Banks Continue to Fight the Dodd-Frank Act

by 09 May 2012

(TheNicheReport) -- The Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 is failing to achieve many of its desired effects, according to Federal Reserve Governor Daniel Tarullo. The reason cited by Mr. Tarullo is that major investments banks are putting up a formidable fight.

Mr. Tarullo used the term "sobering" to refer to the opposition that Wall Street giants such as Godman Sachs and JP Morgan Chase have shown to rulemaking needed to implement the reforms. The Dodd-Frank Act is the main response to the global financial crisis that the Obama administration has enacted, but the implementation of rulemaking is not moving along as planned. Prominent law firm Davis Polk has been issuing progress reports on the rulemaking efforts, and while in April no rulemaking requirements were due, only eight were reached. This means that 67 percent of the deadlines established by regulators have been missed since April 2011.

The warning by Mr. Tarullo was made at a private meeting with the bank executives who are fighting tooth and nail against the rulemaking. Mr. Tarullo suggested that the momentum behind the much-needed financial reform that was cultivated during the early days of the Obama administration is in danger of being lost due to stall tactics.

Delaying the Volcker Rule

When President Obama asked the United States Congress to add the Volcker Rule to the Dodd-Frank reform package, Wall Street grumbled and Main Street applauded. The Volcker Rule seeks to stop banks from making the same kind of speculative investments and proprietary trading that led to the meltdown of former Wall Street giants such as Bear Stearns and Lehman Brothers. A lot of the trading that brought down these two former investment banking firms had to do with mortgage-backed securities.

The Volcker Rule has been a contentious item between Wall Street and federal regulators. Major banks are clearly not interested in abandoning the speculative activity that makes them so profitable, and even powerful clients who have not suffered major losses in the credit market are opposed to it. Pressure from the banks against the Volcker Rule has prompted regulators to move its implementation date to July 2014 instead of this year.

The comments from Mr. Tarullo were not the crux of the meeting. In fact, the agenda of the meeting was originally set to review the stress tests that are now regularly performed on the major banks. The majority of these banks have no choice but to submit to stress test as per the conditions set by the federal government when they were bailed out in 2008 and later. Still, bank executives complained about what they considered secretive parameters.

The bank executives also pointed out that the Volcker Rule and other requirements of Dodd-Frank would reduce liquidity and the bank’s ability to churn profits. Mr. Tarullo did not respond to the comments from the bankers.


Should CFPB have more supervision over credit agencies?