation did provide the government with new tools that it can now use to liquidate failing firms and enabled Washington to charge fees to large banks and hedge funds in an attempt to raise up to $19 billion over the next five years to pay for the program.
Banks were restricted in proprietary trading activities and forced to renounce their swaps desks to become separately capitalized operations although the largest part of their derivatives business was left untouched. Dodd-Frank did not therefore end the problem of “too big to fail.” Rather, it exacerbated it by imposing capital charges that make it more difficult for new financial institutions to enter the market. As one former Treasury Department official quoted by Newsweek put it, “they’ve created six new GSEs,” or government-sponsored entities just like Fannie and Freddie.
The reform bill also erected a new consumer protection regulator that is supposed to protect consumers from “unfair, deceptive and abusive” business practices — without defining what that means. The Durbin Amendment to the reform law also enabled the Federal Reserve to regulate the fees that banks may charge for processing debit card purchases. The amendment prescribes that such fees must be “reasonable” and “proportional” but sets no standards. Yet the bureau will be authorized to regulate mortgages, credit card policies and consumer loans with a budget of its own, separate from the congressional appropriations process.
Republicans in the Senate are fighting this new agency by refusing to confirm the appointment of its chief regulator. According to Richard Shelby of Alabama, the ranking member on the upper house’s banking committee, Dodd-Frank is nothing short of “a horror movie for the American economy.” He told the Fox Business Network’s The Willis Report, “We don’t need to create a consumer czar that is accountable to no one.”
Forty-three Republicans in the Senate are “not going to confirm anybody to that job unless there’s a change” in the law’s structure, said Shelby. He previously complained in Politico about Congress granting “expansive new authorities to unelected regulators — the very same regulators who failed to do their jobs before the crisis.”
They are now entrusted with writing more than three hundred new regulations. And given the complexity of the issues, the regulators are understandably struggling to meet the unrealistic statutory deadlines given them in the new Dodd-Frank law.
In their rush, “the regulators are not devoting the time and effort to determine the costs for businesses or the implications for economic growth and job creation,” according to the Alabama senator.
JPMorgan Chase’s Jamie Dimon expressed a similar concern last month when he asked Federal Reserve chairman Ben Bernanke whether anyone had “bothered to study the cumulative effect of these things.” He wondered whether all the new rules weren’t responsible for the country’s lackluster recovery. The central bank president didn’t think so but admitted that no comprehensive study of Dodd-Frank’s impact on the financial industry had been attempted.