In 2008, the American economy entered its darkest period since the Great Depression after 30 years of steady deregulation of the financial sector, lax enforcement of rules that remained, and misconduct by nearly every sub-sector of the banking and lending industries. Two years after the crash, Congress finally passed a massive package of Wall Street reforms named after its two principal authors, then-Sen. Chris Dodd (D-CT) and then-Rep. Barney Frank (D-MA).
Tuesday marks the five-year anniversary of the Dodd-Frank overhaul of America’s money business. The law is officially old enough to start kindergarten, but its report card is spotty at best.
Dodd-Frank put a new cop on the beat for consumers, and that agency’s independence and aggressiveness has produced more than $10 billion in direct benefits to Americans wronged by their financial services companies. But the law has been under siege throughout its life, with industry lobbyists outnumbering reform advocates by about 20-to-1 on Capitol Hill in 2012 alone and attending 14 times as many meetings with regulators in the law’s first three years. Five years after Dodd-Frank passed and seven since the recession-inducing crisis peaked, the banking industry doesn’t look all that different.
Five years after Dodd-Frank, with the world’s largest economy still climbing out of the ditch the last Wall Street crisis caused, here are five numbers to celebrate the overhaul’s birthday.
The Consumer Financial Protection Bureau created by Dodd-Frank has recovered over $10.3 billion for Americans harmed by financial companies’ illegal or illegitimate practices.
Amid all of Dodd-Frank’s other foibles, the CFPB is an unqualified win for critics of financial industry rapaciousness. The infant agency didn’t launch until a full year after Dodd-Frank’s passage, yet in just four years it has recouped well over $10 billion for consumers. $2.6 billion of that total is restitution paid by firms to individuals they wronged. The agency’s supervisory work — monitoring of business practices that doesn’t end up going to court because companies do not fight the agency’s findings — has produced another quarter-billion dollars in consumer relief. But the agency’s real coup is winning $7.5 billion in debt cancellation, principal reduction, or other modifications to what customers owe banks and lenders. These restructurings of consumer obligations generally do much more to benefit the overall, long-term financial health of households than any given piece of punitive restitution. The penalties firms pay can be large, but once they get spread out amongst all the affected customers, individual benefits tend to be much smaller.
There are 83 separate financial rules mandated by Dodd-Frank that haven’t been written yet.
Lawmakers left much of the muscle of the 2010 reform package to regulatory agencies, instructing various bodies to create a total of 390 separate federal rules. But in five years, just 247 of those — less than two-thirds — have actually been finalized, according to Davis Polk & Wardwel LLP. Another 60 rules have been proposed but not completed, and 83 haven’t even seen formal proposed rulemaking.
Combined, the agencies charged with Dodd-Frank rulemaking have published over 22,000 pages of regulatory content pertaining to Wall Street reform since the law went into effect — equivalent to 34 copies of Moby Dick — but still haven’t quite made it to third base. With so many details left unwritten in the original legislation, the Dodd-Frank fight didn’t end when President Obama signed the bill. Infighting and lobbying at the various specialized executive agencies charged with writing the actual rules has threatened to hamstring the law ever since.
There are important rules that remain unfinished, like one mandating disclosure of CEO-to-worker pay ratios at public companies, and vital ones that are complete but dissatisfy consumer advocates, like the “Volcker Rule” that is supposed to put a firewall between banks’ main consumer business and their riskier trading activities. Years of highly technical legal skirmishes went into crafting that firewall, and the final form of the Volcker Rule was derided as “the worst of both worlds” by no less a critic than white collar crime expert Bill Black.
Congress has tried 139 separate times to amend or repeal Wall Street reform in its first five years, according to Davis Polk & Wardwel LLP.
Even though Dodd-Frank isn’t even fully in place yet, lawmakers have been working doggedly to alter the package. While just five of the 139 pieces of legislation to repeal or modify the law have passed and been signed by President Obama, all of them have taken up congressional resources — and many have created forums for the very industry the law polices to come in and weaken key provisions.
The best example involves something called the “swaps pushout rule,” a regulation that sharply restricted how banks that rely on taxpayer-backed insurance could use complex, risky financial instruments known as swaps. The pushout rule was an example of how Dodd-Frank rulewriting could be used to give the law more teeth, rather than leaving it with nothing but gums. Reform proponents like Sen. Elizabeth Warren (D-MA) and Bush-era banking regulator Sheila Bair praised the rule for its toughness and simplicity. But then Citigroup lobbyists drafted legislation repealing it, Republican lawmakers got the bank-written repeal bill tacked onto an appropriations bill without even a recorded vote, and Democratic leaders ended up signing off on repeal of the rule because they weren’t willing to scuttle the so-called “cromnibus” spending compromise in December just to preserve the regulation. That win appears to have taught Republican lawmakers that they can chisel away at even the holiest, most broadly supported Wall Street reforms if they use must-pass budget legislation to do it.
Financial players have spent three-and-a-quarter billion dollars to influence the government since Dodd-Frank was passed.
The industry gave candidates and campaign groups $497 million to go out and win elections in the 2013–2014 midterm cycle, according to Americans for Financial Reform. In the 2011–2012 presidential cycle, industry campaign giving topped $669 million. That’s $1.166 billion in two cycles, with the giving skewed heavily in favor of the conservative candidates who lined up to assail the 2010 law.
And that’s only the first billion that finance, insurance, and real estate (FIRE) industry actors have shelled out to influence lawmakers since Dodd-Frank was born. FIRE companies have reported roughly $2.08 billion in lobbying expenditures from 2011 through the first half of 2015 according to Center for Responsive Politics data. That sum doesn’t even count Dodd-Frank lobbying by the U.S. Chamber of Commerce, which is categorized outside the financial industry in campaign finance data.
If financial industry spending since Dodd-Frank were a country, it would be the 158th largest economy in the world — bigger than Djibouti, Liberia, Samoa, and 27 other small developing nations.
The five biggest banks control 44 percent of all U.S. banking assets — more than before Dodd-Frank was enacted.
In 1990, while the long, gradual tear-down of market protections that had helped prevent major financial collapses for decades was still in its infancy, the American banking industry was very diverse. No one institution was big enough to crash the whole party, and the five largest banks combined to hold about 9.7 percent of the banking sector’s total assets. By the time the crisis hit, the industry had consolidated so dramatically that the biggest five firms held well over a third of all banking assets. Their market share has continued to increase since Dodd-Frank became law. Today, they hold $4 out of every $9 in the entire industry. Decades of mergers and acquisitions allowed the financial sector to become dominated by a small number of firms, at the same time that deregulation of firms’ behavior allowed each of these mega-banks to place ever-larger, ever-riskier bets on everything from aluminum futures to interest rates to home loans. That creates the preconditions for a catastrophe — and the ongoing increase in market concentration since Dodd-Frank’s passage has led some to call for reinstating the old-fashioned divisions between commercial and investment banking that had forced banks to stay smaller in the past.