The Battles That Shaped Dodd-Frank

Former lawmakers Chris Dodd and Barney Frank offered some retrospective perspective on the Volcker Rule, a controversial aspect of the financial reform legislation that bears their names, in their first joint public speech since retiring from Congress.

On Tuesday five federal agencies finalized rules aimed at restricting the trading activities of federally insured banks.

Some on Wall Street fear the limits on so-called proprietary trading will reduce liquidity in capital markets and squeeze profits, while even some supporters of such restrictions lament the size and complexity of the 953 pages of rules.

Speaking Wednesday at the annual conference of MarketCounsel, a law firm serving independent investment advisors, former Senator Dodd revealed some of the back story to the law’s quirks — for example, the rule that bank ownership in hedge funds and private equity firms cannot exceed 3%.

“We debated the issue: Some wanted zero [percent ownership], some 10%. The reality though is 3% is how I got the 60^th vote,” he said, indicating that the path to esoteric rules may be as mundane as legislative compromising.

Other legislative maneuvers were similarly necessary to gain votes, he said, noting that the original proposal required CEOs to put their names and signatures on the line certifying compliance. Removing that provision muted criticism from CEOs; other deletions placated foreign institutions that would otherwise have been affected.

Dodd’s former House counterpart, Barney Frank, defended the Volcker rule against criticism that it is overly intrusive.

“The Volcker rule doesn’t stop any transaction from happening that is useful,” he told the 400 attendees of the Las Vegas conference.

In response to worries over the uncertainties of how regulations are to be enforced, Frank offered that financial institutions will soon enough accustom themselves to the new regulatory regime. “As it is implemented it will become the new reality,” he said.