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A Decade of Dodd-Frank


With Congress leaders looking on, including Sen. Chris Dodd (D-CT) and Rep. Barney Frank (D-MA), President Obama signs the Dodd-Frank Act into law 10 years ago this month.

This past week marked the tenth anniversary of the Dodd–Frank Wall Street Reform and Consumer Protection Act, or, as we know it, Dodd-Frank. The Obama administration released the contours of what would become the law in June 2009, and former Rep. Barney Frank (D-Mass.) and former Sen. Chris Dodd (D-Conn.), who were then the chairs of the House Financial Services Committee and the Senate Banking Committee, respectively, introduced their versions of the massive legislation in December 2009. The House, where a simple majority rules the day, passed its bill quickly. The Senate agreed to its alternative in May 2010. It then took a couple of months for the two chambers to reconcile their differences, but President Barack Obama signed the legislation about a year after originally offering it, on July 21, 2010.

It may not seem it, but that timeline is impressive. After all, Dodd-Frank is one of the most comprehensive packages of financial reforms in American history. As The History Channel explains, Dodd-Frank included the biggest changes in financial regulations “since the Glass-Stegall Act, which was put in place after the 1929 stock market crash.” Some of the more significant Dodd-Frank provisions included:

  • The Volcker Rule, which prevents commercial banks from engaging in speculative activities and proprietary trading for profit, including by limiting banks’ investments in hedge and private equity funds.

  • The Consumer Financial Protection Bureau (CFPB), an independent financial regulator—and the “brainchild” of Sen. Elizabeth Warren (D-Mass.)—which oversees consumer finance markets, including mortgages, student loans, and credit cards.

  • Federal Reserve capital and liquidity requirements that set new standards for the amount and type of capital banks and other depository institutions must have on hand to protect against exposure.

  • The Financial Stability Oversight Council (FSOC), an interagency group composed of heads and deputies of the Treasury Department and independent financial regulators, that identifies and monitors systemic risks to the financial system.

  • New Securities Exchange Commission and the Commodities Futures Trading Commission authority to regulate “over-the-counter” derivatives trading.

  • “Too Big to Fail” and “Living Will” provisions, which give authority to the Federal Deposit Insurance Corporation to wind down a large, failing financial institution as an alternative to bankruptcy and require banks to create detailed plans that explain how they would manage their own failure without harming the broader financial system.

Republicans opposed the bill from the start and, when they ultimately had control of both chambers of Congress and the White House in 2018, the GOP Congress passed, and President Donald Trump signed into law, significant revisions to Dodd-Frank. As Forbes explained at the time, those changes included exempting some small, community banks from some of the more significant regulations provided under the bill and “dramatically” reducing “the number of banks subject to special Dodd-Frank treatment, including the number of banks that must undergo annual stress tests to demonstrate they can handle a severe downturn.”

Today, policymakers are still fighting over the impact and future of the legislation, and that debate certainly won’t let up as we head into the final months of the 2020 election.

Assessing Dodd Frank’s Impact

According to Michael Barr, who served as Treasury Department assistant secretary for financial institutions during the Obama administration, the benefits of Dodd-Frank are preserving the safety and soundness of the financial system today, during the coronavirus pandemic. Barr recently said, “The additional capital and liquidity, the approach to systemic risk that is required now at the Fed, which had led the Fed to impose surcharges, to engage in stress testing … I think all of those measures have made the system more resilient.”

Indeed, just a couple of weeks before Barr made that statement, the Federal Reserve announced that every one of 34 of the banks it put through stress tests passed. That hasn’t always been the case since Dodd-Frank stress testing was implemented.

Supporters also argue the law has helped everyday Americans. In an event marking Dodd-Frank’s tenth anniversary, Sen. Warren noted the CFPB has helped more than 26 million Americans get back more than $12 billion from enforcement actions the Bureau undertook against unfair, deceptive and abusive financial products or services. (Critics have argued that the Bureau’s wide latitude to define what types of products and services are abusive has led to an overly aggressive enforcement agenda at the agency.)

Supporters also tout the effectiveness of Dodd-Frank’s whistleblower protections. The Act allows the Securities and Exchange Commission, or SEC, to pay awards to eligible whistleblowers who voluntarily provide the SEC with original information that leads to a successful enforcement action yielding monetary sanctions of more than $1 million. According to a report in The National Law Review, since the enactment of Dodd-Frank, the SEC’s Office of the Whistleblower “has received thousands of high-quality whistleblower allegations each year” and “has awarded more than $500 million to whistleblowers since the inception of its whistleblower program.” Additionally, “SEC enforcement actions from whistleblower tips have resulted in more than $2 billion in financial remedies.”

Meanwhile, opponents of the law, like the right-leaning American Action Forum, argue the law is overbearing, leading to 768 new regulations that have taken American businesses and consumers 95.8 million hours to comply with, and have cost them $67.5 billion. And critics ranging from the auto financing industry to the libertarian CATO Institute say Dodd-Frank, especially the CFPB, have been bad for small businesses.

But Dodd-Frank has critics on the left, too. Public Citizen released a report on Dodd-Frank’s tenth anniversary arguing the law did little to curb CEO pay, or to reduce income inequality, for example. We can expect those arguments to resurface next year if Democrats seize control of the Executive Branch and the Senate.

The law’s original authors are not swayed. According to GW Today, in remarks last week former President Obama said Dodd-Frank did what it was supposed to do. “Our reforms worked, providing a sturdier foundation to help our financial system weather a future crisis,” President Obama said. “They’re still blocking taxpayer bailouts; they’re still protecting consumers and investors; and, even with a pandemic that has added a historic level of joblessness, so far, these reforms have helped prevent the [public health] crisis from spiraling into a financial crisis too.”

Today’s Politics, And Tomorrow’s

Dodd-Frank was a polarizing force from its inception and, as disagreement over its legacy and impact indicates, the debate has not simmered. As The History Channel explains, “The dense, complex law continues to be a hot topic in American politics: Supporters say it places much-needed restrictions on Wall Street, but critics charge Dodd-Frank burdens investors with too many rules that slow economic growth.”

The still-hot political atmosphere surrounding Dodd-Frank was evident last month when the Supreme Court ruled that the structure of the CFPB is unconstitutional because it violates the separation of powers. The Court ruled that the President must have the authority to fire the Director of the Bureau at will rather than, as the law originally provided, “for cause.” When the decision came down, Sen. Warren tweeted that the Supreme Court “just handed over more power to Wall Street's army of lawyers and lobbyists to push out a director who fights for the American people.” Also using Twitter, Trump appointee and current CFPB Director Kathy Kraninger praised the decision, saying it “finally brings certainty to the operations of the Bureau.” Some of the left praised the decision, too, but a bit more coyly, noting that, in the words of one progressive author, the Supreme Court had effectively ordered Joe Biden to fire current CFPB Director Kathy Kraninger on January 20, 2021.)

According to the American Banker’s Joe Adler, the Court’s decision sets the stage for even more polarization. Adler noted “many experts predict the CFPB will become even more politicized, influenced by whoever sits in the White House. Republicans in Congress have sought to pass legislation to create a multi-member commission to govern the CFPB, but such legislation faces an uphill battle in a divided Congress.”

The future of Dodd-Frank more broadly (not just the CFPB) will continue to be an issue no matter who sits in the White House Oval Office next January. As The Hill reports, former Vice President Joe Biden has called for “strengthening bank regulations created through” Dodd-Frank and for “creating more separation between commercial and investment banking activities, and creating a federal credit reporting bureau through the” CFPB. (Incidentally, or perhaps not so, Sen. Dodd reportedly is also helping Biden in his search for a running mate.)

On the other hand, if reelected President Trump can be expected to continue to try to roll-back additional elements of the law. In his annual economic report to Congress last year, the president said, his administration found “that the salient legislative response to the crisis—the 2010 Dodd-Frank Act—not only failed … but also excessively raised regulatory complexity, with the increased cost of compliance falling disproportionately on small and midsized financial institutions, which account for a disproportionate share of commercial and industrial lending to small and medium-sized enterprises.”

Will there be a twentieth anniversary of Dodd-Frank? Only time will tell.

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