Nearing its fifth anniversary, the Dodd-Frank Wall Street Reform and Consumer Protection Act—for good or ill—continues to reshape the financial services regulatory landscape.
While the law’s two authors have since retired from Capitol Hill, they still keep a watchful eye on the financial reform law’s progress. Former Sen. Christopher Dodd, D-Conn., now heads the Motion Picture Association of America, while former Rep. Barney Frank, D-Mass., is writing books and doing the speakers circuit.
Sparked by the financial crisis of 2007 to 2010, the Dodd-Frank Act requires that regulators create 243 rules, conduct 67 studies and issue 22 periodic reports. Dodd-Frank was signed into law by President Barack Obama on July 21, 2010.
GOP lawmakers have vowed a full court press this year on introducing bills to roll back the financial reform law (despite the fact that Obama vows to veto them if they reach his desk).
Sen. Dodd spoke in late April with Investment Advisor in an exclusive interview about the financial reform law’s progress — including regulators’ progress in implementing the law’s many provisions as well as GOP efforts to curtail it — and where he sees the next financial crisis coming from, as well as a bit about his new life in the movie business.
The following is an edited version of that interview.
MW: With Dodd-Frank nearing its fifth anniversary, how do you feel about the law’s progress thus far and what are your hopes for its progress in shaping the financial services landscape in the coming years?
Sen. Dodd: It’s hard to pick up a newspaper and not read about the bill almost every day.
I think the bill is working pretty well. Maybe it won’t shock you to hear me say that as a co-author of it, but I think the financial infrastructure, the architecture of our financial system, is on far better footing then it was when the economic crisis hit, and that’s not a hard bar to get over given the condition of the architecture of financial services [during the economic crisis of 2007-2010].
‘Too-big-to-fail,’ I know that hasn’t been tested yet, but that was the amendment that [Sen.] Dick Shelby and I offered together that passed with over 90 votes as the very first amendment [to Dodd-Frank] on the floor of the Senate.
We increased transparency [with Dodd-Frank]; I think everyone in the derivatives market agrees that we know a lot more about what goes on in that very important market that has exploded in volume in just a few years.
[Dodd-Frank also] established an early warning system with the Financial Stability Oversight Council (FSOC). […] You almost wonder why this didn’t happen years ago and why it had to become a matter of law where actually these agencies [meet].
The bill requires that they meet four times a year; I think they met 32 times last year. They’re actually sitting down and looking over the horizon and they’re saying, are there things occurring, not just domestically or globally, either by product or institutions that pose risks that we ought to be conscious of?
Something that I’ve said all along in this thing is this bill does not stop the next crisis. It will happen. The question is can you minimize the impact of it because you identify it early enough and you start taking remedial steps to address it, instead of waiting until the system collapses as it did in the fall of 2008.
MW: Do you think there needs to be further measures beyond the Dodd-Frank Act?
Sen. Dodd: There may be in time. I didn’t write the Ten Commandments here. I wrote a bill, and I never met a perfect one in the 36 years that I sat in Congress. I don’t care if a bill is a page long; I promise you there are things that you didn’t get exactly right.
The role of oversight in Congress is [to assess if laws are] working the way that you intended them to. Are there unintended consequences? There’s nothing startling about that [oversight]—that’s not a retreat from what I think we did well. But I also recognize there will be new markets that will develop, new product lines that will emerge at some point, and it will be the role of my successors in Congress and regulators to take a look at all of that. What I think that I’ve provided here [in the Dodd-Frank law] is an architecture that allows for a lot of that to happen.
MW: For instance?
Sen. Dodd: That’s the way the Consumer Financial Protection Bureau is designed. […] To make sure that people are being treated fairly shouldn’t be considered a threat to people.
The whistleblower [office] at the SEC is producing some incredible results. You can’t rely on well-intended regulators to find things out, but honest people working in the financial services sector, when they see something they think is terribly wrong, they can actually go directly to the regulator instead of going through the company where the likelihood that they’re not going to get much of a redress, in fact if not fired, has already demonstrated its value as well.
What I said from the very beginning in all of this [Dodd-Frank legislative process], I can’t pass a law to do this: How do I restore people’s confidence in something so critical, the element of confidence in our financial systems? People have to have that. To lose confidence is devastating and confidence was shattered through this [financial crisis].
Twenty-six million people lost their job, $13 trillion in wealth evaporated, iconic institutions disappeared, 5 million homes went into foreclosure—people have forgotten all of this. It was massive what happened. And the confidence was absolutely ripped apart in the country. If I could do anything at all in this [reform law, I wanted to] bring confidence back, where people trust the financial structures of our country; more than anything else, [that’s] what I tried to do with all of this. I think we did to a large extent, but I’ll never claim perfection.
MW: How do you feel about Securities and Exchange Commission Chairwoman Mary Jo White stating that she believes the agency should move ahead in crafting a uniform fiduciary rule? Do you see that as another step in restoring confidence?
Sen. Dodd: Well, I hope so. This is one area—there were a couple areas—that were just hard [in crafting Dodd-Frank]. This one was really complicated. I didn’t feel, with all respect to my colleagues, the 535 members of Congress could sort out in an amendment in a bill this important relationship [between the investor and advisor/broker]. So we deferred and left it to people who would spend the kind of time and listen through comment periods and so forth to sort this out.
I have a lot of confidence in Chair White; I think she’s competent, knows the subject and has good people. I trust her to come out with something that makes sense in all this. I was torn myself; I met with people on all sides of that equation, and I would have been hard-pressed to write some language that would have satisfied myself. I just didn’t feel competent. This was a tough call, that [fiduciary] issue; that’s why in the end we left it up to the SEC to sort through it.
[Dodd-Frank rulemaking] is down to a couple of issues. Most of the regulators have finished their work--we’re down to a handful of issues left, not insignificant ones—but they are mostly done in terms of the work that had to be done by the regulatory bodies.
MW: How do you feel about Labor Secretary Tom Perez moving forward with the DOL’s fiduciary rulemaking under ERISA? That’s causing a lot of stir on the Hill.
Sen. Dodd: I understand entirely from those who provide the services where they’re coming from. The consumer’s side I’m not sure understands the distinction between fiduciary relationships. To the extent that we can provide more clarity for that solves a lot of it. I haven’t read the details; I know it’s controversial and there’s a lot of concern about it.
MW: Barney Frank said recently President Obama would continue to protect Dodd-Frank from rollbacks. Are you confident as well?
Sen. Dodd: Oh yeah. The president is not going to sign any legislation that’s going to repeal this. In fact, I just got off the phone earlier today with a bank, one you know very well, a large successful institution. They said: ‘This [Dodd-Frank law] is working. We’re a better bank today because of this. […] We feel we’re serving our customer base better because of our capital standards, our liquidity standards, strengthening our capital, eliminating moral hazards and so forth.’
MW: Where do you think the next crisis will come from?
Sen. Dodd: Here’s my worry: [During the 2007-2010] crisis, it was a European/U.S. type of thing. We’re now moving very quickly, […] and our closest allies are moving, in a global marketplace. The next crisis is going to involve India, Brazil, China, Japan and elsewhere, and getting that all together is going to be a lot more difficult than it was dealing with this [Dodd-Frank] bill and the European Union. That’s what I worry about, as you see the globalization of financial services and where finances can migrate at the speed of light; that’s what worries me.
MW: You mean their economies, products, oversight worries you?
Sen. Dodd: Products, how they deal with financial services, their regulatory oversight—all the things that go on. The appetite to attract capital in the places where the regulatory structures are weaker and the oversight is almost nonexistent, it gravitates and it moves [to these places]. I’m not talking about the Cayman Islands now or the Isle of Man. I’m talking the major global players—when they go wrong and go south on you, you could be in huge problems that make the fall of 2008 pale in comparison. That worries me.
MW: I’m sure you’re having more fun where you are now.
Sen. Dodd: Now the only thing that dies is a bad movie.
--- More from The 2015 IA 35 for 35: