Coverage: Dodd-Frank four years later

It’s the four-year anniversary of the Dodd-Frank financial reform law, and while some changes have been made, there is still a lot of work to do. The coverage was minimal, particularly when you consider how much was written about the law after the crisis.

The Wall Street Journal had this story by Andrew Ackerman and Alan Zibel pointing out that key pieces of the rule are still unfinished:

Four years after President Barack Obama signed landmark legislation aimed at preventing another financial crisis, regulators still haven’t completed key parts, including standards for the mortgage-securities market and tougher regulations for credit-rating firms.

Turnover and lost court battles have held back some regulators, notably the Securities and Exchange Commission, which faces more mandates under the 2010 Dodd-Frank financial law than any of the other agencies charged with writing rules. Only 44% of the SEC’s rules are final or nearly final, according to law firm Davis Polk & Wardwell LLP. That is the smallest percentage among the agencies.

Top SEC officials say they are working to complete their rules. The SEC is still working on issues at the heart of the financial crisis, including transparency regulations for the derivatives and asset-backed securities markets and tougher rules for credit-rating firms. It has finished work related to oversight of the hedge-fund industry, protections for brokerage customers and a crackdown on conflicts of interest in state and local bond transactions.

“Achieving the goals of Dodd-Frank means focusing directly on the rules that are most critical for protecting investors and promoting financial stability, and doing them well—it is not just about checking a box,” SEC Chairman Mary Jo White said in a statement.

Matt Egan wrote for CNN Money that the law was just over halfway complete:

In the past year, regulators have made progress in a number of areas, including limiting in-house trading activities through the Volcker Rule, reforming the market for complex financial instruments called swaps, cutting back on the reliance for credit ratings firms and creating new rules for municipal advisers.

But it’s clear regulators are not exactly moving at lightning speed, at least compared with the timeline set forth by Congress when Dodd-Frank was ushered into law in 2010.

Out of 280 rulemaking deadlines that have passed, 127 (45%) of them have been missed by regulators, Davis Polk said. That’s probably not a track record that your boss would appreciate.

Regulators have fallen behind in a number of key areas that were at the heart of the financial crisis, including asset-backed securities, credit ratings firms, derivatives and mortgage reforms. America is also still awaiting rules tied to consumer protection and the orderly wind-down of financial institutions (think: what to do in case of another Lehman Brothers).

What’s the holdup? It’s difficult to overhaul the world’s largest financial system. That task was made even more complicated by the fact that Congress left many of the tough decisions up to the regulators, since they have more knowledge.

Bloomberg View had an opinion piece by the editors saying none of the rules intentions have been fulfilled:

At its core, the Dodd-Frank Act was supposed to work like a three-stage containment system. Better monitoring and limits on risk-taking would make accidents less likely to happen. If financial institutions did get into trouble, added capital would make them more likely to survive. If they nonetheless failed, advance planning and new resolution mechanisms would allow them to do so without bringing down the broader financial system and the economy.

Despite all the progress regulators have made, they have yet to complete any level of this fail-safe system.

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Markets have already offered their verdict on the success of Dodd-Frank: Various studies show that creditors lend money more cheaply to the largest banks, on the assumption that the government will have to rescue them in an emergency just like it did in 2008 and 2009. The International Monetary Fund has estimated that this implicit taxpayer subsidy was worth as much as $70 billion a year in 2011 and 2012.

Dodd-Frank provides regulators with all the powers they need to prevent the financial sector from leaning on taxpayers and putting the economy in danger. All that’s wanting, four years on, is the will to use them.

And it looks like the political fight over the law isn’t over yet either. In a separate story by Victoria McGrane, The Wall Street Journal said that some Republicans are also criticizing how slow the law is being written:

House Financial Services Committee Republicans are mounting fresh criticism of the 2010 Dodd-Frank financial law in a report to be released Monday, contending that it failed to end the prospect of future government bailouts for large, complex financial firms and exacerbated the belief some of the firms are “too big to fail.”

While the report reflects the views of Dodd-Frank’s critics, it underscores that four years after President Barack Obama signed the law, political controversy continues to surround it.

Lawmakers on both sides of the aisle continue to debate whether the law went far enough in fixing flaws in the financial system that led to the 2008 financial crisis. Even Mr. Obama said in a recent radio interview that policy makers need to take additional steps to tamp down excessive risk-taking in the financial sector.

It seems that Dodd-Frank has a long way to go before it actually does what it was intended to do. The verdict is still out and may be for a long time to come. With 47 percent of the law remaining to be written, it looks like it might be another four years before the whole thing is finished – that is if Congress can get to it.