Third Way presents Underappreciated : Dodd-Frank & the Pursuit of Financial Stability
Key Topics & Takeaways
- Criticism of Dodd-Frank: Former Senator Dodd said criticism of the Dodd-Frank Act is mostly political and doubted that anyone in Congress would make a serious attempt at repeal or deny that the financial system is better off than it was in 2008.
- Too Big to Fail: Dodd said a bill that maintained the ability of the government to bailout banks would not have passed, but lauded the Act’s stress test, living will and resolution provisions as effective ways to address systemic risks.
- International Harmonization: Dodd said the 2008 crisis was mainly an American and European event, and regulatory harmonization was “relatively easy” between the U.S. and European Union. However, he warned the next crisis will involve emerging markets, where such harmonization will be much more difficult and urged for action before the onset of the next crisis.
Speakers
- Former Sen. Chris Dodd (D-Conn.)
Question and Answer with Chris Dodd
Passage and Criticism of the Dodd-Frank Act
Former Sen. Chris Dodd (D-Conn.) spoke at a Third Way event and remarked broadly about the Dodd-Frank Act of 2010. He stressed that the bill was crafted as bipartisan legislation, with Republicans and Democrats having worked together on many of the individual sections of the bill, despite the fact that it was passed on a mostly partisan basis. He noted that he was surprised by the lack of Republican support for the overall bill given that individual amendments passed with overwhelming support and opined that the bill could have passed with as many as 75 votes, if the legislation excluded the creation of the Consumer Financial Protection Bureau.
Asked about current criticisms of the bill, such as its characterization as “Obamacare for banks,” Dodd wrote this off as a mostly political “bumper sticker approach” and said he doubts anyone would stand up and aggressively push for repeal of Dodd-Frank. He stated that no one could honestly want to go back to the fall of 2008 or think that the financial system is not better off today. He also dismissed criticism that the bill is too costly, noting the cost to the millions who lost their jobs in the financial crisis.
Dodd said that as he worked on his legislation, the word that was constantly on his mind was “confidence.” He commented that the American financial system depends on people’s confidence in financial structures, but that the 2008 crisis destroyed this confidence. However, he said Americans’ confidence is now being restored.
When asked what else should have been included in the Dodd-Frank Act, Dodd said Congress should have explored reform and consolidation of regulatory agencies into a single prudential regulator, lamenting that the country is still using the century-old structure of the Federal Reserve System. He noted that more people speak favorably of consolidation efforts recently, and argued that consumer and industry interests would both be better served, highlighting that the current “alphabet soup of regulators” has no guiding strategic plan. He also mentioned that more could have been done on bankruptcy, reform of Fannie Mae and Freddie Mac, and rules for credit rating agencies.
Expectations for Incoming Senate Banking Chairman Richard Shelby
Dodd was asked about his expectations for Sen. Richard Shelby (R-Ala.) as he prepares to take over as chairman of the Senate Banking Committee. Dodd noted that Shelby played a major role in the Dodd-Frank Act’s “too big to fail” language, that he voted for the Volcker Rule, and that he was against bank bailouts. Dodd commented that Shelby “has an interestingly more populist view on some things.”
Asked about the importance of government having the ability to bailout a failing bank, Dodd pointed out that former Treasury Secretary Timothy Geithner was against bailouts being illegal. However, Dodd said his bill would never have passed if it maintained a government safety net. Instead, he noted that the Dodd-Frank Act set up resolution regimes, living wills, and stress tests to fight systemic risk build up and improve discipline at banks.
On the Financial Stability Oversight Council (FSOC) and the $50 billion threshold for designation as a systemically important financial institution (SIFI), Dodd said it is complexity, interconnectedness, and product lines that make an institution systemic, not just size. He continued to say that capital requirements can address any concerns about size.
Dodd noted that the 2008 crisis was mainly an American and European crisis, and it was relatively easily to harmonize financial regulations between the U.S. and European Union. However, he said the next crisis will include emerging markets such as Brazil, Russia, and China where harmonization will be much more difficult. He stressed the need to work now for international harmonization ahead of the next crisis.
For more information on this event, please click here.
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Key Topics & Takeaways
- Criticism of Dodd-Frank: Former Senator Dodd said criticism of the Dodd-Frank Act is mostly political and doubted that anyone in Congress would make a serious attempt at repeal or deny that the financial system is better off than it was in 2008.
- Too Big to Fail: Dodd said a bill that maintained the ability of the government to bailout banks would not have passed, but lauded the Act’s stress test, living will and resolution provisions as effective ways to address systemic risks.
- International Harmonization: Dodd said the 2008 crisis was mainly an American and European event, and regulatory harmonization was “relatively easy” between the U.S. and European Union. However, he warned the next crisis will involve emerging markets, where such harmonization will be much more difficult and urged for action before the onset of the next crisis.
Speakers
- Former Sen. Chris Dodd (D-Conn.)
Question and Answer with Chris Dodd
Passage and Criticism of the Dodd-Frank Act
Former Sen. Chris Dodd (D-Conn.) spoke at a Third Way event and remarked broadly about the Dodd-Frank Act of 2010. He stressed that the bill was crafted as bipartisan legislation, with Republicans and Democrats having worked together on many of the individual sections of the bill, despite the fact that it was passed on a mostly partisan basis. He noted that he was surprised by the lack of Republican support for the overall bill given that individual amendments passed with overwhelming support and opined that the bill could have passed with as many as 75 votes, if the legislation excluded the creation of the Consumer Financial Protection Bureau.
Asked about current criticisms of the bill, such as its characterization as “Obamacare for banks,” Dodd wrote this off as a mostly political “bumper sticker approach” and said he doubts anyone would stand up and aggressively push for repeal of Dodd-Frank. He stated that no one could honestly want to go back to the fall of 2008 or think that the financial system is not better off today. He also dismissed criticism that the bill is too costly, noting the cost to the millions who lost their jobs in the financial crisis.
Dodd said that as he worked on his legislation, the word that was constantly on his mind was “confidence.” He commented that the American financial system depends on people’s confidence in financial structures, but that the 2008 crisis destroyed this confidence. However, he said Americans’ confidence is now being restored.
When asked what else should have been included in the Dodd-Frank Act, Dodd said Congress should have explored reform and consolidation of regulatory agencies into a single prudential regulator, lamenting that the country is still using the century-old structure of the Federal Reserve System. He noted that more people speak favorably of consolidation efforts recently, and argued that consumer and industry interests would both be better served, highlighting that the current “alphabet soup of regulators” has no guiding strategic plan. He also mentioned that more could have been done on bankruptcy, reform of Fannie Mae and Freddie Mac, and rules for credit rating agencies.
Expectations for Incoming Senate Banking Chairman Richard Shelby
Dodd was asked about his expectations for Sen. Richard Shelby (R-Ala.) as he prepares to take over as chairman of the Senate Banking Committee. Dodd noted that Shelby played a major role in the Dodd-Frank Act’s “too big to fail” language, that he voted for the Volcker Rule, and that he was against bank bailouts. Dodd commented that Shelby “has an interestingly more populist view on some things.”
Asked about the importance of government having the ability to bailout a failing bank, Dodd pointed out that former Treasury Secretary Timothy Geithner was against bailouts being illegal. However, Dodd said his bill would never have passed if it maintained a government safety net. Instead, he noted that the Dodd-Frank Act set up resolution regimes, living wills, and stress tests to fight systemic risk build up and improve discipline at banks.
On the Financial Stability Oversight Council (FSOC) and the $50 billion threshold for designation as a systemically important financial institution (SIFI), Dodd said it is complexity, interconnectedness, and product lines that make an institution systemic, not just size. He continued to say that capital requirements can address any concerns about size.
Dodd noted that the 2008 crisis was mainly an American and European crisis, and it was relatively easily to harmonize financial regulations between the U.S. and European Union. However, he said the next crisis will include emerging markets such as Brazil, Russia, and China where harmonization will be much more difficult. He stressed the need to work now for international harmonization ahead of the next crisis.
For more information on this event, please click here.