Dodd-Frank in danger

Richard Fulton

A week ago the House of Representatives passed a bill that would gut the strict banking and financial rules put into place by the 2010 Dodd-Frank law.

Guess who benefits by this attempt to throw back America to the days before the 2008 economic disaster? If you guessed the very financial institutions that so recklessly played with unsupported financial instruments, you would be correct.

Dodd-Frank produced the strictest oversight of big financial institutions since the Great Depression of the 1930s. It limits certain unrestrained banking and financial practices and put in consumer protections for the rest of us.

I know that Americans are famously forgetful of past troubles and malpractices in our economic and political system, but surely we cannot let the Republican Congress take away the very protections that are in place to forestall another economic disaster like 2008. But a bill just passed by the GOP led House would do just that.

Dodd-Frank is a complex law that has many aspects and there well might be a need for adjustments; but not for wholesale gutting. For example big banks could avoid the “stress tests” that were put in place to keep them from over-committing beyond their reserves. By doing so when the banks and financial institutions sold questionable loan packages on housing that tumbled into crisis, our government had to bail them out.

Trillions in taxpayer money was put at risk. Not all was lost, but it was close.

If banks are failing, Dodd-Franks allows the government to intervene, break up the banks and sell the pieces. Another piece of the bill does not allow banks to trade for their own profit like in housing (which got them into trouble in 2008); the GOP bill would eliminate this provision. Banks were also gambling with savings deposits that are federally insured. If they lost, the feds would pick up the losses.

Regulations on small banks (less than $10 billion in assets) under the bill would not need a stress test twice a year, only once. Too late if there is an early problem.

For the consumer, Dodd-Frank produced the Consumer Financial Protection Bureau to scrutinize all financial services businesses, including for-profit higher education institutions.

You might remember that President Trump’s university had to pay tens of millions for deceptive practices. Auto lenders, money transfer agencies, and other groups traditionally with high consumer complaints are covered.

The GOP bill gets rid of this protection agency for consumers. Ever been hounded to death by a collection agency or financial institution? Or defrauded by one? No help if this bill passes.

The Financial Stability Oversight Council was set up to review the financial system and identify potential problems. They can look at, for example, insurance companies to determine if they are so intertwined and so large that they threaten the economic system. If identified by the Council as “systematically important” it is subject to stricter oversight.

This trip-wire protection is emasculated under the GOP bill.

Big banks, financial institutions, insurance companies, all want Dodd-Frank to go away, or at least be gutted. The Republicans are happy to accommodate if they can get away with it.

There are, of course, many more protections in Dodd-Franks for the stability of the American financial system and protection of consumers in a world of increasingly large, interconnected, and merged corporations. Many may soon be gone.

Only rationally conceived government oversight is large and powerful enough to protect the consumers of America and reign in unchecked huge business entities.

Where is Teddy Roosevelt when we need him?

Richard Fulton is an emeritus professor of political science.