The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act” or the “Act”) is “a massive piece of financial reform legislation passed by the Obama administration in 2010 as a response to the financial crisis of 2008.”[1] It increased the required amounts banks must hold in reserve or have easy access to, heightened regulatory requirements on large banks, and introduced the Volcker Rule, which restricts the kinds of trades banks can perform.[2] The Act also founded the Consumer Financial Protection Bureau which “is vested with the authority to protect consumers from unfair, deceptive, or abusive financial products and services.”[3] Over the past few months, the Trump administration has been working, against pushback from the Democratic Party, to diminish some of the restrictions and requirements imposed on banks through the Dodd-Frank Act.[4] The questions raised by these attempts to repeal portions of the Dodd-Frank Act are whether the Act needs to be changed at all, and if so, to what extent it can be changed while maintaining or improving the security and efficiency of our financial system.[5]
One section of the Dodd-Frank Act that the Trump administration is reviewing is the Volcker Rule.[6] A significant restriction under the Volcker Rule is the ban on proprietary trading by banks, meaning that “banks cannot use their own funds to make [certain]types of investments to increase their profits.”[7] The purpose of the Volcker Rule is to “keep banks, whose deposits are federally insured, from taking excessive risks based on the funding advantage that they get from implied government support,”[8] and to prevent banks from making the types of investments that contributed to the 2008 crisis.[9]
The opposition to the Volcker Rule claims that the costs of implementing such a rule outweigh the benefits, and that the rule “diminishe[s]liquidity in the bond market.”[10] Recently, the House of Representatives passed the Financial CHOICE Act, which would have repealed the Volcker Rule and many other sections of the Dodd-Frank Act,[11] had the Senate approved it.[12] Senators, however, “made it clear that they would not consider the bill,”[13] and expressed that Democrats would be “willing to work with Republicans to tailor the rules where it makes sense, but not if it means killing the reforms that have made the financial system safer and fairer,”[14] indicating that the Financial CHOICE Act was too extreme to be passed, while agreeing that there are some less extreme changes that can be made to improve the Dodd-Frank Act.[15]
There have since been efforts to pass “‘small but meaningful’ legislation that the Senate might be willing to consider,”[16] and to “achieve bipartisan consensus on economic and financial legislation,” meaning that the Democratic and Republican parties are now attempting to work together in proposing changes to the Dodd-Frank Act.[17] One way this may play out in relation to the Volcker Rule is that instead of leaving the rule as is or completely repealing it,[18] the parties may agree to lower the restrictions on certain banks that do not engage in the kind of activities the Volcker Rule is looking to prevent,[19] lowering their spending on compliance programs and technology geared towards the implementation of the Volcker Rule requirements.[20] By doing this, the safeguards put in place after the 2008 crisis will stay, maintaining the safety of the market, while the excessive restrictions, which put a high regulatory burden on banks irrespective of whether they actually engage in the activities the rule looks to limit, will be diminished, lessening the burden and improving on the efficiency of the system.[21]
The Dodd-Frank Act gave many a sense of security in the financial system after the 2008 financial crisis.[22] However, because of the many restrictions and requirements the Act imposes on banks, it has been met with harsh opposition, and there have been several attempts to repeal significant portions of it.[23] By working together, the parties can make changes to the Dodd-Frank Act that will maintain people’s sense of security in the financial system while improving the cost-effectiveness of the Act’s implementation.[24] This path can lead toward an efficient financial system, which can effectively promote financial security while striving to lower costs for regulated entities.[25]
[1] Dodd-Frank Wall Street Reform and Consumer Protection Act, Investopedia, http://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp (last visited Oct. 25, 2017).
[2] John Maxfield, The Dodd-Frank Act Explained, USA Today (Feb. 3, 2017), https://www.usatoday.com/story/money/2017/02/03/the-doddfrank-act-explained/97454748/. These are the major changes made by the Act. See id.
[3] Id.
[4] See generally Bryce Covert, It’s Good to Be a Bank in the Trump Era, Slate (Oct. 25, 2017, 9:00 PM), http://www.slate.com/articles/business/moneybox/2017/10/banks_win_again_as_republicans_undo_more_consumer_protections.html; David Baumann, House, Senate Pushing Bipartisan Dodd-Frank Changes, CreditUnionTimes (Oct. 11, 2017), http://www.cutimes.com/2017/10/11/house-senate-pushing-bipartisan-dodd-frank-changes.
[5] See Baumann, supra note 4.
[6] See Covert, supra note 4.
[7] Volcker Rule, Investopedia, http://www.investopedia.com/terms/v/volcker-rule.asp (last visited Oct. 26, 2017); see also Tim Parker, How the Volcker Rule Affects You, Investopedia (Feb. 17, 2012, 2:00 ΑM ), http://www.investopedia.com/financial-edge/0212/how-the-volcker-rule-affects-you.aspx.
[8] The Value of the Volcker Rule, Wash. Post (Oct. 28, 2011), https://www.washingtonpost .com/opinions/the-value-of-the-volcker-rule/2011/10/18/gIQATZhUQM_story.html?utm_term=.a3fb6d1a2972.
[9] Volcker Rule, supra note 7.
[10] See id.
[11] H. Rodgin Cohen & Samuel R. Woodall III, Financial CHOICE Act of 2017, Harvard Law School Forum on Corporate Governance and Financial Regulation (Jun. 15, 2017), https://corpgov.law.harvard.edu/2017/06/15/financial-choice-act-of-2017/.
[12] See Baumann, supra note 4.
[13] Id.
[14] Cohen & Woodall, supra note 11.
[15] See id.
[16] Baumann, supra note 4.
[17] Cohen & Woodall, supra note 11.
[18] See id.
[19] See OCC Solicits Public Comments on Revising the Volcker Rule, Office of the Comptroller of the Currency, U.S. Dep’t of Treasury (Aug. 2, 2017), https://www.occ.treas.gov/news-issuances/news-releases/2017/nr-occ-2017-89.html.
[20] Notice Seeking Public Input on the Volcker Rule, Office of the Comptroller of the Currency, U.S. Dep’t of Treasury (Aug. 2, 2017), https://www.occ.treas.gov/news-issuances/news-releases/2017/nr-occ-2017-89a.pdf.
[21] See id.; Volcker Rule, supra note 7; Notice Seeking Public Input on the Volcker Rule, supra note 20; The Value of the Volcker Rule, supra note 8.
[22] See Dodd-Frank Wall Street Reform and Consumer Protection Act, supra note 1.
[23] See Covert, supra note 4; Cohen & Woodall, supra note 11.
[24] See Volcker Rule, supra note 7; OCC Solicits Public Comments on Revising the Volcker Rule, supra note 19; Notice Seeking Public Input on the Volcker Rule, supra note 20; The Value of the Volcker Rule, supra note 8.
[25] See Volcker Rule, supra note 7; OCC Solicits Public Comments on Revising the Volcker Rule, supra note 19; Notice Seeking Public Input on the Volcker Rule, supra note 20; The Value of the Volcker Rule, supra note 8.
