Dodd Frank in Jeopardy?

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Dodd-Frank act

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Here’s a surprise few saw coming: this year could prove to be a big threat to the Dodd-Frank Act. Leaders on both sides of the congressional aisle have voiced their support of changing the law even as it’s still, for all intents and purposes, in its infancy.

Depending on which way your politics lean, there’s a good chance you’re of one of two mindsets: either it’s too invasive and restrictive to Wall Street and the banking industry or you believe it doesn’t go far enough to rein in those big banks.

You can’t understand the repercussions unless you understand a bit of the politics behind the financial legislation. You may recall Mitt Romney using these new financial laws as part of his platform, stating (and promising big bank CEOs) that if elected, he wouldn’t change Dodd Frank and specifically the Durbin Amendment, he would eliminate them in their entirety, including the Consumer Financial Protection Bureau. Republicans have long since voiced their disdain over these laws while Dems have stated, unequivocally, the only changes in these laws, as long as it’s the dominant party, would be to strengthen them further.

It often comes down to the “too big to fail” concerns and if you’ve ever wanted to see bipartisanship at its finest, look no further than the debate rooms concerning the financial overhaul. The alliances are powerful though it’s questionable on just how successful either side will be in justifying changes in any direction; after all, these are the same yahoos that not only wasted more than a year doing nothing on fiscal cliff, only to pass it after the deadline and after it had been annihilated to the point that it serves no purpose but to be yet one more burden on the American consumer.

There’s one almost-certain truth, though and that truth is that overturning it is not an option. You can bet, though, that efforts will be powerful to eliminate parts of the law. How successful those efforts are remains to be seen. And finally – you can also bet that the big bank CEOs are going to have their say as well.

As sick as we all are over hearing the words “fiscal cliff”, it’s important to understand it too plays a role, albeit a dwindling one, in efforts from both Republicans -who remain motivated to kick the “meat and potatoes” aspects out of the law – and Democrats – who are committed to holding Wall Street accountable.

Remember – the Republicans are the ones who tried to sneak in their version of the improved fiscal cliff bill certain key elements that would strip CFPB of its funding and its power. Last year alone, CFPB held three major credit card companies to the fire that resulted in getting hundreds of millions in fines – much of which is being returned to consumers. Had the pubs had their way, too, they would have eliminated much of the power held by some regulators overseeing the so-called “too big to fail” financial entities. Fortunately, and regardless of how anyone feels about fiscal cliff, they were unsuccessful on those fronts.

In what’s being called “polarizing ideology”, worries now surround those in Congress who will play dirty to get their way, which will certainly prevent any efforts to make meaningful changes. Dodd Frank is indeed imperfect, though the changes needed are technical and are ones that will protect the taxpayer/consumer. The pettiness on Capital Hill, however, isn’t likely to suddenly disappear in order for those needed changes to take place.

Peter J. Wallison, a senior fellow with the American Enterprise Institute told the Associated Press that until Pubs gain control of the Senate, they will likely stonewall any kind of reform. They will likely say they’re looking into it, but in essence, will likely be biding time until mid-term elections.

If there’s any bright spot, it appears the Government Accountability Office has now been given power to take a look at the benefits from an economic perspective the big banks receive. That could be the first real step made as a result of the new laws. That’s a shame too that it’s taken two years for GAO to get the kind of simple approval from Congress to actually do its job.

Those efforts are being made by two senators, Democrat Sherrod Brown (OH) and Republican David Vitter (LA) and they are leading the charge that the nation’s big banks must be downsized or otherwise the entire country’s financial stability is jeopardized. Specifically, it’s targeting banks with more than $500 billion in assets and that enjoy “favorable pricing” of their respective debts. This is due, say the senators, to credit ratings that are inflated based on little more than the hopes that the government will keep them from collapsing.

Brown also has suggested he could reintroduce another amendment that was brought up last year that would limit both the size and scopes of the nation’s biggest banks and their operations. That bill didn’t get far and was shot down with just 33% voting for it. Now, though, Brown believes he might can get the approval needed to pass it. He acknowledged that change is often a slow process and it’s one that requires patience and consistency, stating, “but we’re going to see legislative initiatives on everything from capital requirements to dealing with the size of banks”. He reiterated his optimism.

Along with Brown’s efforts, there are other proposals being shopped as well. Even if his doesn’t get the necessary votes this time, there are others who believe their efforts could pass as well. Meanwhile, those opposed to these regulations are busy writing their own legislation of easing some of the restrictions. It should also be mentioned that incoming chairman for the House Financial Services Committee, Republican Jeb Hensarling (TX) supports smaller community banks, but he’s also opposed to breaking up or lessening the power of the nation’s big banks, too. Either way, there’s bound to be amendments passed that will alter – to some degree anyway – the way banks do business and the way consumers see those banks.

So what are your thoughts? Do you think further regulations should be put in place or do you think there’s enough oversight?

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About Author

David is a CPA and has spent the past decade as a financial adviser helping clients meet their fiscal objectives. With an appreciation for journalism, he has spent the past few years overseeing several financial columns as well as writing two previous finance blogs. He resides on the East Coast with his wife and two sons and has guided many through the recent recession while providing a no-nonsense approach to spending and saving.

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CREDIT DAD is an independent, advertising-supported website. Many debit cards, credit cards and other financial offers that appear here are from companies from which CREDIT DAD Websites receive compensation. This compensation may impact how and where products appear on this website (including, for example, the order in which they appear). CREDIT DAD Websites do not include all card offers in the marketplace.