The year was 2010, and that found me working as the business editor
for a newspaper in suburban Chicago. There had been a lot of talk
about financial reform at the federal level, to try and address the
ills of the Great Recession, and as luck would have it, three of the
legislators on the House Financial Services Committee (on both sides
of the aisle) represented the small coverage area for our paper.
That year, I learned more about derivatives, swaps, shadow banking,
and mortgage reform than I ever wanted to know. That doesn’t even
include the new regulators, the horse trading to get the bill passed, the
Durbin Amendment and Volcker Rule and so much more that’s found
in the Dodd-Frank Act.
A decade later, most of the provisions that Congress passed in July
2010 still are around. It was four years before the first substantive
change to Dodd-Frank took place — the repeal of Section 716 of the
Dodd-Frank Act, which prohibited government bailouts of entities
that engaged in certain swaps and derivatives. Sen. Elizabeth
Warren raised such a ruckus about the change that it would be four
more years, until passage of the Economic Growth, Regulatory Relief
and Consumer Protection Act in May 2018, before Dodd-Frank
would be altered again.
Many of the problems Congress wanted to address from the Great
Recession in Dodd-Frank have been handled — the no-doc mortgage
loans that helped explode the housing market have been all but
eliminated, invisible derivatives and credit default swaps which
crushed AIG have been brought into the light, and banks around the
country are more well-capitalized than ever to help survive economic
stresses (such as the one we’re in during this pandemic).
But there have been unintended consequences as well, with
compliance and regulatory burdens skyrocketing the past 10 years,
and those costs being pushed along to consumers in the form
of higher prices and tighter access to credit. The politicization
of the bill and the Consumer Financial Protection Bureau have
made any changes to either the source of gridlock battles, keeping
improvements from surfacing for most of the decade.
Will the recent moves start to break the ice, and allow sensible
improvements and reforms to Dodd-Frank as it begins its second
decade? In our polarized world, it seems hard to believe. But if the
pandemic changes will teach us anything, perhaps it will be that we
all need to be flexible.