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Dodd-Frank Financial Reform After Two Years

Dodd-Frank Financial Reform After Two Years

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Jennifer Erickson, Tamara Fucile, and David J. Lutton present five concrete ways that our financial markets are stronger now, two years after the signing of Dodd-Frank, and five concrete things that can make them even stronger.
Jennifer Erickson, Tamara Fucile, and David J. Lutton present five concrete ways that our financial markets are stronger now, two years after the signing of Dodd-Frank, and five concrete things that can make them even stronger.

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Published by: Center for American Progress on Jul 19, 2012
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1Center or American Progress | Dodd-Frank Financial Reorm Ater Two Years
Dodd-Frank Financial ReformAfter Two Years
5 Successes and 5 Things That Will MakeOur Markets Stronger
Jennifer Erickson, Tamara Fucile, and David J. Lutton July 20, 2012
Srong and sable capial markes are criical o America’s economic success. Te U.S.nancial secor is he larges in he world and is one o he pillars o our economy. Buhe 2008 nancial crisis also laid bare weaknesses in he secor—weaknesses ha hadsevere consequences or American workers and heir amilies. Millions o Americanslos heir jobs and $17 rillion in household wealh was desroyed.
On a more personalscale, he average ne worh or American households dropped rom $126,400 in 2007o $77,300 in 2010 aer he nancial crisis,
wiping ou almos wo decades o gains anddramaically weakening he middle class ha is so crucial o economic growh.wo years ago his week, in response o he nancial crisis, Congress passed landmark reorm o srenghen he U.S. nancial secor and proec axpayers rom a repea o he2008 crisis. Te Dodd-Frank Wall Sree Reorm and Consumer Proecion Ac was hemos sweeping legislaive reorm in he nancial secor since he passage o PresidenFranklin D. Roosevel’s suie o reorms in he 1930s. Bu passing Dodd-Frank hroughCongress was simply he rs sep in a process o shoring up he nancial sysem ha con-inues o his day, wih criical decisions sill o come in he monhs and years ahead, boho implemen his key law, and also o ensure he nancial secor is serving he economy.Dodd-Frank gave regulaors key new ools and a mandae o do a dicul job. Par o hechallenge is echnical: o use hose ools, regulaors mus creae and implemen specicrules designed o make markes saer, keep our companies compeiive, and proec U.S.axpayers and consumers. Bu par o he challenge is also poliical: ensuring ha opponens who have sough o weaken and delay key measures do no ulimaely shelve progress.wo years aer Presiden Barack Obama signed Dodd-Frank ino law, we have seensome noable successes. Our nancial markes are sronger han hey were beore he
2Center or American Progress | Dodd-Frank Financial Reorm Ater Two Years
crisis, and Americans can coun on beter consumer nance proecion in heir day-o-day ineracions wih nancial services insiuions.Tis issue brie presens ve concree ways ha our nancial markes are sronger oday han wo years ago alongside ve concree hings ha can be done o make hem evensronger. Specically, here are ve ways nancial reorm has srenghened our markes:
 A consumer wachdog is now on he bea.
Every nancial insiuion now mus play by he rules.
Increased capial requiremens are now in place.
 A new resoluion auhoriy or ailing nancial insiuions now exiss.
New rules will help rein in execuive compensaion. Ye we also know ha in any ask his big here is sill more o be done. While his is noan exhausive lis, here are ve concree hings ha can be done o make our markeseven sronger:
Implemen he Volcker Rule o proec axpayers rom excessive risk-aking by nan-cial insiuions.
Finalize derivaives reorm o proec our markes rom overspeculaion in hishundred-rillion-dollar marke.
Ensure nancial regulaors have he resources o proec axpayers by adequaely und-ing he Commodiy Fuures rading Commission.
Hold he line on morgage originaion and securiizaion o proec homeowners,invesors and axpayers.
Coninue o ensure coordinaed global nancial reorm and srong inernaional mini-mum capial sandards are enaced.So le’s delve ino he deails o Dodd-Frank wo years on wih much sill o accomplish.
Five ways financial reform has strengthened our markets
A consumer watchdog is now on the beat
“I we had had his agency six years ago, eigh years ago, we would no be in he mess weare oday.” 
—Elizabeth Warren, testifying before House Financial Services subcommittee,March 16, 2011
Perhaps he mos visible and immediae resul o he Dodd-Frank Ac has been he esab-lishmen o he Consumer Financial Proecion Bureau, which was creaed o proec con-
3Center or American Progress | Dodd-Frank Financial Reorm Ater Two Years
sumers rom conusing, and someimes decepive, nancial producs and lending pracicesha conribued o he collapse o he nancial markes. Prior o he bureau’s creaion, heederal governmen’s auhoriy o wrie and implemen rules aimed a proecing consum-ers had been dispersed beween saes and several dieren ederal agencies. No surpris-ingly, consumer proecion was oen a relaively low prioriy or hese regulaors, who were charged wih monioring a wide range o nancial aciviies.Te bureau has broad auhoriy o oversee nancial producs and services, includingcredi cards, morgages, payday lenders, privae suden loans, and credi-reporing agen-cies. Since he appoinmen o Richard Cordray as he head o he bureau in early 2012,he Consumer Financial Proecion Bureau has assumed is ull rulemaking and over-sigh auhoriy and has already saring o do is imporan work.
 Earlier his week, he new consumer proecion agency announced is rs publicenorcemen acion wih an order requiring Capial One Financial Corp. o reundapproximaely $140 million o 2 million cusomers and pay an addiional $25 millionpenaly or allowing vendors o pressure or mislead consumers ino paying or add-onproducs” such as paymen proecion and credi monioring when hey acivaed heircredi cards.
Cordray said, “We are puting companies on noice ha hese decepivepracices are agains he law and will no be oleraed.”
Promoing nancial educaion is also par o he bureau’s work. One o is rs iniia-ives was designed o make sure ha people aking ou morgages know wha hey aregeting ino. In he years leading up o he 2008 nancial collapse, oo many Americansdidn’ ully undersand he erms o heir morgages, which conribued o increasedoreclosures and he housing marke collapse. In he “Know Beore You Owe” iniiaive,he bureau recenly proposed redesigning he ederal morgage orm o make i easieror consumers o undersand heir anicipaed ineres raes, monhly paymens, loanamouns, and closing coss.
 Trough pracical measures o proec consumers, he Consumer Financial ProecionBureau can have a real and lasing impac on he long-erm nancial healh o our economy.
Every financial institution now must play by the rules
“Beore Dodd-Frank, major nancial rms were essenially regulaed by wha hey calledhemselves raher han wha hey did, wih he legal name oen deermining regulaion by heleas sringen supervisory agency or no supervision a all.” 
—Michael Barr, former assistant secretary of the Treasury for financial institutions
One o he bigges conribuing acors o he nancial crisis o 2008 was ha in he run-upo he crisis he aciviies o a large number o nancial services rms ha weren’ banks wen largely unchecked. Tese so-called nonbanks or nonbank nancial insiuions range in

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