Dodd-Frank: No Cake for this 15-year-Old
Because the Trump sycophants who charade as congresspersons won’t dare probe any of the president’s economic mismanagements, the House Financial Services Committee instead has embarked on a series of hearings on a law approved in President Obama’s second year in office.
Fifteen years ago, Congress approved, and Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act. This 2010 law followed a 2008 Wall Street crash that savaged the economy, costing millions their jobs, their homes, their savings.
Progressives sought a reform law born fist first: Break up the mega-banks. Forbid investment and commercial banking in the same institution. Penalize bonus-bloated fraudsters that populate the C-suites. Put consumers first. With Americans angry at Wall Street, with banking law now a kitchen table discussion (as it so rarely is), with Democrats in control of House, Senate and the White House, those progressive ambitions seemed realistic.
Instead, Washington produced Dodd-Frank. The law included too many compromises while taking some steps to improve bank safety. The law’s crown jewel, namely the Consumer Financial Protection Bureau (CFPB), was smartly reassigned enforcement of consumer protection laws as a new, independent agency. Formerly, the Federal Reserve Board (Fed), or the Office of the Comptroller of the Currency (OCC), enforced these laws. But the Fed and the OCC primarily concern themselves with bank health, which can be measured by bank profits, which might come from abusing consumers. Because personnel is policy, CFPB serves Americans well under responsible administrations; under Trump, it serves predatory lenders.
But Dodd-Frank did not break up the mega-banks. Washington actually made the likes of JP Morgan, the mega-ist of them all, even more megav.
Dodd-Frank did not split investment banking, which is the gambling part of Wall Street, from commercial banking, which is the loan-making part. It approved what became known as the Volcker Rule, which claimed to restrict “proprietary trading.” But the gambling persists.
And law enforcers failed to send even one senior executive to jail, and this despite the fact that mega-banks confessed to massive criminal frauds and paid more than $100 billion in fines.
What killed authentic progressive reform and ultimately defanged Dodd-Frank even before it was degraded further in the Trump II administration? Most simply: bank lobbyists. Wall Street firms and their trade associations boast an army of about 3,000 lobbyists. That’s roughly six bank lobbyists for every member of Congress. Progressive financial reform advocates number about a dozen, according to the Institute for Policy Studies. Looking back, it probably wasn’t helpful that Sen. Chris Dodd (D-Ct) and Rep. Barney Frank (D-Mass) led the Dodd-Frank lawmaking effort, as both left Congress to work for banks.
The absence of a genuine progressive agenda in Dodd-Frank represents Wall Street’s most conspicuous lobbying successes. Less conspicuous, but perhaps more dastardly, lobbyists ensured that the sprawling law fails to mandate any reforms directly. Instead, Congress forfeited its power to the regulatory agencies by calling on them to write rules that would achieve certain statutory principles. Hence, the Volcker Rule’s already tortured language, forced by lobbyists who puppeteered senators such as Sen. Scott Brown (D-Mass), delegated to five regulators the conflicting tasks of both restricting proprietary trading, while simultaneously permitting bank trading that keep markets active. The Volcker Rule empowered regulators to force banks to shed their hedge funds completely, but simultaneously allowed the regulators to permit hedge fund ownership anyway up to a certain level.
Because proprietary trading has been a source of great profit for the banks, even after its success twisting the actual text of this section of the Dodd-Frank bill, industry lobbied fiercely to soften the regulators’ implementation of the Volcker Rule. This full-court press included meetings with regulators and congressional hearings. In 2009, at the height of the debate over the Wall Street reform bill, commercial banks spent $49.4 million lobbying. In 2012, with agencies implementing the Volcker and other rules required by Dodd-Frank, the number jumped to more than $60 million. Although these figures include the banks’ lobbying on all issues, the Volcker Rule was among their key concerns. On the Volcker Rule, industry representatives met with regulators 337 times in 2011 before regulators had even fashioned a proposal. Public interest groups, including Public Citizen, met with these same regulators just 19 times.
Suffocation by lobbyists of the rule-making process unsurprisingly rendered the final Volker Rule toothless.
Flash forward to July 2025 where there will be hearings before the House Financial Services Committee, no doubt inspired by Wall Street lobbyists. One retrospective hearing might be worthy of a 15th year anniversary. But an open-ended series will inevitably turn into a flogging of the law.
The Fed and OCC currently plan to debase the primary bank safety guardrail that, again, Dodd-Frank failed to mandate, namely strict solvency levels. Solvency in the banking sector requires firms’ value of assets exceed the value of liabilities. A robust Dodd-Frank should have specified a number; instead, it empowered regulators to decide. Public Citizen believes assets should be worth 20 percent more than liabilities. JP Morgan, America’s largest bank, owns assets worth only 8 percent more than its liabilities. By contrast, the average American household owns assets worth nearly 40 percent more than liabilities.
It’s no easy public sell to claim that JP Morgan should operate more dangerously than the average American household. Pulling the wool over the eyes of consumers require financial industry stooges to stage public hearings arguing that banks funding through equity will be stingier than those funding through debt. It requires theatrical hearings blasting the already underachieving Dodd-Frank as an overreach.
A responsible House committee should certainly investigate Trump’s Roomba economic policies. Until then, expect no cake at this Dodd-Frank birthday.